<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 1999
REGISTRATION NO. 333-73231
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ADFORCE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 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. / /
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 , 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
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<S> <C>
Prospectus Summary........................................... 4
Risk Factors................................................. 6
Forward-Looking Statements................................... 13
Use of Proceeds.............................................. 14
Dividend Policy.............................................. 14
Capitalization............................................... 15
Dilution..................................................... 16
Selected Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 18
Business..................................................... 27
Management................................................... 40
Related Party Transactions................................... 51
Principal Stockholders....................................... 55
Description of Capital Stock................................. 57
Shares Eligible for Future Sale.............................. 60
Underwriting................................................. 62
Legal Matters................................................ 64
Experts...................................................... 64
Where You Can Find More Information.......................... 64
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 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.
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.
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 key customers include 24/7
Media, Adsmart, GeoCities, Netscape and ModemMedia.PoppeTyson.
We incorporated in California as Imgis, Inc. on January 16, 1996 and
reincorporated 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. 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.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT FUTURE RESULTS OF
OPERATIONS AND TO ADDRESS RISKS AND UNCERTAINTIES
We incorporated in January 1996 and have a limited operating history.
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.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, WHICH COULD AFFECT THE MARKET
PRICE OF YOUR SHARES
Our quarterly results of operations have varied in the past. 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 securities analysts and
investors. If so, the market price of your shares 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 expect to make 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. We
intend to increase our sales and marketing operations and to continue to
allocate a large portion of our budget for research and development. Our
operating costs are relatively fixed. 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 quarterly and annual results
of operations would be materially and adversely affected, which in turn could
affect the market price of your shares.
WE HAVE A HISTORY OF LOSSES AND EXPECT FUTURE LOSSES
We 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 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. 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. 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.
WE DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR OUR REVENUE, THE LOSS OF ANY OF
WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO GENERATE REVENUE
We derive a substantial portion of our net revenue from a small number
of Web sites and ad rep firms. Our quarterly and annual results of operations
would be materially and adversely affected by the
6
<PAGE>
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 can
generally be terminated at any time with little or no penalty.
CONSOLIDATION IN THE INTERNET INDUSTRY MAY ADVERSELY AFFECT OUR ABILITY TO
RETAIN OUR PRINCIPAL CUSTOMERS, THE LOSS OF ANY OF WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO GENERATE REVENUE
Many of our principal customers are now and may in the future be
affected by rapid consolidation in the Internet industry. Our 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. Please see
"Business--Competition" for detailed information on industry consolidation.
WE MAY NOT BE ABLE TO SCALE OUR TECHNOLOGY INFRASTRUCTURE, WHICH WOULD ADVERSELY
AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT NEW
CUSTOMERS
Our technology infrastructure may not be able to support higher volumes
of ads, additional customers or new types of advertising or direct marketing. If
we are not able to scale our technology infrastructure, we would have difficulty
retaining existing customers and attracting new customers. 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.
We may not be able to continue to scale our data centers on time or
within budget. The uninterrupted performance of our data centers is critical to
our success. We expect to add more data 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. Please see "Business-- Technology and Data Center Operations" for
detailed information on our system capacity.
WE MAY NOT BE ABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT
NEW CUSTOMERS
We may not be able to improve our technology infrastructure to respond
to technological change, changes in customer requirements or preferences, or new
industry standards. 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 operations, 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. For example, in August 1998, we had 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.
7
<PAGE>
WE MAY NOT BE ABLE TO ATTRACT AD AGENCIES AND ADVERTISERS AS CUSTOMERS, WHICH
COULD CAUSE US TO MISS OUR FINANCIAL PROJECTIONS OR THOSE OF SECURITIES
ANALYSTS
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. 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. 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 MARKET FOR INTERNET AD MANAGEMENT AND
DELIVERY SERVICES, WHICH WOULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR
EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
The market for Internet ad management and delivery services is extremely
competitive, and we expect this competition to increase. Our ability to compete
successfully in this market depends on many factors, including:
- the performance, reliability, ease of use and price of services that
we or our competitors offer;
- market acceptance of centralized, outsourced ad management and
delivery systems as compared to internally-developed or site-specific
software and hardware solutions;
- our ability, relative to our competitors, to scale our technology
infrastructure as our customer needs grow;
- timeliness and market acceptance of new services and enhancements to
existing services introduced by us or our competitors; and
- customer service and support efforts by us or our competitors.
The market for Internet ad management and delivery services 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 possess
proprietary ad serving technologies and could decide to enter the market for
outsourced Internet advertising solutions. Barriers to entering the Internet
advertising market are relatively low. We may encounter new competitors that
have longer operating histories, greater name recognition, larger customer bases
or significantly greater financial, technical and marketing resources than we
do.
MANY OF OUR CUSTOMERS HAVE LIMITED OPERATING HISTORIES, ARE UNPROFITABLE AND MAY
NOT BE ABLE TO PAY FOR OUR SERVICES, WHICH COULD ADVERSELY AFFECT OUR ABILITY
TO RECOGNIZE REVENUE FROM THESE CUSTOMERS
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 quarterly and annual results of operations could
8
<PAGE>
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
OPERATIONS, WHICH COULD LEAD TO CUSTOMER DISSATISFACTION
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. In the past, 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. Unanticipated problems affecting our systems could in the
future cause interruptions or delays in our services. 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 customers may become dissatisfied by any system failure or delay
that interrupts our ability to provide service to them or slows our response
time.
WE MAY NOT BE ABLE TO TARGET ADVERTISEMENTS, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
We may not be able to continue to meet the needs of our customers or the
marketplace for more sophisticated targeting solutions. As more advertisers
demand 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. Moreover, privacy concerns may cause a reduction or limitation in the
use of user information, which could limit the effectiveness of our technology
and adversely affect our ability to retain our existing customers and to attract
new customers.
THE INTERNET ADVERTISING MARKET MAY FAIL TO DEVELOP OR DEVELOP MORE SLOWLY THAN
EXPECTED, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING
CUSTOMERS AND TO ATTRACT NEW CUSTOMERS
The Internet advertising market may fail to develop or develop more
slowly than expected. Our future growth largely depends on the continued growth
in Internet advertising generally, and on the willingness of our potential
customers to outsource their Internet advertising and direct marketing needs.
Companies doing business on the Internet 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.
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 would be
materially and adversely affected by Internet users' widespread adoption of
these software programs.
THE INTERNET INFRASTRUCTURE MAY NOT BE ABLE TO ACCOMMODATE RAPID GROWTH, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO RETAIN OUR EXISTING CUSTOMERS AND TO
ATTRACT NEW CUSTOMERS
The Internet infrastructure may fail to support the growth of the
Internet. If the Internet continues to experience an increase in users, an
increase in frequency of use or an increase in the capacity
9
<PAGE>
requirements of users, we cannot assure you that the Internet infrastructure
will be able to support the demands placed on it. Any actual or perceived
failure of the Internet 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. Even if the Internet infrastructure is able to accommodate
rapid growth, we may be required to spend heavily to adapt to new technologies.
WE MAY NOT BE ABLE TO RETAIN KEY PERSONNEL, AND OUR MANAGEMENT TEAM MAY NOT WORK
TOGETHER SUCCESSFULLY
Our future success depends 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 three new executive officers. 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 making strategic decisions quickly in a rapidly
changing market.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO MANAGE 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. We may not be able to manage our internal growth
effectively to keep pace with the expansion of the Internet advertising market
or our competitors' growth. 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.
WE MAY NOT BE ABLE TO PROTECT OUR TECHNOLOGY, WHICH COULD DIMINISH THE VALUE OF
OUR TECHNOLOGY AND OUR SERVICES
Our success and ability to compete are dependent on our internally
developed technologies and trademarks. 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. 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. We cannot assure you that any of our proprietary rights will
be viable or of value since the validity, enforceability and scope of protection
of proprietary rights in Internet-related industries are uncertain and evolving.
We also 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.
10
<PAGE>
THIRD PARTIES MAY ASSERT INFRINGEMENT CLAIMS AGAINST US OR OUR CUSTOMERS, WHICH
COULD RESULT IN LIABILITY FOR DAMAGES, THE INVALIDATION OF OUR RIGHTS OR THE
DIVERSION OF OUR TIME AND ATTENTION
Third parties may assert infringement claims against us or our customers
based on our technology or our collection of user data. Any claims or
litigation, if they occur, could subject us to significant liability for damages
or could result in invalidation of our rights. 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. Any claims or litigation from third parties
might also limit our ability to use the proprietary rights subject to these
claims or litigations.
OUR CONTRACTUAL RELATIONSHIP WITH AMERICA ONLINE COULD LEAD TO A DIVERSION OF
OUR DEVELOPMENT RESOURCES AND THE OBLIGATION TO PAY AMERICA ONLINE A LARGE SUM
OF MONEY
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. Please see "Related Party
Transactions" for detailed information on our relationship with America Online.
GOVERNMENT REGULATION OF THE INTERNET MAY INHIBIT THE COMMERCIAL ACCEPTANCE OF
INTERNET
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. The applicability to the Internet of existing laws governing
issues such as property ownership, libel and personal privacy is uncertain.
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.
POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS
There is significant uncertainty in the software industry regarding the
potential effects associated with Year 2000 compliance issues. 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. We cannot assure you that
unanticipated costs associated with any Year 2000 compliance will not exceed our
present expectations.
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
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 quarterly
and annual results of
11
<PAGE>
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 CAPITAL TO EXECUTE OUR BUSINESS OBJECTIVES, WHICH COULD
ADVERSELY AFFECT OUR ABILITY TO MEET OUR FINANCIAL PROJECTIONS OR THOSE OF
SECURITIES ANALYSTS
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. 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. 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.
If we issue equity securities to raise funds, our stockholders will be diluted.
The holders of the new equity securities may also have rights, preferences or
privileges senior to those of existing holders of common stock.
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS, AND WE COULD BE SUBJECT TO SECURITIES LITIGATION
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 fall.
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 fall 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 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, WHICH COULD
ADVERSELY AFFECT YOUR ABILITY TO SELL YOUR SHARES AND THE MARKET PRICE OF YOUR
SHARES
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 depress the market price of your shares. The market price of your
shares may significantly vary from the offering price.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY DETER ACQUISITION BIDS FOR ADFORCE,
WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF YOUR SHARES
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, WHICH COULD
LIMIT YOUR ABILITY TO INFLUENCE ADFORCE AND WHICH COULD DELAY OR PREVENT A
CHANGE OF CONTROL OF 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
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<PAGE>
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 ADVERSELY AFFECT THE
MARKET PRICE OF YOUR SHARES
Sales of a substantial number of shares of our common stock in the
public market by our stockholders after this offering could depress the market
price of our common stock and could impair our ability to raise capital through
the sale of additional equity securities. Please see "Shares Eligible for Future
Sale" for a description of shares of our common stock that are available for
future sale.
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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<PAGE>
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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<PAGE>
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, subject to automatic annual increases up
to a maximum of 3,000,000 shares over the term of the purchase plan.
15
<PAGE>
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 above 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. If 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.
16
<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>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AdForce is a leading provider of centralized, outsourced ad management
and delivery services on the Internet. We began operations on January 16, 1996
as Imgis, Inc. and spent the first 15 months of our operations developing
technology that could be used to manage and deliver Internet 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 FortuneCity, 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. In the second quarter of 1999, we
opened our second data center, potentially increasing our costs to deliver each
ad during the next 12 months. 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 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.
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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.
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RESULTS OF OPERATIONS
The following table shows for the periods presented the dollar amounts
of selected 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>
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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
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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 generally
decline, although on a quarterly basis these costs may fluctuate. In April 1999,
we opened our second data center 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 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
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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
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.
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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 demographic data
specified in our demographic data agreement with America Online. 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 costs
related to internal-use software once specified 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 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 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. We have
warranted to some of our 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 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 ability to generate
revenue. 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 ability to generate revenue.
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BUSINESS
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 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.
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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.
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
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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 ModemMedia.PoppeTyson.
According to Media Metrix, an Internet research firm, in December 1998 AdForce
served ads to approximately 58% of U.S. Internet users.
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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, 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.
- 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
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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 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 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. 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 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
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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:
<TABLE>
<CAPTION>
<S> <C>
MEDIA PLANNING. Reflecting the media planner's workflow, AdForce for Advertisers organizes the
[LOGO] 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.
CAMPAIGN SCHEDULING. Advertisers, ad agencies, Web sites and ad rep firms can use a Java client
[LOGO] application to create and schedule ad campaigns over the Internet. Our user interface helps users
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.
INVENTORY MANAGEMENT. Our automated inventory management system gives Web sites and ad rep firms
[LOGO] 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.
TARGETING. Serving ads from a central data center, we can employ more comprehensive targeting
[LOGO] 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.
</TABLE>
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<TABLE>
<CAPTION>
AD DELIVERY. Our ad delivery system delivers ads quickly, consistently, on schedule and on target.
[LOGO] 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.
<S> <C>
TRANSACTIONS. Our transactions feature records user activities such as click-throughs, requesting
[LOGO] 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.
REPORTING. We use detailed information accumulated from every ad delivered and consolidated across
[LOGO] 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.
AUDITING AND ACCOUNTING. We provide audited statements that detail the number of ads delivered,
[LOGO] 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.
ANALYSIS. Advertisers, ad agencies, Web sites and ad rep firms can use the information stored in
[LOGO] 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.
</TABLE>
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
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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 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
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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.
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>
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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 1997, Petry Interactive and Katz Millenium, which are now part of
24/7 Media, accounted for 79% and 13% of net revenue. During 1998, 24/7 Media,
GeoCities and FortuneCity accounted for 40%, 16% and 11% 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.
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 Market for Internet Ad Management and Delivery Services,
Which Would Adversely Affect Our Ability to Retain Our Existing
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Customers and to Attract New Customers" 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.
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
37
<PAGE>
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 "Related
Party 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.
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
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<PAGE>
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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<PAGE>
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, where he served
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<PAGE>
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 masters in
electrical engineering from the University of Minnesota, and his masters in
engineering
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<PAGE>
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 Messrs. Berger, Faber and Hickey have been designated as Class III
directors. 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 our internal accounting procedures and consults with and
reviews the results and scope of the audit and other services provided by our
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 our employees.
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<PAGE>
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 at a rate of 25% of the shares on the anniversary of
the date of grant and 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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<PAGE>
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 $175,000. 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 "Related Party Transactions."
(3) Mr. Steelberg resigned from his position as AdForce's president in November
1998.
(4) These options terminated in November 1998 upon termination of Mr.
Steelberg's employment. See "--Employment Agreements and Severance
Agreements."
(5) Represents amount paid to Mr. Steelberg as expense allowances.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows each stock option grant during 1998 to the
officers named in the summary compensation table above. None of these officers
exercised any option in 1998.
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 on 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 REALIZED
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 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."
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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.
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
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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 actual 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 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 day after the effective 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 purchase period. Our
purchase plan will terminate in February 2009, unless earlier terminated. 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
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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 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. One quarter of the option
shares vested on that date and the remaining option shares began to vest monthly
after that date over the next 36 months of service. 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.
In April 1999, AdForce granted Mr. Berger an immediately exercisable
option to purchase 100,000 shares of AdForce's common stock at an exercise price
of $8.50 per share. AdForce's repurchase right will begin to lapse and 25% of
the shares will vest after one year of service; the balance of the shares will
vest monthly over the next 36 months of service.
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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 granted Mr. Rao an option to purchase 360,000 shares of common stock at an
exercise price of $1.50 per share. AdForce's repurchase right will begin to
lapse and 33% of the shares subject to the option will vest 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. In April 1999, AdForce granted Mr. Tanner
an immediately exercisable option to purchase 25,000 shares of AdForce's common
stock at an exercise price of $8.50 per share. AdForce's repurchase right will
begin to lapse and 25% of the shares subject to this option will vest after one
year of service; the balance of the shares will vest monthly over the next 36
months of service.
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 an exercise price of $1.50 per
share. AdForce's repurchase right will lapse and 25% of the shares subject to
the option will vest after one year of service; the balance of the shares will
vest monthly over the next 36 months of service. In April 1999, AdForce granted
Mr. Cravens an immediately exercisable option to purchase 25,000 shares of
AdForce's common stock at an exercise price of $8.50 per share. AdForce's
repurchase right will begin to lapse and 25% of the shares subject to this
option will vest 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 an exercise price of
$1.50 per share. AdForce's repurchase right will lapse and 12.5% of the shares
subject to the option will vest after six months of service; the balance of the
shares will vest monthly over the next 42 months of service. In April 1999,
AdForce granted Mr. Glaves an immediately exercisable option to purchase 25,000
shares of AdForce's common stock at an exercise price of $8.50 per share.
AdForce's repurchase right will begin to lapse and 25% of the shares subject to
this option will vest after one year of service; the balance of the shares will
vest monthly over the next 36 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 an
exercise price of $1.50 per share. AdForce's repurchase right will lapse and 25%
of the shares subject to the option will vest 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. In April 1999, AdForce
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increased Mr. Jackson's annual salary to $175,000 and granted him an immediately
exercisable option to purchase 20,000 shares of AdForce's common stock at an
exercise price of $8.50 per share. AdForce's repurchase right will begin to
lapse and 25% of the shares subject to this option will vest after one year of
service; the balance of the shares will vest monthly over the next 36 months of
service.
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;
- 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 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, before the completion of this offering, we intend to
enter into indemnity agreements 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
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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.
RELATED PARTY 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 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. 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 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 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
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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 agreements with some of its
founders. Under these agreements, AdForce repurchased 7,886 shares of common
stock and 1,605,014 shares of common stock from Chad Steelberg, our former
President, and Washington Holdings, L.P., a principal stockholder, respectively.
Also, Chad Steelberg and Ryan Steelberg granted AdForce repurchase rights with
respect to shares owned by them. Finally, Washington Holders, L.P. acknowledged
transfer restrictions and granted Messrs. Gorenberg and Weintraut an irrevocable
proxy to elect to convert 402,964 shares of Series A preferred stock to common
stock in the event of a liquidation event resulting in proceeds to holders of
Series A preferred stock in excess of $1.255 per share.
In June 1997, as part of his employment with AdForce, AdForce loaned
Charles W. Berger, our Chief Executive Officer, $112,500 to be used by Mr.
Berger to exercise his option to purchase 900,000 shares of common stock. The
loan, which was evidenced by a promissory note, is due in June 30, 2001 and
accrues interest at the annual rate of 6.8%, 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 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. 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 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 by converting
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notes of $3,000, $17,000 and $480,000 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 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 some 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 percentages specified in the license agreement. 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
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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 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 specified percentage of the consideration charged
by us for targeted advertising or a specified 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 if 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.
AdForce entered into a license agreement in February 1999 with Netscape,
similar to the license agreement with America Online described above. Under the
terms of the license agreement, upon the merger of Netscape and America Online,
which was completed in March 1999, we licensed our technology to Netscape and
its affiliates to be used internally by Netscape and on sites associated with
Netscape. 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
some assignments, and includes source code. We can terminate the license of the
technology only in the event of a material, uncorrected breach by Netscape of
the license agreement or the demographic data agreement, if AdForce and Netscape
elect to enter a demographic data agreement. At this time, AdForce and Netscape
have not entered a demographic data agreement. We will provide technical support
and development services in connection with Netscape's use of the technology and
we will provide ad servicing services, all on a cost or cost plus basis if
Netscape is not in default. We will provide these services at cost if Netscape
provides us access to demographic data under the demographic data agreement and
Netscape is not in breach of the demographic data agreement. Otherwise, we can
mark up the cost of our services by percentages specified in the license
agreement. Under the license agreement, Netscape will use commercially
reasonable efforts to encourage others associated with Netscape to use our
technology. Under this arrangement, commission or revenue sharing obligations
can arise. The agreement to provide technical support and development services
runs for the duration of the license. The agreement to provide ad servicing
services automatically terminates on November 22, 1999, and is renewable for a
one-year term upon written agreement of AdForce and Netscape. To our knowledge,
we would not agree to provide any of the services under this agreement to any
other party under these same terms.
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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<PAGE>
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 each 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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<PAGE>
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 under 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 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
some 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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<PAGE>
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, Which Could Adversely Affect the Market Price of Your Shares."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
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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
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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.
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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 specified conditions, including the absence of any
material adverse change in AdForce's business and the receipt of 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 dealers selected by the underwriters at that
price less a concession not in excess of $ per share. The underwriters may
allow and those 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 of those
additional shares 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 specified
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
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written consent of Hambrecht & Quist LLC, offer, sell or dispose of any shares
of common stock, options or warrants to acquire shares of common stock or
securities exchangeable for or convertible into shares of common stock owned by
them for a period of 180 days following the date of this prospectus. AdForce has
agreed that it will not, without the prior written consent of Hambrecht & Quist
LLC, offer, sell, grant any option to purchase or 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.
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. Interests of H&Q Imgis Investors, L.P. and
Hambrecht & Quist California are beneficially owned in part by persons
affiliated with Hambrecht & Quist LLC.
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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 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 stated 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 stated 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.
64
<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-26
Balance Sheets..................................................................... F-27
Statements of Operations........................................................... F-28
Statements of Shareholders' Equity (Net Capital Deficiency)........................ F-29
Statements of Cash Flows........................................................... F-30
Notes to Financial Statements...................................................... F-31
</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.
/s/ ERNST & YOUNG LLP
San Jose, California
February 5, 1999,
except for Note 11,
as to which the date is April 30, 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: 25,000,000 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 deemed fair value of the
common stock was determined by the Board of Directors after consideration of the
relevant factors, including the current prices of the Company's preferred stock,
the current status of the Company's operations and key operating factors.
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. AdForce determined
the allocation of the warrant value between the Series E preferred stock
agreement and the Demographic Data Agreement primarily based on the decrease to
the conversion rate (benefit to the Company and its other equity holders) of the
Series D preferred stock as a result of the sale and issuance of the Series E
preferred stock and warrant. 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. The licensed technology includes future
enhancements to AdForce's 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. AdForce 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, AdForce will
provide technical support, development services and ad serving services on a
cost or cost plus basis if America Online is not in default. AdForce will
provide these services at cost if America Online provides AdForce access to
demographic data under the Demographic Data Agreement and America Online is not
in breach of the Demographic Data Agreement. Otherwise, AdForce can mark up the
cost of our services by certain percentages. Under the License Agreement,
America Online will use commercially reasonable efforts to encourage others
associated with America Online to use AdForce's technology, and AdForce will use
commercially reasonable efforts to encourage its customers to use America Online
in the sale of interactive advertising.
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
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)
5. LICENSE AGREEMENT AND DEMOGRAPHIC DATA AGREEMENT (CONTINUED)
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.
AdForce has proposed a preliminary implementation schedule that is subject to
America Online's approval. To date, however, AdForce has not had access to the
demographic data and there is no final implementation schedule or procedure for
such access. AdForce has no anticipated time frame for gaining access to the
Demographic Data Agreement.
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.
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>
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)
6. COMMITMENTS (CONTINUED)
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>
7. BORROWING ARRANGEMENTS
During 1998, AdForce received funding from a private investor secured by
notes payable totaling $500,000. The notes payable plus accrued interest were
converted into 36,861 shares of Series D convertible preferred stock at a rate
of $13.73 per share during the year ended December 31, 1998.
During the period from January 16, 1996 (inception) to December 31,
1996, AdForce received funding from three investors secured by notes payable
totaling $1,757,000. During the period from January 16, 1996 (inception) to
December 31, 1996, $1,506,000 of these notes payable plus accrued interest were
converted into Series A convertible preferred stock at a rate of $2.51 per
share. The remaining notes payable plus accrued interest of $465,000 were repaid
to the related note holders during the period from January 16, 1996 (inception)
to December 31, 1996.
8. STOCKHOLDERS' EQUITY
GENERAL
In February 1998, AdForce's stockholders approved certain modifications
to AdForce's capital structure, including a two-for-one stock split of AdForce's
common stock, and a modification of the conversion ratio of all shares of
AdForce's preferred stock to common stock. All shares of preferred stock are now
convertible into two shares of common stock. In addition, the stockholders
approved the addition of 1,600,000 shares of common stock to the pool of shares
available for stock option grants under the 1997 Stock Plan. All common share
and per share amounts presented have been adjusted retroactively to reflect the
stock split.
F-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)
CONVERTIBLE PREFERRED STOCK
Each share of convertible preferred stock is convertible into common
stock at the conversion ratio in effect at the time of conversion (two-for-one
at December 31, 1998) and is subject to appropriate adjustment for common stock
splits, stock dividends, and similar transactions. Conversion is automatic upon
the closing of an initial public offering of common stock in which, with respect
to the Series A, B, and C convertible preferred stock, the aggregate gross
proceeds to AdForce are at least $15,000,000 and the minimum offering price is
at least equal to $6.275 per share, and, with respect to the Series D and E
convertible preferred stock, the aggregate proceeds (gross with respect to
Series D and net with respect to Series E) to AdForce are at least $20,000,000
and the minimum offering price is at least equal to $125,000,000 divided by the
number of shares of AdForce's common stock outstanding immediately prior to the
offering, assuming conversion of all convertible securities and the exercise of
all options and warrants. In addition, the Series A, B, and C convertible
preferred stock is convertible upon the written consent or agreement of the
holders of a majority of the respective series of preferred stock.
Each holder of convertible preferred stock is entitled to a number of
votes equal to the number of shares of common stock into which such convertible
preferred stock is convertible.
Each holder of convertible preferred stock is entitled to receive, when
and as declared by the Board of Directors, noncumulative dividends at the annual
rate of $0.20, $0.20, $0.38, $1.10, and $1.10 per share for Series A, B, C, D,
and E convertible preferred stock, respectively, payable in preference and
priority to any payment of any dividend on common stock.
In the event of liquidation, the holders of convertible preferred stock
would be entitled to a liquidation preference equal to $2.51 per share for all
Series B convertible preferred stock, $4.73 per share for all Series C
convertible preferred stock and $13.73 per share for all Series D and E
convertible preferred stock, plus any declared but unpaid dividends on such
share, and if assets remain in the corporation that are legally available for
distribution, the holders of the Series B, C, D, and E convertible preferred
stock would receive from the remaining assets of the corporation available for
distribution to stockholders that portion of such assets equal to their pro rata
share of such assets based on the number of shares of common stock held by all
stockholders of the corporation, assuming the conversion to common stock of all
shares of Series A, B, C, D, and E convertible preferred stock. Then, and only
then, would the holders of Series A convertible preferred stock receive $2.51
per share, plus all declared but unpaid dividends. Any remaining assets would
then be distributed on a pro rata basis among the holders of Series A
convertible preferred stock and the holders of common stock.
COMMON STOCK
At December 31, 1998, AdForce had reserved 10,755,662 shares of its
common stock for issuance upon conversion of the outstanding shares of its
Series A, B, C, D, and E convertible preferred stock and shares of preferred
stock issuable upon the exercise of outstanding warrants, and 2,631,770 shares
of common stock for issuance upon exercise of options outstanding and available
under the 1997 Stock Plan and shares of common stock issuable upon the exercise
of outstanding warrants.
A total of 1,449,620 shares of common stock issued to two of AdForce's
founders in 1996 are subject to certain repurchase rights, held by AdForce, upon
the termination of employment of the
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)
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 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.
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
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>
NATURE OF SHARES
RELATED DATE OF UNDER EXERCISE EXPIRATION OF
PARTY CLASS OF STOCK TRANSACTION ISSUANCE WARRANT PRICE EXERCISABILITY
- --------------- --------------- --------------- --------------- ----------- ------------- --------------- FAIR VALUE
---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Vendor Common stock Recruiting April 1997 6,142 $1.26 - $2.37 October 15, $ --
services 2007
Vendor Series B Capital lease March 1997 27,889 $2.51 December 31, $ 31
convertible agreement 2002
preferred
stock
Vendors Series C Capital lease December 1997 59,197 $4.73 December 31, $ 108
convertible agreements 2002 through
preferred December 2,
stock 2007
Vendor Series D Capital lease September 1998 10,925 $13.73 September 29, $ 67
convertible agreement 2008
preferred
stock
Private Series D Series D July 1998 36,430 $13.73 July 14, 2003 $ 267
Investors convertible convertible
preferred preferred
stock stock
agreement
Private Series E Series E July 1998 509,831 $13.73 July 14, 2003 $ 3,686
Investor/ convertible convertible
Vendor preferred preferred
stock stock
agreement and
Demographic
Data
Agreement
</TABLE>
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)
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
demographic data vendor in April 1997, with a fair value of $48,000 and a ten
year life, were exercised for total consideration of $2,000 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.
The value of the warrants granted to third parties, excluding the value
attributable to equity investments of approximately $1.9 million, is being
charged to 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. The value of each of the warrants has been determined
using the Black-Sholes method, with an expected dividend yield of zero, a
risk-free interest rate of 5%, and a volatility factor of 20%, except for the
warrant to purchase shares of Series D and Series E preferred stock issued to
private investors for which a volatility factor of 55% was used. The lives used
to value each of the warrants was based on the term of each warrant as set forth
in the preceding table or described in the preceding paragraph.
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.
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)
In connection with the acquisition by AdForce of StarPoint as described
in Note 2, AdForce assumed all options outstanding under the StarPoint Software,
Inc. 1996 Stock Plan ("StarPoint Plan"). These options vest over a 48-month
period with 9/48 of the underlying shares vesting after the employee had
completed nine months of continuous employment at AdForce and 1/48 of the
underlying shares vesting each month thereafter.
A summary of activity under the Plan, 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>
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)
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 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. In April 1999, the Company granted options to
purchase approximately 620,600 shares of common stock with an exercise price of
$8.50 per share and expects to record additional deferred compensation of
approximately $1.6 million related to these grants for the difference between
the exercise price and the current deemed fair value.
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.
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)
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.
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
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)
8. STOCKHOLDERS' EQUITY (CONTINUED)
date of grant. Each eligible director who first becomes a member of the Board of
Directors on or after the effective date of the initial public offering will
initially be granted an option to purchase 10,000 shares of common stock on the
date he or she becomes a member of the Board of Directors. Each eligible
director who first becomes a member of the Board of Directors prior to the
effective date of the initial public offering will receive an initial grant
immediately following the first annual meeting of stockholders of AdForce after
the effective date of the initial public offering, provided that he or she is
elected a member of the Board of Directors at the first annual meeting of
stockholders. Immediately following each annual meeting of stockholders of
AdForce, each eligible director will automatically be granted an additional
option to purchase 5,000 shares of common stock if he or she has served
continuously as a member of the Board of Directors for a period of at least one
year since the date of his or her initial grant under this Plan. The options
have ten-year terms. They will terminate seven months following the date the
director ceases to be a director or a consultant to AdForce, or twelve months if
the termination is due to death or disability. All options granted under the
1999 Directors Stock Option Plan will vest as to 25% of the shares on the first
anniversary of the date of grant and as to 2.08333% of the shares each month
thereafter, provided the optionee continues as a member of the Board of
Directors or as a consultant to AdForce. In the event of a merger or other
transaction in which AdForce is not the surviving corporation, all options
issued under the 1999 Directors Stock Option Plan will accelerate and become
exercisable in full prior to the consummation of the transaction.
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
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the U.S. federal statutory rate of
34% is due to net operating losses not being benefitted. Accordingly, 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.
F-24
<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)
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>
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
Effective on April 30, 1999, AdForce's stockholders approved its
reincorporation in the state of Delaware. In conjunction with the
reincorporation in Delaware, the Company changed the number of authorized shares
of preferred stock to 5,451,663 and the number of authorized shares of common
stock to 40,000,000. The par value of the Company's preferred and common stock
has been retroactively reflected in the accompanying financial statements.
F-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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
were $37,125.
Rent expense was approximately $60,500 for the period from August 8,
1996 (inception) through May 31, 1997.
F-32
<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-33
<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-34
<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-35
<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................................................. 6,710
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................................................... 111,026
---------
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 May 3, 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 4,100,001 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
6,160,711 shares of its Common Stock, 9,467,118 shares of its convertible
preferred stock, warrants to purchase 6,142 shares of its Common Stock and
warrants to purchase 1,288,544 shares of its convertible preferred stock for
6,160,711 shares of Common Stock, 9,467,118 shares of preferred stock,
warrants to purchase 6,142 shares of its Common Stock and warrants to
purchase 1,288,544 shares of preferred stock, respectively.
(1) Each share of Series A, Series B, Series C, Series D, and Series E
Preferred Stock will convert automatically into two shares of common stock,
respectively, upon the consummation of this offering.
(2) Converted to Common Stock on December 5, 1996 as a condition to the Series
B Preferred Stock financing.
(3) Issued to IBL Corporation as consideration for a loan and terminated on
December 5, 1996 as a condition to the Series B1 Preferred Stock financing.
(4) In connection with a joint venture with AMGIT Marketing, Inc. to develop
certain research and information products for database application services,
AdForce granted AMGIT 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 May 3, 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
April 29, 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 3rd day of May 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, May 3, 1999
- ---------------------------- President and Chairman of
Charles W. Berger the Board
PRINCIPAL FINANCIAL OFFICER
AND
PRINCIPAL ACCOUNTING OFFICER:
/s/ JOHN A. TANNER Executive Vice President May 3, 1999
- ---------------------------- and Chief Financial
John A. Tanner Officer
ADDITIONAL DIRECTORS:
*/s/ ERIC DI BENEDETTO Director May 3, 1999
- ----------------------------
Eric Di Benedetto
*/s/ MARK P. GORENBERG Director May 3, 1999
- ----------------------------
Mark P. Gorenberg
*/s/ J. NEIL WEINTRAUT Director May 3, 1999
- ----------------------------
J. Neil Weintraut
*/s/ DIRK A. WRAY Director May 3, 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 May 3, 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
April 29, 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>
Exhibit 1.1
ADFORCE, INC.
_____ SHARES (1)
COMMON STOCK
UNDERWRITING AGREEMENT
May 3, 1999
HAMBRECHT & QUIST LLC
Cristina Morgan
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
AdForce, Inc., a Delaware corporation (referred to herein as the Company),
proposes to issue and sell _______ shares of its authorized but unissued Common
Stock, $0.001 par value (herein called the Common Stock, said _______ shares of
Common Stock being herein called the Underwritten Stock). The Company proposes
to grant to the Underwriters (as hereinafter defined) an option to purchase up
to ______________ additional shares of Common Stock (herein called the Option
Stock and with the Underwritten Stock herein collectively called the Stock).
The Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each
of the other Underwriters to enter into this Agreement on its behalf and to act
for it in the manner herein provided.
1. REGISTRATION STATEMENT.
The Company has filed with the Securities and Exchange Commission (herein
called the Commission) a registration statement on Form S-1 (No. 333-73231),
including the related preliminary prospectus, for the registration under the
Securities Act of 1933, as amended (herein called the Securities Act) of the
Stock. Copies of such registration statement and of each amendment thereto, if
any, including the related preliminary prospectus (meeting the requirements of
Rule 430A of the rules and regulations of the Commission) heretofore filed by
the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration
- --------------------------
(1) Plus an option to purchase from the Company up to _______ additional shares
to cover overallotments.
<PAGE>
Statement) and, in the event of any supplement or amendment to such prospectus
after the Effective Date, shall also mean (from and after the filing with the
Commission of such supplement or the effectiveness of such amendment) such
prospectus as so supplemented or amended. The term Preliminary Prospectus as
used in this Agreement shall mean each preliminary prospectus included in such
registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act. To the Company's
knowledge, no stop order suspending the effectiveness of the Registration
Statement or suspending or preventing the use of the Prospectus is in effect and
no proceedings for that purpose have been instituted or are pending or
contemplated by the Commission.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, is duly qualified to do business as a foreign corporation and in good
standing in each state of the United States of America in which its ownership or
leasing of property or the nature of the business transacted by it requires such
qualification (except where the failure to be so qualified would not have a
material adverse effect on the business, properties, financial condition or
results of operations of the Company).
(ii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition or
results of operations of the Company, whether or not arising from transactions
in the ordinary course of business, other than as set forth in the Registration
Statement and the Prospectus, and since such dates, except in the ordinary
course of business, the Company (i) has not entered into any material
transaction or incurred any material liability or obligation, direct or
contingent, not referred to in the Registration Statement and the Prospectus;
(ii) has not purchased any of its outstanding capital stock, or declared, paid
or otherwise made any dividend or distribution of any kind on its capital stock;
or (iii) has not had any material change in the capital stock, short-term debt
or long-term debt of the Company, except in each case as described or
specifically contemplated in the Registration Statement and the Prospectus.
(iii) The Registration Statement and the Prospectus comply, and
on the Closing Date (as hereinafter defined) and any later date on which Option
Stock is to be purchased, the Prospectus will comply, in all material respects,
with the provisions of the Securities Act and the Securities Exchange Act of
1934, as amended (herein called the Exchange Act) and the rules and regulations
of the Commission thereunder; on the Effective Date, the Registration Statement
did not contain any untrue statement of a material fact and did not omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading; and, on the Effective Date the
Prospectus did not and, on the Closing Date and any later date on which Option
Stock is to be purchased, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that none of the representations and
warranties in this subparagraph (iii) shall apply to statements in, or omissions
from, the Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(iv) As of the closing of the sale of the Underwritten Stock
and assuming the filing of the Second Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, the
authorized capital stock of the Company consists of 5,000,000 shares of
Preferred Stock, $0.001 par value, of which there are no shares outstanding, and
100,000,000 shares of Common Stock, $0.001 par value, of which there are ____
outstanding shares (including the Underwritten Stock); proper corporate
proceedings have been taken validly to authorize such authorized capital stock;
all of the outstanding shares of such capital stock
2
<PAGE>
(including the Underwritten Stock) have been duly and validly issued and are
fully paid and non-assessable; and, except as described in the Prospectus, no
preemptive rights of, or rights of first refusal in favor of, stockholders of
the Company exist with respect to the Stock, or the issue and sale thereof,
pursuant to the First Amended and Restated Certificate of Incorporation or
Bylaws of the Company. Except as set forth in the Prospectus and other than
options to purchase ________shares of the Company's Common Stock granted
pursuant to the Company's 1997 Stock Plan (herein called the 1997 Plan) since
March 31, 1999, the Company does not have outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. All outstanding
shares of capital stock and options and other rights to acquire capital stock
have been issued in compliance with the registration and qualification
provisions of all applicable securities laws (or applicable exemptions
thereof) and were not issued in violation of any preemptive rights, rights of
first refusal and other similar rights. The issue and sale by the Company of
the shares of Stock to be sold by the Company as contemplated herein will be
validly issued, fully paid and non-assessable, will not conflict with, or
result in a breach of, the First Amended and Restated Certificate of
Incorporation or Bylaws of the Company or any agreement or instrument filed
as exhibits to the Registration Statement or any federal, Delaware corporate
or California law or regulation applicable to the Company, or any order,
writ, injunction or decree of any court or governmental instrumentality
binding upon the Company. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for
the transfer and sale of the Stock to be sold by the Company or the issuance
and sale of the Stock as contemplated herein.
(v) The authorized capital stock of the Company conforms as
to legal matters in all material respects to the description thereof contained
in the Prospectus. The form of certificates for the Stock conforms in all
material respects to the corporate law of the jurisdiction of the Company's
incorporation.
(vi) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection with this
offering.
(vii) Prior to the Closing Date, the Stock to be sold by the
Company will be authorized for listing by the Nasdaq National Market upon
official notice of issuance.
(viii) The consolidated financial statements of the Company,
together with related notes and schedules as set forth in the Registration
Statement ("Financial Statements"), present fairly the financial position and
the results of operations of the Company, at the indicated dates and for the
indicated periods. The Financial Statements, schedules and related notes have
been prepared in accordance with generally accepted accounting principles,
consistently applied through the period involved, except as may be otherwise
stated therein, and all adjustments necessary for a fair presentation of results
for such periods have been made.
(ix) The Company is not in violation or default under any
provision of its certificate of incorporation or bylaws, as currently in effect,
or any indenture, license, mortgage, lease, franchise, permit, deed of trust or
other agreement or instrument to which the Company is a party or by which the
Company or its properties is bound or may be affected, except where such
violation or default would not have a material adverse effect on the business,
financial condition or results of operations of the Company.
(x) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by applicable laws and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally, or by general
equitable principles.
(xi) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of, or violation of, any of the terms or
provisions of, or constitute, either by itself or upon notice or the passage of
time or both, a default under,
3
<PAGE>
any indenture, license, mortgage, lease, franchise, permit, deed of trust or
other agreement or instrument to which the Company currently is a party or by
which the Company or its properties currently is bound or may be affected,
except where such breach, violation or default would not have a materially
adverse effect on the business, financial condition or results of operations
of the Company or violate any of the provisions of the certificate of
incorporation or bylaws, as currently in effect, of the Company or violate
any material order, judgment, statute, rule or regulation currently
applicable to the Company of any court or of any regulatory, administrative
or governmental body or agency having jurisdiction over the Company or its
properties.
(xii) There are no legal or governmental proceedings pending
or, to the Company's knowledge, threatened to which the Company is a party or to
which any of the properties of the Company is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not described or
filed as required. The contracts so described in the Prospectus are in full
force and effect on the date hereof except as disclosed therein; and the Company
nor, to the Company's knowledge any other party, is in material breach of or
default under any of such contracts.
(xiii) The Company possesses all consents, approvals, orders,
certificates, authorizations and permits issued by, and has made all
declarations and filings with, all appropriate federal, state or foreign
governmental and self-regulatory authorities and all courts and other tribunals,
including but not limited to all required state agencies in connection with
applicable franchise laws, regulations and requirements necessary to conduct its
business and to own, lease, license and use its properties in the manner
described in the Prospectus, except to the extent that the failure to obtain or
file would not have a material adverse effect on the Company, and the Company
has not received any notice of proceedings related to the revocation or
modification of any such consent, approval, order, certificate, authorization or
permit that, singly or in the aggregate, could reasonably be expected to result
in a material adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company.
(xiv) The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii)
has received all permits, licenses or other approvals required of them under
applicable Environmental Laws with respect to its business as conducted and as
proposed to be conducted in the Registration Statement and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the Company.
(xv) The Company has good and marketable title in fee simple
to all real property and good and marketable title to all personal property that
it owns free and clear of all liens, encumbrances and defects except such as are
described in the Registration Statement or the Prospectus or such as do not
materially and adversely affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company; and
any real property and buildings held under lease by the Company are held under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which constitutes or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the sale
or resale of the Stock.
(xvii) The Company owns or possesses adequate rights to use, all
material patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks and
trade names currently employed by the Company in connection with the business
now operated by the Company, and,
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except as described in the Prospectus, the Company has not received any
notice of infringement of or conflict with asserted rights of others with
respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in any
material adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company.
(xviii) The Company is in compliance, in all material respects,
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
with the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, that would cause the loss of such
qualification.
(xix) The Company is not and, after giving effect to the
offering and sale of the Stock and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(xx) There is no holder of any securities of the Company who
has any right, not effectively satisfied or waived, to require registration of
any shares of capital stock of the Company in connection with the filing of the
Registration Statement or the sale of any shares thereunder. There are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the Company
or to require the Company to include such securities with the Stock registered
pursuant to the Registration Statement, except in each case as described in the
Prospectus.
(xxi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principals of the
United States and to maintain asset accountability; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxii) No material labor dispute with employees of the Company
exists or to the knowledge of the Company is imminent, and, without conducting
any independent investigation, the Company is not aware of any written
communication of any existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors that
could result in any material adverse change in the condition, financial or
otherwise, the earnings, the business or operations of the Company. Except as
described in the Prospectus, the employment of each officer and employee of the
Company is terminable at the will of the Company. To its knowledge, the Company
has complied in all material respects with all applicable state and federal
equal employment opportunity laws and with other laws related to employment. To
the Company's knowledge, no employee of the Company, nor any consultant or
independent contractor with whom the Company has contracted, is in violation of
any term of any employment contract, proprietary information agreement or any
other agreement relating to the right of any such individual to be employed by,
or to contract with, the Company because of the nature of the business to be
conducted by the Company; and to the Company's knowledge, the continued
employment by the Company of its present employees, and the performance of the
Company's contracts with its independent contractors, will not result in any
such violation. The Company has not received any notice alleging that any such
violation has occurred. Except as described in the Prospectus, no employee of
the Company has been granted the right to continued employment by the Company or
to any other material compensation following termination of employment with the
Company. The Company is not aware that any officer or employee,
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or that any group of employees, intends to terminate their employment with
the Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing.
(xxiii) The Agreement and Plan of Merger dated _________, 1999
(the "Plan of Merger") by and between the Company and Imgis, Inc., a California
corporation ("Imgis"), has been duly authorized by all necessary board of
directors and stockholder action on the part of the Company and Imgis and has
been duly executed and delivered by each of the parties thereto. The execution
and delivery of the Plan of Merger and the consummation of the merger
contemplated thereby does not contravene any provision of applicable federal,
Delaware corporate or California law or the certificate of incorporation or
bylaws of the Company or the certificate of incorporation or bylaws of Imgis,
or, to the knowledge of the Company, any judgment or decree of any governmental
body, agency or court having jurisdiction over the Company or Imgis, and no
consent, approval, authorization or order of or qualification with any
governmental body or agency is required for the performance by the Company and
Imgis of its obligations under the Plan of Merger except such as have been
obtained. The merger contemplated by the Plan of Merger is effective under the
laws of the State of California and the State of Delaware.
(xxiv) The Company has not offered, or caused the Underwriters
to offer, Stock to any person by way of directed shares with the specific intent
to unlawfully influence (i) a customer or supplier of the Company to alter the
customer's or supplier's level or type of business with the Company, or (ii) a
trade journalist or publication to write or publish favorable information about
the Company or its products.
(xxv) To the Company's knowledge, after due investigation, each
of the Company's products will produce no material, logical or arithmetic
inconsistencies when dealing with leap years or dates beyond the year 1999.
Without limiting the foregoing, to the Company's knowledge, the Company's
services will not materially impede the accurate processing of data, or cause
programming or processing errors resulting from the rollover of two-digit year
values to "00" on January 1, 2000. The foregoing does not constitute a warranty
or representation that the Company's software will be capable of recording,
storing, processing, calculating and displaying correct calendar dates based on
software supplied by any party other than the Company, or that other Company's
software will properly interact with such third party software.
(xxvi) No consent, approval, authorization or order of any
federal, Delaware or California governmental agency or body is required on the
part of the Company for the consummation of the transactions contemplated
herein, except such as have been obtained under the Securities Act and such as
may be required under state securities or blue sky laws in connection with the
purchase and distribution of the Stock by the Underwriters.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the terms
and conditions herein set forth, the Company agrees to issue and sell
_________ shares of the Underwritten Stock to the several Underwriters, and
each of the Underwriters agrees to purchase from the Company the respective
aggregate number of shares of Underwritten Stock set forth opposite its
name in Schedule I. The price at which such shares of Underwritten Stock
shall be sold by the Company and purchased by the several Underwriters
shall be $___ per share. The obligation of each Underwriter to the Company
shall be to purchase from the Company that number of shares of the
Underwritten Stock set forth opposite the name of such Underwriter in
Schedule I hereto. In making this Agreement, each Underwriter is
contracting severally and not jointly; except as provided in paragraphs (b)
and (c) of this Section 3, the agreement of each Underwriter is to purchase
only the respective number of shares of the Underwritten Stock specified in
Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company shall immediately give notice
thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or
procure one or more other Underwriters to purchase, in such proportions as
may be agreed upon between you and such purchasing Underwriter or
Underwriters and upon the terms herein set
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forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such
shares and portion, the number of shares of the Stock which each
non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb
the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; PROVIDED, HOWEVER, that the
non-defaulting Underwriters shall not be obligated to purchase the
shares and portion which the defaulting Underwriter or Underwriters
agreed to purchase if the aggregate number of such shares of the Stock
exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of
shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased or absorbed in accordance with
the two preceding sentences, the Company shall have the right, within 24
hours next succeeding the 24-hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to you
for purchase of such shares and portion on the terms herein set forth.
In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for
not more than seven business days after the date originally fixed as the
Closing Date pursuant to said Section 5 in order that any necessary
changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made. If neither the non-defaulting
Underwriters nor the Company shall make arrangements within the 24-hour
periods stated above for the purchase of all the shares of the Stock
which the defaulting Underwriter or Underwriters agreed to purchase
hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company. Nothing in this paragraph
(b), and no action taken hereunder, shall relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter
under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase, severally
and not jointly, up to _____________ shares in the aggregate of the Option
Stock from the Company at the same price per share as the Underwriters
shall pay for the Underwritten Stock. Said option may be exercised only to
cover over-allotments in the sale of the Underwritten Stock by the
Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the thirtieth day after the date of this
Agreement upon written or telegraphic notice by you to the Company setting
forth the aggregate number of shares of the Option Stock as to which the
several Underwriters are exercising the option. Delivery of certificates
for the shares of Option Stock, and payment therefor, shall be made as
provided in Section 5 hereof. The number of shares of the Option Stock to
be purchased by each Underwriter shall be the same percentage of the total
number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock,
as adjusted by you in such manner as you deem advisable to avoid fractional
shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the Stock
to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after
the closing of the initial public offering and increase or decrease the
concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover page and
under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the
only information furnished by the Underwriters to the Company for inclusion
in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and the
Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 A.M., San Francisco time, on the date two
business
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days preceding the Closing Date), and payment therefor, shall be
made at the office of Fenwick & West LLP, at 7:00 a.m., San Francisco time,
on the fourth business day after the date of this Agreement, or at such
time on such other day, not later than seven full business days after such
fourth business day, as shall be agreed upon in writing by the Company and
you. The date and hour of such delivery and payment (which may be
postponed as provided in Section 3(b) hereof) are herein called the Closing
Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Fenwick & West LLP, at
7:00 a.m., San Francisco time, on the third business day after the exercise
of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order by one or more certified or official bank check or
checks in same day funds. Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the
several Underwriters against receipt therefor signed by you. Certificates
for the Stock to be delivered to you shall be registered in such name or
names and shall be in such denominations as you may request at least one
business day before the Closing Date, in the case of Underwritten Stock,
and at least one business day prior to the purchase thereof, in the case of
the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 on the
business day prior to the Closing Date or, in the case of the Option Stock,
by 3:00 p.m., New York time, on the business day preceding the date of
purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the
Company for shares to be purchased by any Underwriter whose check shall not
have been received by you on the Closing Date or any later date on which
Option Stock is purchased for the account of such Underwriter. Any such
payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company further covenants
and agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission under Rule
424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to
the Prospectus of which you shall not previously have been advised and
furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules
and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of (i) the
request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii)
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the institution or
notice of intended institution by the Commission of any action or
proceeding for that purpose, (iv) the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by the Company of
notice of the initiation or threatening of any proceeding for such purpose.
The Company will make every reasonable effort to prevent the issuance of
such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
conformed copy of the Registration Statement as originally filed and of
each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a conformed copy
of each post-effective amendment, if any, to the Registration Statement
(together with, in each case, all exhibits thereto unless previously
furnished to you) and will also deliver to you, for distribution to the
Underwriters, a sufficient number of additional conformed copies of each of
the foregoing (but without exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to
you and send to the several Underwriters, at such office or offices as you
may designate, as many copies of the Prospectus as you may reasonably
request, and (iii) thereafter from time to time
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during the period in which a prospectus is required by law to be
delivered by an Underwriter or dealer, likewise send to the Underwriters
as many additional copies of the Prospectus and as many copies of any
supplement to the Prospectus and of any amended prospectus, filed by the
Company with the Commission, as you may reasonably request for the
purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required by law
to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement
or amend the Prospectus in order to make the Prospectus not misleading in
the light of the circumstances existing at the time it is delivered to a
purchaser of the Stock, the Company will forthwith prepare and file with
the Commission a supplement to the Prospectus or an amended prospectus so
that the Prospectus as so supplemented or amended will not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time such Prospectus is delivered to such
purchaser, not misleading. If, after the initial public offering of the
Stock by the Underwriters and during such period, the Underwriters shall
propose to vary the terms of offering thereof by reason of changes in
general market conditions or otherwise, you will advise the Company in
writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The
Company authorizes the Underwriters and all dealers to whom any of the
Stock may be sold by the several Underwriters to use the Prospectus, as
from time to time amended or supplemented, in connection with the sale of
the Stock in accordance with the applicable provisions of the Securities
Act and the applicable rules and regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will submit to
you, for your information, a copy of any post-effective amendment to the
Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue
sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter
or dealer, in keeping such qualifications in good standing under said
securities or blue sky laws; PROVIDED, HOWEVER, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as you may
reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the Company
will furnish to you, and to each Underwriter who may so request in writing,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal quarter first
occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement
in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of obligations under this Agreement, including all costs and
expenses (excluding counsel fees for Underwriters) incident to (i) the
preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. ("NASD") of the Registration
Statement, any Preliminary Prospectus and the Prospectus, (ii) the
furnishing to the Underwriters of copies of any Preliminary Prospectus and
of the several documents required by paragraph (c) of this Section 6 to be
so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of
all supplements and amendments to the Prospectus referred to in
paragraph (d) of this Section 6, (v) the furnishing to you and the
Underwriters of the reports and information referred to in
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paragraph (g) of this Section 6 and (vi) the printing and issuance of
stock certificates, including the transfer agent's fees.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including
counsel fees and disbursements and cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their
counsel in qualifying the Stock under state securities or blue sky laws and
in the review of the offering by the National Association of Securities
Dealers, Inc.
(k) THE COMPANY HEREBY AGREES THAT, WITHOUT THE PRIOR WRITTEN CONSENT OF
HAMBRECHT & QUIST LLC ON BEHALF OF THE UNDERWRITERS, THE COMPANY WILL NOT,
FOR A PERIOD OF 180 DAYS FOLLOWING THE EFFECTIVE DATE, DIRECTLY OR
INDIRECTLY, (i) SELL, OFFER, CONTRACT TO SELL, MAKE ANY SHORT SALE, PLEDGE,
SELL ANY OPTION OR CONTRACT TO PURCHASE, PURCHASE ANY OPTION OR CONTRACT TO
SELL, GRANT ANY OPTION, RIGHT OR WARRANT TO PURCHASE OR OTHERWISE TRANSFER
OR DISPOSE OF ANY SHARES OF COMMON STOCK OR ANY SECURITIES CONVERTIBLE INTO
OR EXCHANGEABLE OR EXERCISABLE FOR OR ANY RIGHTS TO PURCHASE OR ACQUIRE
COMMON STOCK OR (ii) ENTER INTO ANY SWAP OR OTHER AGREEMENT THAT TRANSFERS,
IN WHOLE OR IN PART, ANY OF THE ECONOMIC CONSEQUENCES OR OWNERSHIP OF
COMMON STOCK, WHETHER ANY SUCH TRANSACTION DESCRIBED IN CLAUSE (i) OR (ii)
ABOVE IS TO BE SETTLED BY DELIVERY OF COMMON STOCK OR SUCH OTHER
SECURITIES, IN CASH OR OTHERWISE. THE FOREGOING SENTENCE SHALL NOT APPLY
TO (A) THE STOCK TO BE SOLD TO THE UNDERWRITERS PURSUANT TO THIS AGREEMENT,
(B) SHARES OF COMMON STOCK ISSUED BY THE COMPANY UPON THE EXERCISE OF
OPTIONS.
(l) If at any time during the 25-day period after the Registration Statement
becomes effective any rumor, publication or event relating to or affecting
the Company shall occur as a result of which in your opinion the market
price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after
written notice from you advising the Company to the effect set forth above,
forthwith prepare, consult with you concerning the substance of, and
disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication
or event.
(m) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not
and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended, and the rules and regulations thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the Company
agrees to indemnify and hold harmless each Underwriter and each person
(including each partner or officer thereof) who controls any Underwriter
within the meaning of Section 15 of the Securities Act from and against any
and all losses, claims, damages or liabilities, joint or several, to which
such indemnified parties or any of them may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (herein
called the Exchange Act), or the common law or otherwise, and the Company
agrees to reimburse each such Underwriter and controlling person for any
legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any
such losses, claims, damages or liabilities or in connection with any
investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (including the
Prospectus as part thereof and any Rule 462(b) registration statement) or
any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus or the Prospectus (as amended or as supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that (1) the indemnity agreements of the Company contained in this
paragraph (a) shall not apply to any such losses, claims, damages,
liabilities or
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expenses if such statement or omission was made in reliance
upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration
Statement or the Prospectus or any such amendment thereof or supplement
thereto, and (2) the indemnity agreement contained in this paragraph (a)
with respect to any Preliminary Prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such losses, claims,
damages, liabilities or expenses purchased the Stock which is the subject
thereof (or to the benefit of any person controlling such Underwriter) if
at or prior to the written confirmation of the sale of such Stock a copy of
the Prospectus (or the Prospectus as amended or supplemented) was not sent
or delivered to such person and the untrue statement or omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented) unless the
failure is the result of noncompliance by the Company with paragraph (c) of
Section 6 hereof. The indemnity agreements of the Company contained in this
paragraph (a) and the representations and warranties of the Company
contained in Section 2 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery of and payment for the
Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each
other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities
Act, the Exchange Act, or the common law or otherwise and to reimburse each
of them for any legal or other expenses (including, except as otherwise
hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection
with any investigation or inquiry of, or other proceeding which may be
brought against, the respective indemnified parties, in each case arising
out of or based upon (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement (including the
Prospectus as part thereof and any Rule 462(b) registration statement) or
any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Prospectus (as
amended or as supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated
or otherwise furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto. The
indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon
its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in
such paragraphs, it will promptly give written notice (herein called the
Notice) of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for
in such paragraphs shall be available to any party who shall fail so to
give the Notice if the party to whom such Notice was not given was unaware
of the action, suit, investigation, inquiry or proceeding to which the
Notice would have related and was prejudiced by the failure to give the
Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party
or parties from any liability which it or they may have to the indemnified
party for contribution or otherwise than on account of such indemnity
agreement. Any indemnifying party shall be entitled at its own expense to
participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt
of the Notice by giving written notice (herein called the Notice of
Defense) to the indemnified party, to assume (alone or in conjunction with
any other indemnifying party or parties) the entire
11
<PAGE>
defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the
indemnifying party or parties, by counsel chosen by such indemnifying
party or parties and reasonably satisfactory to the indemnified party or
parties; PROVIDED, HOWEVER, that (i) if the indemnified party or parties
reasonably determine that there may be a conflict between the positions
of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation,
inquiry or proceeding or that there may be legal defenses available to
such indemnified party or parties different from or in addition to those
available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to
the extent reasonably determined by such counsel to be necessary to
protect the interests of the indemnified party or parties and (ii) in
any event, the indemnified party or parties shall be entitled to have
counsel chosen by such indemnified party or parties participate in, but
not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the
counsel chosen by the indemnifying party or parties is reasonably
satisfactory to the indemnified party or parties, the indemnifying party
or parties will not be liable under paragraphs (a) through (c) of this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding, except that (A) the
indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in
clause (i) of the proviso to the preceding sentence and (B) the
indemnifying party or parties shall bear such other expenses as it or
they have authorized to be incurred by the indemnified party or parties.
If, within a reasonable time after receipt of the Notice, no Notice of
Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified
party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or
(b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in paragraph (a) or (b) of this Section
7 (i) in such proportion as is appropriate to reflect the relative benefits
received by each indemnifying party from the offering of the Stock or (ii)
if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of each indemnifying party in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, or
actions in respect thereof, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Stock received by the Company and the total underwriting discount received
by the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the Stock.
Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by each indemnifying party and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro
rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take into
account the equitable considerations referred to in the first sentence of
this paragraph (d). The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities, or actions in respect thereof,
referred to in the first sentence of this paragraph (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigation, preparing to defend or defending
against any action or claim which is the subject of this paragraph (d).
Notwithstanding the provisions of this paragraph (d), no Underwriter shall
be required to contribute any amount in excess of the underwriting discount
applicable to the Stock purchased by such Underwriter. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion
to their respective underwriting obligations and not joint.
12
<PAGE>
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will promptly
give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise (except as specifically provided in paragraph (c) of this
Section 7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect
of which indemnification may be sought hereunder (whether or not such
Underwriter or any person who controls such Underwriter within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter
and each such controlling person from all liability arising out of such
claim, action, suit or proceeding.
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after
the date of this Agreement trading in the Common Stock shall have been
suspended, or if there shall have occurred (i) the engagement in
hostilities or an escalation of major hostilities by the United States or
the declaration of war or a national emergency by the United States on or
after the date hereof, (ii) any outbreak of hostilities or other national
or international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, calamity, crisis or change in
economic or political conditions in the financial markets of the United
States would, in the Underwriters' reasonable judgment, make the offering
or delivery of the Stock impracticable, (iii) suspension of trading in
securities generally or a material adverse decline in value of securities
generally on the New York Stock Exchange, the American Stock Exchange, or
The Nasdaq Stock Market, or limitations on prices (other than limitations
on hours or numbers of days of trading) for securities on either such
exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of,
or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in
the Underwriters' reasonable opinion has a material adverse effect on the
securities markets in the United States. If this Agreement shall be
terminated pursuant to this Section 8, there shall be no liability of the
Company to the Underwriters and no liability of the Underwriters to the
Company; PROVIDED, HOWEVER, that in the event of any such termination the
Company agrees to indemnify and hold harmless the Underwriters from all
costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to
in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to
the performance by the Company of all their respective obligations to be
performed hereunder at or prior to the Closing Date or any later date on
which Option Stock is to be purchased, as the case may be, and to the
following further conditions:
(a) The Registration Statement shall have become effective; and no stop order
suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and the
validity and form of the certificates representing the Stock, all corporate
proceedings and other legal matters incident to the foregoing, and the form
of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or
prior to the Closing Date by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters.
(c) You shall have received from Fenwick & West LLP, counsel for the Company,
an opinion, addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex A hereto, and if Option Stock is
13
<PAGE>
purchased at any date after the Closing Date, an additional opinion from
such counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such
opinion remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the statements
made in the Registration Statement and the Prospectus were true and correct
and neither the Registration Statement nor the Prospectus omitted to state
any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading, (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in
such a supplement or amendment, (iii) since the respective dates as of
which information is given in the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein,
there has not been any material adverse change or any development involving
a prospective material adverse change in or affecting the business,
properties, financial condition or results of operations of the Company,
whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business.
The Company has not entered into any material transaction not referred to
in the Registration Statement in the form in which it originally became
effective and the Prospectus contained therein, (iv) the Company does not
have any material contingent obligations which are not disclosed in the
Registration Statement and the Prospectus, (v) there are not any pending or
known threatened legal proceedings to which the Company is a party or of
which property of the Company is the subject which are material and which
are not disclosed in the Registration Statement and the Prospectus,
(vi) there are not any franchises, contracts, leases or documents which are
material which have not been filed as exhibits to the Registration
Statement, (vii) the representations and warranties of the Company herein
are true and correct in all material respects as of the Closing Date or any
later date on which Option Stock is to be purchased, as the case may be,
and (viii) there has not been any material change in the market for
securities in general or in political, financial or economic conditions
from those reasonably foreseeable as to render it impracticable in your
reasonable judgment to make a public offering of the Stock, or a material
adverse change in market levels for securities in general (or those of
companies in particular) or financial or economic conditions which render
it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date on which
Option Stock is purchased a certificate, dated the Closing Date or such
later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of
said certificate have carefully examined the Registration Statement in the
form in which it originally became effective and the Prospectus contained
therein and any supplements or amendments thereto, and that the statements
included in clauses (i) through (vii) of paragraph (d) of this Section 9
are true and correct.
(f) You shall have received from Ernst & Young LLP a letter or letters
addressed to the Underwriters and dated the Closing Date and any later date
on which Option Stock is purchased, confirming that they are independent
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published rules and regulations
thereunder and based upon the procedures described in their letter
delivered to you concurrently with the execution of this Agreement (herein
called the Original Letter), but carried out to a date not more than three
business days prior to the Closing Date or such later date on which Option
Stock is purchased (i) confirming, to the extent true, that the statements
and conclusions set forth in the Original Letter are accurate as of the
Closing Date or such later date, as the case may be, and (ii) setting forth
any revisions and additions to the statements and conclusions set forth in
the Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or
to reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties
of the Company (or any of its subsidiaries) which, in your sole judgment,
makes it impractical or inadvisable to proceed with the public offering of
the Stock or the purchase of the Option Stock as contemplated by the
Prospectus.
(g) You shall have received from Ernst & Young LLP a letter stating that
their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at March 31, 1999,
did not disclose any weakness in internal controls that they considered
to be material weaknesses.
14
<PAGE>
(h) You shall have been furnished evidence in usual written or telegraphic form
from the appropriate authorities of the several jurisdictions, or other
evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold by the Company
shall have been duly authorized for listing by the Nasdaq National Market
upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received from all
stockholders agreements, in form reasonably satisfactory to Hambrecht &
Quist LLC, stating that without the prior written consent of Hambrecht &
Quist LLC on behalf of the Underwriters, that each such person or entity
will not, for a period of 180 days following the commencement of the public
offering of the Stock by the Underwriters, directly or indirectly, sell,
lend, offer, contract to sell, transfer the economic risk of ownership in,
make any short sale, pledge, or otherwise dispose of any shares of Common
Stock of the Company acquired prior to the Effective Date, or any
securities acquired prior to the Effective Date that are convertible into
or exchangeable or exercisable for or any othre rights to purchase or
acquire Common Stock of the Company.
(k) All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, counsel for the Underwriters, shall be satisfied that they
comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to
the Underwriters and without liability of the Underwriters to the Company;
PROVIDED, HOWEVER, that (i) in the event of such termination, the Company
agrees to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company
under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof, and (ii) if this Agreement is
terminated by you because of any refusal, inability or failure on the part
of the Company to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by
reason of a default by any of the Underwriters, the Company will reimburse
the Underwriters severally upon demand for all out-of-pocket expenses
(including reasonable fees and disbursements of counsel) that shall have
been incurred by them in connection with the transactions contemplated
hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation of
the Company to deliver the Stock shall be subject to the conditions that
(a) the Registration Statement shall have become effective and (b) no stop
order suspending the effectiveness thereof shall be in effect and no
proceedings therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall
not be fulfilled, this Agreement may be terminated by the Company by giving
notice to you. Any such termination shall be without liability of the
Company to the Underwriters and without liability of the Underwriters to
the Company; PROVIDED, HOWEVER, that in the event of any such termination
the Company agrees to indemnify and hold harmless the Underwriters from all
costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to
in paragraphs (i) and (j) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its other
obligations under Section 7 of this Agreement, the Company agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal
and other expenses incurred in connection with investigating or defending
any claim, action, investigation, inquiry or other proceeding arising out
of or based upon any statement or omission, or any alleged statement or
omission, described in paragraph (a) of Section 7 of this Agreement,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the obligations under this Section 11 and the
possibility that such payments might later be held to be improper;
PROVIDED, HOWEVER, that (i) to the extent any such payment is ultimately
held to be improper, the persons receiving such payments shall promptly
refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when
and if due.
15
<PAGE>
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of the Company and the several Underwriters and, with
respect to the provisions of Section 7 hereof, the several parties (in
addition to the Company and the several Underwriters) indemnified under the
provisions of said Section 7, and their respective personal
representatives, successors and assigns. Nothing in this Agreement is
intended or shall be construed to give to any other person, firm or
corporation any legal or equitable remedy or claim under or in respect of
this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser,
of any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters,
shall be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One
Bush Street, San Francisco, California 94104; and if to the Company, shall
be mailed, telegraphed or delivered to it at its office, 10101 North De
Anza Boulevard, Suite 210, Cupertino, CA 95014. All notices given by
telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the
representations, warranties and covenants in this Agreement shall remain in
full force and effect regardless of (a) any termination of this Agreement,
(b) any investigation made by or on behalf of any Underwriter or
controlling person thereof, or by or on behalf of the Company or its
directors or officers, and (c) delivery and payment for the Stock under
this Agreement; PROVIDED, HOWEVER, that if this Agreement is terminated
prior to the Closing Date, the provisions of paragraphs (k) and (l) of
Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
16
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
ADFORCE, INC.
By
----------------------------------
Charles W. Berger
President and CEO
The foregoing Agreement is hereby confirmed
and accepted as of the date first above
written.
HAMBRECHT & QUIST LLC
LEHMAN BROTHERS INC.
VOLPE BROWN WHELAN & COMPANY, LLC
CHARLES SCHWAB & CO., INC.
By Hambrecht & Quist LLC
By
----------------------------------
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I
hereto.
17
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
UNDERWRITERS TO BE PURCHASED
------------ ----------------
<S> <C>
Hambrecht & Quist LLC.......................................
Lehman Brothers Inc.........................................
Volpe Brown Whelan & Company, LLC...........................
Charles Schwab & Co.........................................
----------------
Total.......................................................
</TABLE>
S-1
<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF FENWICK & WEST LLP
COUNSEL FOR THE COMPANY
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, to our
knowledge is duly qualified to do business as a foreign corporation and in good
standing in each state of the United States of America in which its ownership or
leasing of property requires such qualification (except where the failure to be
so qualified would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company), and
has full corporate power and corporate authority to own or lease its properties
and conduct its current business as described in the Registration Statement;
(ii) as of the closing of the sale of the Underwritten Stock and assuming
the filing of the Second Amended and Restated Certificate of Incorporation with
the Secretary of State of the State of Delaware, the authorized capital stock of
the Company consists of 5,000,000 shares of Preferred Stock, $0.001 pare value,
of which, to our knowledge, there are no shares outstanding, and 100,000,000
shares of Common Stock, $0.001 par value, of which, to our knowledge there are
outstanding _________________ shares (including the Underwritten Stock issued on
the date hereof); proper corporate proceedings have been taken validly to
authorize such authorized capital stock; all of the outstanding shares of such
capital stock (including the Underwritten Stock) have been duly and validly
issued and are fully paid and nonassessable; and, except as described in the
Prospectus, no preemptive rights of, or rights of refusal in favor of,
stockholders of the Company exist with respect to the Stock, or the issue and
sale thereof, pursuant to the First Amended and Restated Certificate of
Incorporation or Bylaws of the Company;
(iii) the Registration Statement has become effective under the Securities
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial and statistical data
contained therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the requirements of the Securities Act,
the Exchange Act and with the rules and regulations of the Commission
thereunder;
(v) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1, to such counsel's knowledge, is accurately and adequately set
forth in the Registration Statement in all material respects or no response is
required with respect to such Items, and the description of the Company's stock
option plans and the options granted and which may be granted thereunder and the
options granted otherwise than under such plans set forth in the Prospectus, to
such counsel's knowledge, accurately and fairly presents the information
required to be set forth in the Registration Statement with respect to said
plans and options to the extent required by the Securities Act and the rules and
regulations of the Commission thereunder;
(vi) such counsel does not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required by the Securities Act and the rules and
regulations of the Commission thereunder to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as so required;
(vii) the Underwriting Agreement has been duly authorized, executed and
delivered to the Underwriters by the Company;
A-1
<PAGE>
(viii) the issue and sale by the Company of the shares of Stock sold by the
Company as contemplated by the Underwriting Agreement does not conflict with, or
result in a breach of, the First Amended and Restated Certificate of
Incorporation or Bylaws of the Company or any agreement or instrument filed as
exhibits to the Registration Statement or any federal, Delaware state corporate
or California state law or regulation applicable to the Company, or so far as is
known to such counsel, any order, writ, injunction or decree of any court or
governmental instrumentality naming the Company;
(ix) to such counsel's knowledge, all holders of securities of the
Company having rights to the registration of shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the
Company have waived such rights or such rights have expired by reason of
lapse of time following notification of the Company's intent to file the
Registration Statement;
(x) no consent, approval, authorization or order of any federal,
Delaware state or California state governmental agency or body is required on
the part of the Company for the consummation of the transactions contemplated in
the Underwriting Agreement, except such as have been obtained under the
Securities Act and such as may be required under state securities or blue sky
laws (as to which counsel need not express any opinion) in connection with the
purchase and distribution of the Stock by the Underwriters.
- -------------------------------------------------------------------------------
Counsel rendering the foregoing opinion will also state that although such
counsel has not independently verified the accuracy or completeness of the
statements made in the Registration Statement or the Prospectus, such counsel
had no reason to believe that the Registration Statement (except as to the
financial statements and schedules and other financial and statistical data
contained or incorporated by reference therein, as to which such counsel need
not express any belief) at the Effective Date contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference therein,
as to which such counsel need not express any belief) as of its date or at the
Closing Date, contained or contains any untrue statement of a material fact or
omitted or omits to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that none of the statements of belief in this
paragraph shall apply to statements in, or omissions from, the Registration
Statement or the Prospectus made in reliance upon and in conformity with
information herein or otherwise furnished in writing to the Company by or on
behalf of the Underwriters for use in the Registration Statement or the
Prospectus.
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or of the State of California, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
A-2
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "MERGER AGREEMENT") is entered
into as of April 29, 1999, by and between Imgis, Inc., a California corporation
("IMGIS"), and AdForce, Inc., a Delaware corporation ("ADFORCE"). Imgis and
AdForce are hereinafter sometimes collectively referred to as the "CONSTITUENT
CORPORATIONS."
R E C I T A L S
A. Imgis was incorporated on January 16, 1996. Its current
authorized capital stock consists of: (i) 25,000,000 shares of Common Stock, no
par value ("IMGIS COMMON STOCK"), of which 5,167,894 shares are issued and
outstanding; and (ii) 6,238,163 shares of Preferred Stock, no par value ("IMGIS
PREFERRED STOCK"), of which 602,000 shares have been designated Series A
Preferred Stock, 1,100,000 shares have been designated Series B1 Preferred
Stock, 1,725,000 shares have been designated Series C Preferred Stock, 786,500
shares have been designated Series D Preferred Stock, 786,500 shares have been
designated Series D1 Preferred Stock and 1,238,163 shares have been designated
Series E Preferred Stock. There are issued and outstanding 600,457 shares of
Series A Preferred Stock, 1,027,318 shares of Series B1 Preferred Stock,
1,646,948 shares of Series C Preferred Stock, 730,503 shares of Series D
Preferred Stock, no shares of Series D1 Preferred Stock and 728,332 shares of
Series E Preferred Stock.
B. AdForce was incorporated on August 20, 1998. Its authorized
capital stock consists of 1,000 shares of Common Stock, with a par value of
$0.001 per share ("ADFORCE COMMON STOCK"), of which 1,000 shares are issued and
outstanding.
C. The respective Boards of Directors of Imgis and AdForce deem it
advisable and to the advantage of each of the Constituent Corporations that
Imgis merge with and into AdForce upon the terms and subject to the conditions
set forth in this Merger Agreement for the purpose of effecting a change of the
state of incorporation of Imgis from California to Delaware.
D. The Boards of Directors of each of the Constituent Corporations
have approved this Merger Agreement.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
set forth in this Merger Agreement and do hereby agree that Imgis shall merge
with and into AdForce on the following terms, conditions and other provisions:
1. MERGER AND EFFECTIVE TIME. At the Effective Time (as defined
below), Imgis shall be merged with and into AdForce (the "MERGER"), and AdForce
shall be the surviving corporation of the Merger (the "SURVIVING CORPORATION").
The Merger shall become effective upon the close of business on the date when a
duly executed copy of this Merger Agreement, along with all required officers'
certificates, is filed with the Secretary of State of the State of
<PAGE>
California, or upon the close of business on the date when a duly executed copy
of this Merger Agreement, along with all required officers' certificates, is
filed with the Secretary of State of the State of Delaware, whichever later
occurs (the "EFFECTIVE TIME").
2. EFFECT OF MERGER. At the Effective Time, the separate corporate
existence of Imgis shall cease; the corporate identity, existence, powers,
rights and immunities of AdForce as the Surviving Corporation shall continue
unimpaired by the Merger; and AdForce shall succeed to and shall possess all the
assets, properties, rights, privileges, powers, franchises, immunities and
purposes, and be subject to all the debts, liabilities, obligations,
restrictions and duties of Imgis, all without further act or deed.
3. GOVERNING DOCUMENTS. At the Effective Time, (i) the Certificate
of Incorporation of AdForce in effect immediately prior to the Effective Time
shall be amended and restated by virtue of the Merger to read as set forth in
full in EXHIBIT "A" hereto (the "FIRST RESTATED CERTIFICATE"), and (ii) the
Bylaws of AdForce in effect immediately prior to the Effective Time shall be
amended and restated by virtue of the Merger as approved by the Board of
Directors of AdForce.
4. DIRECTORS AND OFFICERS. At the Effective Time, the directors of
AdForce shall be and become the directors of the Surviving Corporation, and the
officers of AdForce shall be and become the officers (holding the same offices)
of the Surviving Corporation, and after the Effective Time shall serve in
accordance with the First Restated Certificate and Bylaws of the Surviving
Corporation.
5. CONVERSION OF SHARES OF IMGIS. At the Effective Time, by virtue
of the Merger and without any further action on the part of the Constituent
Corporations or their shareholders, (i) each share of Imgis Common Stock issued
and outstanding immediately prior thereto shall be converted into one fully paid
and nonassessable share of AdForce Common Stock, (ii) each share of Imgis Series
A Preferred Stock outstanding immediately prior thereto shall be automatically
changed and converted into one fully paid and nonassessable, issued and
outstanding share of AdForce Series A Preferred Stock, (ii) each share of Imgis
Series B1 Preferred Stock outstanding immediately prior thereto shall be
automatically changed and converted into one fully paid and nonassessable,
issued and outstanding share of AdForce Series B Preferred Stock, (iii) each
share of Imgis Series C Preferred Stock outstanding immediately prior thereto
shall be automatically changed and converted into one fully paid and
nonassessable, issued and outstanding share of AdForce Series C Preferred Stock,
(iv) each share of Imgis Series D Preferred Stock outstanding immediately prior
thereto shall be automatically changed and converted into one fully paid and
nonassessable, issued and outstanding share of AdForce Series D Preferred Stock,
and (v) each share of Imgis Series E Preferred Stock outstanding immediately
prior thereto shall be automatically changed and converted into one fully paid
and nonassessable, issued and outstanding share of AdForce Series E Preferred
Stock. Shares of AdForce Common Stock and Preferred Stock issued in the Merger
upon conversion of shares of Imgis Common Stock or Preferred Stock,
respectively, shall, by virtue of the Merger, continue to be subject to the same
contractual restrictions on transfer, rights of repurchase, vesting and other
provisions, if any, to the same extent as were applicable immediately prior to
the Effective Time
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<PAGE>
to the shares of Imgis Common Stock or Preferred Stock so converted. Continuous
employment with Imgis will be credited to holders of dForce Common Stock for
purposes of determining the vesting of shares of AdForce Common Stock subject to
exercise under a converted Imgis option at the Effective Time.
6. CANCELLATION OF SHARES OF ADFORCE. At the Effective Time, by
virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, all of the previously issued and
outstanding shares of AdForce Common Stock that were issued and outstanding
immediately prior to the Effective Time shall be automatically canceled and
returned to the status of authorized but unissued shares.
7. STOCK CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates that, prior to that date, represented shares of Imgis
Common Stock shall be deemed for all purposes to evidence ownership of and to
represent the number of shares of AdForce Common Stock into which such shares of
Imgis Common Stock are converted as provided herein. At and after the Effective
Time, all of the outstanding certificates that, prior to that date, represented
shares of a series of Imgis Preferred Stock shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of the series of
AdForce Preferred Stock into which such shares of Imgis Preferred Stock are
converted as provided herein. The registered owner on the books and records of
Imgis of any such outstanding stock certificate for Imgis Common Stock or Imgis
Preferred Stock shall, until such certificate is surrendered for transfer or
otherwise accounted for to AdForce or its transfer agent, be entitled to
exercise any voting and other rights with respect to, and to receive any
dividend and other distributions upon, the shares of AdForce Common Stock or
AdForce Preferred Stock evidenced by such outstanding certificate as provided
above.
8. ASSUMPTION OF OPTIONS AND WARRANTS. At the Effective Time, all
outstanding and unexercised portions of all options to purchase Imgis Common
Stock under the Imgis 1997 Stock Plan and the StarPoint 1996 Stock Plan (the
"EXISTING PLANS"), and all other outstanding options to purchase Imgis Common
Stock, shall be assumed by AdForce and become options to purchase the same
number of shares of AdForce Common Stock at the same exercise price per share
but otherwise shall, to the extent permitted by law and otherwise reasonably
practicable, have the same term, exercisability, vesting schedule, status as an
"incentive stock option" under Section 422 of the Internal Revenue Code of 1986,
as amended (the "CODE"), if applicable, and all other material terms and
conditions (including but not limited to the terms and conditions applicable to
such options by virtue of the Existing Plans). Continuous employment with Imgis
will be credited to an optionee for purposes of determining the vesting of the
number of shares of AdForce Common Stock subject to exercise under an assumed
Imgis option at the Effective Time. At the Effective Time, AdForce shall adopt
and assume the Existing Plans. Additionally, at the Effective Time, all
outstanding and unexercised portions of (i) all warrants to purchase or acquire
Imgis Common Stock shall be assumed by AdForce and become warrants to purchase
or acquire the same number of shares of AdForce Common Stock, (ii) all warrants
to purchase or acquire Imgis Series A Preferred Stock shall be assumed by
AdForce and become warrants to purchase or acquire the same number of shares of
AdForce Series A Preferred Stock, (iii) all warrants to purchase or acquire
Imgis Series B1
-3-
<PAGE>
Preferred Stock shall be assumed by AdForce and become warrants to purchase or
acquire the same number of shares of AdForce Series B Preferred Stock, (iv) all
warrants to purchase or acquire Imgis Series C Preferred Stock shall be assumed
by AdForce and become warrants to purchase or acquire the same number of shares
of AdForce Series C Preferred Stock, (v) all warrants to purchase or acquire
Imgis Series D Preferred Stock shall be assumed by AdForce and become warrants
to purchase or acquire the same number of shares of AdForce Series D Preferred
Stock, (vi) all warrants to purchase or acquire Imgis Series E Preferred Stock
shall be assumed by AdForce and become warrants to purchase or acquire the same
number of shares of AdForce Series E Preferred Stock, in each case at the same
exercise price per share but otherwise with the same term, exercisability, and
all other material terms and conditions.
9. FRACTIONAL SHARES. No fractional shares of AdForce Common Stock
or AdForce Preferred Stock will be issued in connection with the Merger.
10. EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations
of Imgis under or with respect to every plan, trust, program and benefit then in
effect or administered by Imgis for the benefit of the directors, officers and
employees of Imgis or any of its subsidiaries shall become the lawful
obligations of AdForce and shall be implemented and administered in the same
manner and without interruption until the same are amended or otherwise lawfully
altered or terminated. Effective at the Effective Time, AdForce hereby
expressly adopts and assumes all obligations of Imgis under such employee
benefit plans.
11. FURTHER ASSURANCES. From time to time, as and when required by
the Surviving Corporation or by its successors or assigns, there shall be
executed and delivered on behalf of Imgis such deeds, assignments and other
instruments, and there shall be taken or caused to be taken by it all such
further action, as shall be appropriate, advisable or necessary in order to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation
the title to and possession of all property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Imgis, and otherwise
to carry out the purposes of this Merger Agreement. The officers and directors
of the Surviving Corporation are fully authorized in the name of and on behalf
of Imgis, or otherwise, to take any and all such actions and to execute and
deliver any and all such deeds and other instruments as may be necessary or
appropriate to accomplish the foregoing.
12. CONDITION. The consummation of the Merger is subject to the
approval of this Merger Agreement and the Merger contemplated hereby by the
shareholders of Imgis and by the sole stockholder of AdForce, prior to or at the
Effective Time.
13. ABANDONMENT. At any time before the Effective Time, this Merger
Agreement may be terminated and the Merger abandoned by the Board of Directors
of Imgis or AdForce, notwithstanding approval of this Merger Agreement by the
shareholders of Imgis and the sole stockholder of AdForce.
14. AMENDMENT. At any time before the Effective Time, this Merger
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations, notwithstanding approval of this Merger Agreement
by the
-4-
<PAGE>
shareholders of Imgis and the sole stockholder of AdForce; provided, however,
that any amendment made subsequent to the adoption of this Merger Agreement by
the shareholders of Imgis or the sole stockholder of AdForce shall not:
(i) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or upon conversion of any shares of
any class or series of Imgis; (ii) alter or change of any of the terms of the
Certificate of Incorporation of the Surviving Corporation to be effected by the
Merger; or (iii) alter or change any of the terms or conditions of this Merger
Agreement if such alteration or change would adversely affect the holders of any
shares of any class or series of Imgis or AdForce.
15. TAX-FREE REORGANIZATION. The Merger is intended to be a tax-free
plan of reorganization within the meaning of Section 368(a)(1)(F) of the Code.
16. GOVERNING LAW. This Merger Agreement shall be governed by and
construed under the internal laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California, without reference to the principles of conflicts of law or
choice of laws, except to the extent that the laws of the State of Delaware
would apply in matters relating to the internal affairs of AdForce and the
Merger.
17. COUNTERPARTS. In order to facilitate the filing and recording of
this Merger Agreement, it may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, this the parties hereto have caused this Merger
Agreement to be duly executed on the date and year first above written.
IMGIS, INC. ADFORCE, INC.
By: By:
--------------------------------- -------------------------------------
Charles W. Berger, Chairman Charles W. Berger, Chairman
By: By:
--------------------------------- -------------------------------------
Rex S. Jackson, Secretary Rex S. Jackson, Secretary
[Signature Page to Agreement and Plan of Merger]
-6-
<PAGE>
EXHIBIT "A"
FIRST AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
<PAGE>
Exhibit 4.1
COMMON STOCK COMMON STOCK
NUMBER SHARES
HLT
ADFORCE
SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
CUSIP 006867 105
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.001 PAR VALUE, OF
ADFORCE, INC.
transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ Rex S. Jackson [ADFORCE CORPORATE /s/ Charles W. Berger
SECRETARY SEAL] CHAIRMAN AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences, and relative, participating,
optimal, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Such requests shall be made to the Corporation's Secretary at the
principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR
DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- _______________ Custodian _______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________________________
(State)
UNIF TRF MIN ACT -- _______________ Custodian (until age_____)
(Cust)
___________________under Uniform Transfers
(Minor)
to Minors Act ___________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated ___________________ X_________________________________________________
X_________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By _______________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM)
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
May 3, 1999
AdForce, Inc.
10590 North Tantau Avenue
Cupertino, California 95014
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-1
(File Number 333-73231) (the "REGISTRATION STATEMENT") filed by you with the
Securities and Exchange Commission (the "COMMISSION") on or about March 2, 1999,
as subsequently amended in connection with the registration under the Securities
Act of 1933, as amended, of an aggregate of 5,175,000 shares of your Common
Stock (the "STOCK").
In rendering this opinion, we have examined the following:
(1) your registration statement on Form 8-A to be filed with the
Commission on or about May 4;
(2) the Registration Statement, together with the Exhibits filed as a part
thereof;
(3) the prospectuses prepared in connection with the Registration
Statement;
(4) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your minute
books and the minute books of your predecessor, Imgis, a California
corporation ("IMGIS CALIFORNIA"), that are in our possession;
(5) the stock records for both you and Imgis California that you have
provided to us (consisting of a list of Stockholders and photocopies
of stock certificates and a list of option and warrant holders
respecting your capital stock and of any other rights to purchase
capital stock verifying the number of such issued and outstanding
securities); and
(6) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and other
representations.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity and completeness of all documents submitted
to us as originals, the conformity to originals and completeness of all
documents submitted to us as copies, the legal capacity of all natural persons
executing the same, the lack of any undisclosed termination, modification,
waiver or amendment to any document reviewed by us and the due authorization,
execution and delivery of all documents where due authorization, execution and
delivery are prerequisites to the effectiveness thereof.
<PAGE>
AdForce, Inc.
May 3, 1999
Page 2
As to matters of fact relevant to this opinion, we have relied solely upon
our examination of the documents referred to above and have assumed the current
accuracy and completeness of the information obtained from public officials and
records referred to above. We have made no independent investigation or other
attempt to verify the accuracy of any of such information or to determine the
existence or non-existence of any other factual matters; HOWEVER, we are not
aware of any facts that would cause us to believe that the opinion expressed
herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and (without reference to case law or secondary sources)
the existing Delaware General Corporation Law.
In connection with our opinion expressed below, we have assumed that, at or
prior to the time of the delivery of any shares of the Stock, the Registration
Statement and the registration statement on Form 8-A will have been declared
effective under the Securities Act of 1933, as amended, that the registration
will apply to such shares of the Stock and will not have been modified or
rescinded and that there will not have occurred any change in law affecting
the validity or enforceability of such shares of the Stock.
Based upon the foregoing, it is our opinion that the up to 5,175,000 shares
of the Stock to be issued and sold by you, when issued and sold in accordance in
the manner referred to in the relevant Prospectus associated with the
Registration Statement, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By:
-----------------------------
<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 July 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>
Exhibit 10.7
SUBLEASE
THIS SUBLEASE (this "Sublease") is dated for reference purposes as of
February 12, 1999, and is made by and between Concentric Network Corporation
("Sublandlord"), and Imgis, Inc., dba "AdForce" ("Subtenant"). Sublandlord and
Subtenant hereby agree as follows:
1. RECITALS: This Sublease is made with reference to the fact that Spieker
Properties, L. P., a California limited partnership, as landlord ("Master
Landlord"), and Sublandlord, as tenant, are parties to that certain Lease dated
February 22, 1998 (the "Master Lease"), with respect to approximately 41,151
square feet of space (the "Premises"), in that certain building (the
"Building") located at 10590 N. Tantau Avenue, Cupertino, California. A copy of
the Master Lease is attached hereto as EXHIBIT A. Capitalized terms used and
not defined herein shall have the meaning ascribed to them in the Master Lease.
2. SUBLEASED PREMISES: Subject to the terms and conditions of this
Sublease, Sublandlord hereby subleases to Subtenant, and Subtenant hereby
subleases from Sublandlord, the entire Premises.
3. TERM:
A. TERM. The term (the "Term") of this Sublease shall be for the
period commencing on April 15, 1999 (the "Commencement Date"), subject to
Paragraph 3.C below, and ending on April 23, 2003, unless this Sublease is
sooner terminated pursuant to its terms or the Master Lease is sooner
terminated pursuant to its terms (the "Expiration Date").
B. OPTION TO EXTEND. Subtenant shall have no options or rights to
extend the Term of this Sublease or expand the Premises.
C. EARLY OCCUPANCY. Within five (5) days following (i) full execution
of this Sublease by Sublandlord and Subtenant (and Subtenant's payment to
Sublandlord of the prepaid rent and Security Deposit) and (ii) receipt by
Sublandlord of the Consent to Sublease Agreement (the "Consent to Sublease")
for this Sublease executed by Master Landlord, then Sublandlord shall deliver
possession of the Premises to Subtenant (the "Early Occupancy Start Date")
and following such delivery, Subtenant shall have the right to occupy and use
the Premises for the permitted use described in this Sublease from the Early
Occupancy Start Date until the Commencement Date (the "Early Occupancy
Period"), provided such occupancy shall be subject to Sublandlord's rights to
use the Data Center (as hereinafter defined) as set forth in Paragraph 3.D
below, and provided further that such early occupancy shall be subject to all
of the terms and conditions of this Sublease, excluding only the obligation
to pay Rent (as defined in Paragraph 4.A below). If Sublandlord fails to
deliver possession of the Premises to Subtenant within ten (10) days
following (i) full execution of this Sublease by Sublandlord and Subtenant
(and Subtenant's payment to Sublandlord of the prepaid rent and Security
Deposit) and (ii) receipt by Sublandlord of the Consent to Sublease for this
Sublease executed by Master Landlord, then Subtenant shall have the right to
terminate this Sublease, provided Subtenant delivers written notice of
termination to Sublandlord within five (5) days thereafter. Following full
execution of this Sublease by Sublandlord and Subtenant (and Subtenant's
payment to Sublandlord of the prepaid rent and Security Deposit), Sublandlord
shall use its reasonable efforts to obtain the Master Landlord's written
consent to this Sublease.
D. DATA CENTER ACCESS. The parties acknowledge that Sublandlord will
be operating its business in the Data Center during the Early Occupancy Period.
The Data Center shall be defined as that
<PAGE>
portion of the Premises outlined in EXHIBIT B attached hereto. Notwithstanding
anything to the contrary in this Sublease, Sublandlord shall have access to and
the exclusive control over and possession of the Data Center through February
28, 1999. Sublandlord shall provide Subtenant, however, limited access to the
Data Center beginning on the Early Occupancy Start Date for the sole purpose of
installing its telephone and network cabling provided (i) such limited access
shall be during business hours only and Subtenant shall at all times be
accompanied by an authorized employee of Sublandlord, (ii) such limited access
shall not interfere with Sublandlord's business operations in the Data Center
and (iii) such limited access shall be subject to all of the terms and
conditions of this Sublease, excluding only the obligation to pay Rent. After
February 28, 1999, Subtenant shall have the right to occupy the Data Center for
the permitted uses described in this Sublease; provided, however, that after
February 28, 1999, Sublandlord (i) shall continue to have, during the remainder
of the Early Occupancy Period, the exclusive use of ten (10) racks in the Data
Center and shall have reasonable access to the Data Center at all times during
the remainder of the Early Occupancy Period.
4. RENT:
A. BASE RENT. Commencing on the Commencement Date and continuing each
month throughout the Term of this Sublease, Subtenant shall pay to Sublandlord
as base rent for the Premises monthly installments as follows ("Base Rent"):
<TABLE>
<CAPTION>
Monthly Base Rent
<S> <C>
-------------------------------------------------------------
April 15, 1999 - April 30, 1999 $47,323.65
-------------------------------------------------------------
May 1, 1999 - April 30, 2000 $98,433.19
-------------------------------------------------------------
May 1, 2000 - April 30, 2001 $102,370.52
-------------------------------------------------------------
May 1, 2001 - April 30, 2002 $106,465.34
-------------------------------------------------------------
May 1, 2002 - April 23, 2003 $110,723.95
</TABLE>
Base Rent and Additional Rent, as defined in Paragraph 4.B below,
(collectively, hereinafter "Rent") shall be paid in advance at least two (2)
days prior to the (1st) day of each month. Rent for any period during the Term
hereof which is for less than one (1) month of the Term shall be a pro rata
portion of the monthly installment based on a thirty (30) day month. Rent shall
be payable without notice or demand and without any deduction, offset, or
abatement, in lawful money of the United States of America. Rent shall be paid
directly to Sublandlord at 1400 Parkmoor Avenue, San Jose, California 95126,
Attention: Peter J. Bergeron, or such other address as may be designated in
writing by Sublandlord.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid
by Subtenant under this Sublease, including, without limitation, all amounts
payable by Sublandlord in connection with the Master Lease or the Premises
(including, without limitation, all "Operating Expenses", "Estimated Operating
Expenses" and "Operating Expense Adjustments" under Article 7 of the Master
Lease) shall be deemed
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additional rent ("Additional Rent"). Subtenant and Sublandlord agree, as a
material part of the consideration given by Subtenant to Sublandlord for this
Sublease, Subtenant shall pay all costs, expenses, taxes, insurance,
maintenance and other charges of every kind and nature arising under the Master
Lease in connection with the Premises accruing after the Commencement Date,
such that Sublandlord shall receive, as net consideration for this Sublease,
full reimbursement thereof.
C. PREPAYMENT OF RENT. Upon execution hereof by Subtenant, Subtenant
shall pay to Sublandlord the sum of Forty-Seven Thousand Three Hundred
Twenty-Three Dollars and 65/100 ($47,323.65), which shall constitute Base Rent
for the period April 15, 1999 through April 30, 1999.
5. SECURITY DEPOSIT: Upon execution hereof, Subtenant shall deposit with
Sublandlord the sum of Ninety-Eight Thousand Four Hundred Thirty-Three Dollars
and 19/100 ($98,433.19) (the "Security Deposit"), in cash, as security for the
performance by Subtenant of the terms and conditions of this Sublease. If
Subtenant fails to pay Rent or other charges due under this Sublease or
otherwise defaults with respect to any provision of this Sublease, then
Sublandlord, without prejudice to any other remedy provided in this Sublease or
by law, may draw upon, use, apply or retain all or any portion of the Security
Deposit for the payment of any Rent or other charge in default, for the payment
of any other sum which Sublandlord has become obligated to pay by reason of
Subtenant's default, or to compensate Sublandlord for any loss or damage which
Sublandlord has suffered thereby. If Sublandlord so uses or applies all or any
portion of the Security Deposit, then Subtenant, within ten (10) days after
demand by Sublandlord therefor, shall deposit cash with Sublandlord in the
amount required to restore the Security Deposit to the full amount stated
above. Sublandlord may commingle the Security Deposit with its own funds and
Subtenant shall not be entitled to interest on the Security Deposit. The
Security Deposit is not an advance rental deposit or a measure of damages
incurred by Sublandlord in case of Subtenant's default. Upon the expiration of
this Sublease and Subtenant's vacation of the Premises, provided Subtenant is
not in default under the terms of this Sublease, Sublandlord shall return to
Subtenant so much of the Security Deposit as has not been applied by
Sublandlord pursuant to this Paragraph, or which is not otherwise required to
cure Subtenant's defaults.
6. HOLDOVER: Subtenant acknowledges that the Termination Date of the
Master Lease is April 30, 2003 and that it is critical that Subtenant surrender
the Premises on or before the Expiration Date in accordance with the terms of
this Sublease. Accordingly, Subtenant shall indemnify, defend and hold
harmless Sublandlord from and against all losses, costs, claims, liabilities
and damages resulting from Subtenant's failure to surrender the Premises on the
Expiration Date in the condition required under the terms of this Sublease
(including, without limitation, any liability or damages sustained by
Sublandlord as a result of a holdover of the Master Premises by Sublandlord
occasioned by the holdover of the Premises by Subtenant). In addition,
Subtenant shall pay Sublandlord holdover rent equal to one hundred fifty
percent (150%) of Base Rent plus any Additional Rent payable hereunder for any
period from the Expiration Date through the date Subtenant surrenders the
Premises in the condition required hereunder.
7. CONDITION: Sublandlord warrants to Subtenant, for the period
commencing on the Early Occupancy Start Date and expiring sixty (60) days
following the Commencement Date (the "Warranty Period"), that the existing
plumbing, electrical, fire protection, lighting and air conditioning and
heating systems in the Premises are in working order and repair on the Early
Occupancy Start Date, except for those items set forth on EXHIBIT C attached
hereto and incorporated herein. If a non-compliance with said warranty arises
during the Warranty Period, Sublandlord shall after receipt of written notice
from Subtenant setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Sublandlord's expense. If Subtenant does
not give Sublandlord written notice of a non-compliance with this warranty
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during the Warranty Period, correction of that non-compliance shall be the
obligation of Subtenant, at Subtenant's sole cost and expense. The parties
acknowledge and agree that Subtenant is subleasing the Premises on an "AS IS"
basis, and that, except as set forth in this Paragraph 7 above, Sublandlord
has made no representations or warranties, express or implied, whatsoever, with
respect to the Premises, including, without limitation, any representation or
warranty as to the suitability of the Premises for Subtenant's intended use.
Notwithstanding anything to the contrary in this Sublease or the Master Lease,
the foregoing warranty shall not apply to (and Sublandlord shall have no
obligation to correct or pay for) any non-compliance or any deficiency or
damage to any of the systems in the Premises described in this Section 7 above
which is caused by or arises out of any act or omission of Subtenant, or its
agents, employees, contractors or invitees.
8. REPAIRS: Subject to Paragraph 7 of this Sublease, Sublandlord shall
have no obligation whatsoever to make or pay the cost of any alterations,
improvements or repairs to the Premises, including, without limitation, any
improvement or repair required to comply with any law, regulation, building
code or ordinance (including the Americans with Disabilities Act of 1990, as
may be amended). In addition, Sublandlord shall have no obligation to perform
any repairs or any other obligation of Master Landlord required to be performed
by Master Landlord under the terms of the Master Lease (including, without
limitation, Master Landlord's obligations under Articles 7, 8, 10, 23 and 24 of
the Master Lease and Master Landlord's obligation to comply with laws) and
Subtenant shall look solely to Master Landlord for performance of said
obligations. Sublandlord shall, however, request performance of the same in
writing from Master Landlord promptly after being requested to do so by
Subtenant, and shall use Sublandlord's reasonable efforts (not including the
payment of money, the incurring of any liabilities, or the institution of legal
proceedings) to obtain Master Landlord's performance. Subtenant expressly
waives the provisions of Section 1932, subsection 1, and Sections 1941 and 1942
of the Civil Code of California and all rights to make repairs at the expense
of Sublandlord as provided in Section 1942 of said Civil Code.
9. ASSIGNMENT AND SUBLETTING: In the event of any Transfer, including
without limitation, a Transfer to a "Permitted Tenant Affiliate" (as defined by
and meeting the criteria set forth in Section 21.C of the Master Lease, as
incorporated herein, even if Sublandlord consents or is deemed to have
consented to the Transfer, Subtenant shall still be required to obtain the
consent of the Master Landlord to any such Transfer, including to a Permitted
Tenant Affiliate. If Subtenant is a public company, any sale of Subtenant's
capital stock through any national market system or public exchange shall not
be deemed a Transfer under the terms of this Sublease; provided, however, that
Subtenant hereby agrees that such a sale could constitute a Transfer under the
Master Lease and therefore, Subtenant hereby agrees that it shall be required
to obtain Master Landlord's prior written consent to any such Transfer, unless
in the Consent to Sublease, Master Landlord expressly acknowledges that such a
sale does not constitute a Transfer. Notwithstanding anything to the contrary
in this Sublease, Sublandlord's approval of any transfer, including a
"Permitted Tenant Affiliate", shall be subject to the Master Landlord's written
approval and subject to the Master Landlord's right to terminate the Master
Lease as set forth in Section 21.A of the Master Lease.
10. USE:
A. Subtenant may use the Premises for general office purposes only and
for no other purpose whatsoever.
B. Subtenant shall not use, store, keep, handle, manufacture,
transport, release, discharge, emit or dispose of any Hazardous Materials in,
on, under, about, to or from the Premises. Subtenant may
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<PAGE>
handle, store, use and dispose of products containing small quantities of
Hazardous Materials for "general office purposes" (such as toner for copies) to
the extent customary and necessary for the Permitted Use of the Premises;
provided that Subtenant shall always handle, store, use and dispose of any such
Hazardous Materials in a safe and lawful manner and never allow such Hazardous
Materials to contaminate the Premises, Building, or Project or surrounding land
or environment. Sublandlord shall release Subtenant from and against all
liabilities, losses, costs and expenses (including attorneys' and consultants'
fees), demands, causes of action, claims or judgments arising out of the use,
generation, storage, release or disposal of Hazardous Materials by Sublandlord
or its agents, employees, contractors or invitees on or about the Premises.
C. Subtenant shall not do or permit anything to be done in or about
the Premises which would (i) injure the Premises; or (ii) vibrate, shake,
overload, or impair the efficient operation of the Premises or the sprinkler
systems, heating, ventilating or air conditioning equipment, or utilities
systems located therein. Subtenant shall not store any materials, supplies,
finished or unfinished products or articles of any nature outside of the
Premises. Subtenant shall comply with all reasonable rules and regulations
promulgated from time to time by Master Landlord.
D. Subject to Paragraph 3 of this Sublease, Sublandlord hereby
consents to Subtenant's use of the Data Center, the diesel storage and
emergency power system, and the fire suppression system all of which are
located within the Premises in connection with its sublease of the Premises
provided that Subtenant obtains Master Landlord's express written consent to
such use.
11. EFFECT OF CONVEYANCE: As used in this Sublease, the term "Sublandlord"
means the holder of the Tenant's interest under the Master Lease. In the event
of any assignment or transfer of the Tenant's interest under the Master Lease,
which assignment or transfer may occur at any time during the Term hereof in
Sublandlord's sole discretion, Sublandlord shall be and hereby is entirely
relieved of all covenants and obligations of Sublandlord hereunder, and it
shall be deemed and construed, without further agreement between the parties
hereto, that any transferee has assumed and shall carry out all covenants and
obligations thereafter to be performed by Sublandlord hereunder. Sublandlord
may transfer and deliver any security of Subtenant to the transferee of the
Tenant's interest under the Master Lease, and thereupon Sublandlord shall be
discharged from any further liability with respect thereto.
12. DELIVERY AND ACCEPTANCE: Sublandlord shall deliver the Premises in
broom-clean condition. This Sublease shall not be void or voidable, nor shall
Sublandlord be liable to Subtenant for any loss or damage, by reason of delays
in the Commencement Date or delays in Sublandlord delivering the Premises to
Subtenant for any reason whatsoever, except as expressly set forth in Paragraph
3.C of this Sublease. Subtenant has fully inspected the Premises and is
satisfied with the condition thereof. By taking possession of the Premises,
Subtenant conclusively shall be deemed to have accepted the Premises in its
then-existing, "AS IS" condition, without any representation or warranty
whatsoever from Sublandlord with respect thereto, except as expressly set forth
in Paragraph 7 of this Sublease.
13. IMPROVEMENTS: Subtenant shall not make any alterations or
improvements to the Premises, except in accordance with the Master Lease, and
except with the prior written consent of both Master Landlord and Sublandlord.
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<PAGE>
14. DATA CENTER EQUIPMENT: On or before the Early Occupancy Start Date,
Sublandlord shall execute and deliver a bill of sale conveying to Subtenant all
of the items set forth on EXHIBIT D attached hereto.
15. RELEASE AND WAIVER OF SUBROGATION: Notwithstanding anything to the
contrary in this Sublease, Sublandlord and Subtenant hereby release each other
(and Subtenant shall release Master Landlord) from any damage to property or
loss of any kind which is caused by or results from any risk that is insured
against under any property insurance policy required to be carried by either
party or is actually carried by either party in connection with this Sublease.
This release shall be in effect only so long as the applicable insurance policy
contains a clause to the effect that this release shall not affect the right of
the insured to recover under the policy. Each party shall use its reasonable
efforts to cause each property insurance policy obtained by it to provide that
the insurer waives all right of recovery against the other party and its agents
and employees in connection with any damage or injury covered by the policy,
and each party shall notify the other party if it is unable to obtain a waiver
of subrogation. Sublandlord shall not be liable to Subtenant, nor shall
Subtenant be entitled to terminate this Sublease or to abate Rent for any
reason, including, without limitation, (i) failure or interruption of any
utility system or service or (ii) failure of Master Landlord to maintain the
Premises as may be required under the Master Lease. The obligations of
Sublandlord and Subtenant shall not constitute the personal obligations of the
officers, directors, trustees, partners, joint venturers, members, owners,
stockholders or other principals or representatives of the business entity.
16. INSURANCE: Subtenant shall obtain and keep in full force and effect,
at Subtenant's sole cost and expense, during the Term the insurance required to
be carried by the "Tenant" under the Master Lease. Subtenant shall include
Sublandlord and Master Landlord as an additional insured in any policy of
insurance carried by Subtenant in connection with this Sublease and shall
provide Sublandlord with certificates of insurance upon the Early Occupancy
Start Date.
17. DEFAULT: Subtenant's failure to perform each of its obligations under
this Sublease shall be deemed a material default under this Sublease. In
addition, Subtenant shall be in material default of its obligations under this
Sublease if Subtenant is responsible for the occurrence of any of the events of
default set forth in Section 26 of the Master Lease, incorporated herein, as
modified by this Sublease, or if Subtenant commits any other act or omission
which constitutes a default under the Master Lease.
18. SUBLANDLORD DEFAULT: Sublandlord shall not be deemed in default of
this Sublease unless Sublandlord fails within a reasonable period of time to
perform an obligation required to be performed by Sublandlord. For purposes of
this Paragraph 18, a reasonable period of time shall in no event be less than
thirty (30) days after receipt by Sublandlord of written notice specifying
wherein such obligation of Sublandlord which has not been performed; provided,
however, that if the nature of Sublandlord's obligation is such that more than
thirty (30) days after such notice are reasonably required for its performance,
then Sublandlord shall not be in default of this Sublease if performance is
commenced within such thirty (30) day period and thereafter diligently pursued
to completion.
19. REMEDIES: In the event of any default by Subtenant, Sublandlord shall
have all remedies provided to the "Landlord" in the Master Lease as if an event
of default had occurred thereunder and all other rights and remedies otherwise
available at law and in equity. Without limiting the generality of the
foregoing, Landlord shall have the remedy described in California Civil Code
Section 1951.4 (Sublandlord may continue the Sublease in effect after
Subtenant's breach and abandonment and recover rent as it becomes
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due, if Subtenant has right to sublet or assign, subject only to reasonable
limitations). Sublandlord may resort to its remedies cumulatively or in the
alternative.
20. SURRENDER: On or before the Expiration Date or any sooner termination
of this Sublease, Subtenant shall remove all of its trade fixtures, personal
property and all alterations constructed by Subtenant in the Premises which are
required to be removed under the terms of this Sublease or the Master Lease and
shall surrender the Premises to Sublandlord in (a) good condition, order and
repair, reasonable wear and tear excepted and (b) free of Hazardous Materials
used, stored, handled, manufactured, transported, released, discharged, emitted
or disposed of by Subtenant or it agents, employees, contractors or invitees.
Subtenant shall repair any damage to the Premises caused by Subtenant's removal
of its personal property, furnishings and equipment. If the Premises are not so
surrendered, then Subtenant shall be liable to Sublandlord for all reasonable
costs incurred by Sublandlord in returning the Premises to said required
condition, plus interest thereon at the Applicable Interest Rate. Subtenant
shall not be required to remove any tenant improvements or alterations
installed in the Premises by Sublandlord. Subtenant shall be required to remove
all equipment set forth on EXHIBIT D, to the extent such removal is permitted
under the terms of this Sublease and/or the Master Lease, of if required by
Sublandlord.
21. BROKER: Sublandlord and Subtenant each represent to the other that
they have dealt with no real estate brokers, finders, agents or salesmen in
connection with this transaction other than Spallino Reid representing
Sublandlord and Cornish & Carey representing Subtenant. Each party agrees to
indemnify and hold the other party harmless from and against all claims for
brokerage commissions, finder's fees or other compensation made by any other
agent, broker, salesman or finder as a consequence of the other party's actions
or dealings with such other agent, broker, salesman, or finder.
22. NOTICES: Unless at least five (5) days' prior written notice is given
in the manner set forth in this paragraph, the address of each party for all
purposes connected with this Sublease shall be that address set forth below
their signatures at the end of this Sublease. All notices, demands or
communications in connection with this Sublease shall be properly addressed and
delivered as follows: (a) personally delivered; or (b) submitted to an
overnight courier service, charges prepaid; or (c) deposited in the mail
(certified, return-receipt requested, and postage prepaid). Notices shall be
deemed delivered upon receipt, if personally delivered, one (1) business day
after being so submitted to an overnight courier service and two (2) business
days after deposit in the United States mail, if mailed as set forth above. All
notices given to Master Landlord under the Master Lease shall be considered
received only when delivered in accordance with the Master Lease.
23. OTHER SUBLEASE TERMS:
A. INCORPORATION BY REFERENCE. Except as set forth below and except as
otherwise provided in this Sublease, the terms and conditions of this Sublease
shall include all of the terms of the Master Lease and such terms are
incorporated into this Sublease as if fully set forth herein, except that: (i)
each reference in such incorporated sections to "Lease" shall be deemed a
reference to this "Sublease"; (ii) each reference to the "Premises" shall be
deemed a reference to the "Premises" herein; (iii) each reference to "Landlord"
and "Tenant" shall be deemed a reference to "Sublandlord" and "Subtenant",
respectively, except as otherwise expressly set forth herein; (iv) with respect
to work, services, utilities, electricity, repairs (or damage caused by Master
Landlord), restoration, insurance, indemnities, reimbursements,
representations, warranties which are the obligation of the Master Landlord
under the Master Lease or the performance of any other obligation of Master
Landlord under the Master Lease, whether or not incorporated herein, the sole
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obligation of Sublandlord shall be to request the same in writing from Master
Landlord as and when requested to do so by Subtenant, and to use Sublandlord's
reasonable efforts (not including the payment of money, the incurring of any
liabilities, or the institution of legal proceedings) to obtain Master
Landlord's performance; (v) with respect to any obligation of Subtenant to be
performed under this Sublease, wherever the Master Lease grants to "Tenant" a
specified number of days to perform its obligations under the Master Lease,
except as otherwise provided herein, Subtenant shall three (3) fewer days (but
not less than three (3)) to perform the obligation, including, without
limitation, curing any defaults; (vi) with respect to any approval required to
be obtained from the "Landlord" under the Master Lease, such approval must be
obtained from both Master Landlord and Sublandlord, and Sublandlord's
withholding of approval shall in all events be deemed reasonable if for any
reason Master Landlord's approval is not obtained or is denied; (vii) with
respect to any approval required to be obtained from the Sublandlord in
connection with this Sublease, Sublandlord's approval shall not be unreasonably
withheld, except to the extent otherwise set forth in the Master Lease,
provided Sublandlord's withholding of approval shall in all events be deemed
reasonable if for any reason Master Landlord's approval is not obtained or is
denied; (viii) in any case where the "Landlord" reserves or is granted the
right to manage, supervise, control, repair, alter, regulate the use of, enter
or use the Premises or any areas beneath, above or adjacent thereto, such
reservation or grant of right of entry shall be deemed to be for the benefit of
both Master Landlord and Sublandlord; (viii) in any case where "Tenant" is to
indemnify, release or waive claims against "Landlord", such indemnity, release
or waiver shall be deemed to run from Subtenant to both Master Landlord and
Sublandlord; (ix) in any case where "Tenant" is to execute and deliver certain
documents or notices to "Landlord", such obligation shall be deemed to run from
Subtenant to both Master Landlord and Sublandlord; and (x) the following
modifications shall be made to the Master Lease as incorporated herein:
(a) the following provisions of the Master Lease are not incorporated
herein: Basic Lease Information (except Landlord and Landlord's Notice Address
(for the purpose of incorporating the Master Landlord's name and address, only)
and except for Project Description, Building Description, Permitted Use,
Parking Density, Tenant's Proportionate Share of Building, Tenant's
Proportionate Share of Project) Sections 3, 6, 19, 32 (first sentence),
Additional Paragraphs to Lease Section 39 and the Addenda to Lease Agreement;
references to "Landlord" in the following provisions shall mean "Master
Landlord" only (subject, however, to clauses (iv) through (ix) of the
introductory language to this Paragraph 22.A): Sections 7.E, 8.A, 10, 16, 20,
24 (except first reference to "Landlord" and except 24.E) and 28;
(b) references to "twenty (20) days" in Section 7.E shall be changed to
"fifteen (15) days";
(c) the phrase "except as expressly otherwise provided in Paragraph 10" in
the second sentence of Section 8.B(6) of the Lease shall be deleted;
(d) Section 34 of the Lease, incorporated herein, shall not apply to
Subtenant's obligation to surrender the Premises in accordance with the
Sublease or apply to any monetary obligation of Subtenant;
(e) any right to abate rent provided to Subtenant through incorporation of
the provisions of the Master Lease shall not exceed the rent actually abated
under the Master Lease.
24. ASSUMPTION OF OBLIGATIONS: This Sublease is and at all times shall be
subject and subordinate to the Master Lease and the rights of Master Landlord
thereunder. Subtenant hereby expressly assumes and agrees: (i) to comply with
all provisions of the Master Lease which are assumed by Subtenant hereunder;
and (ii) to perform all the obligations on the part of the "Tenant" to be
performed under the terms of the Master
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Lease, except as otherwise expressly provided herein. In the event the Master
Lease is terminated for any reason whatsoever, this Sublease shall terminate
simultaneously with such termination without any liability of Sublandlord to
Subtenant. In the event of a conflict between the provisions of this Sublease
and the Master Lease, as between Sublandlord and Subtenant, the provisions of
this Sublease shall control.
25. RIGHT TO CONTEST: If Sublandlord does not have the right to contest
any matter in the Master Lease due to expiration of any time limit that may be
set forth therein or for any other reason, then notwithstanding any
incorporation of any such provision from the Master Lease in this Sublease,
Subtenant shall also not have the right to contest any such matter.
26. DAMAGE AND DESTRUCTION: Notwithstanding anything to the contrary in
Section 24 of the Master Lease, as incorporated herein, in the event the
Premises or the Building should be damaged or destroyed by a Casualty which is
not due to an act or omission of Subtenant or its agents, employees, invitees
or contractors, then Subtenant shall have the right to terminate this Sublease
if material restoration of the Premises are not substantially completed within
one hundred and eighty (180) days after the date of the damage or destruction.
27. CONDITIONS PRECEDENT: Notwithstanding anything to the contrary in this
Sublease, this Sublease and Sublandlord's and Subtenant's obligations hereunder
are conditioned upon Sublandlord's receipt of the written consent of Master
Landlord to this Sublease in form and substance satisfactory to Sublandlord and
Subtenant. If Sublandlord does not receive such consent within thirty (30) days
after execution of this Sublease by Sublandlord and Subtenant, then Sublandlord
may terminate this Sublease by giving Subtenant written notice thereof prior
to receipt of such consent, and upon such termination, Sub landlord shall
return to Subtenant the first month's Base Rent paid by Subtenant pursuant to
Paragraph 4.C hereof and the Security Deposit. If Sublandlord does not receive
such consent within forty-five (45) days after full execution of this Sublease
by Sublandlord and Subtenant, then Subtenant may terminate this Sublease by
giving Sublandlord written notice thereof prior to receipt of such consent, and
upon such termination, Sublandlord shall return to Subtenant the first month's
Base Rent paid by Subtenant pursuant to Paragraph 4.C hereof and the Security
Deposit. Subtenant can elect to waive the incorporation in the Consent to
Sublease of the "Special Provisions" (described in Subtenant's insert 6
"Special Provisions" to the Consent to Sublease), provided Subtenant delivers
written notice to Sublandlord setting forth such waiver.
28. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT: Upon full
execution of this Sublease by Sublandlord and Subtenant, Sublandlord shall ask
Master Landlord to request that any lender of Master Landlord who has a
security interest in the Premises or the Building, to provide Subtenant with a
Subordination, Non-Disturbance and Attornment Agreement in connection with this
Sublease. The execution or delivery of such an agreement shall not be a
condition to this Sublease.
29. MASTER LEASE: Sublandlord shall at all times faithfully and timely
comply with all of its obligations under the Master Lease which have not been
assumed by Subtenant under this Sublease. Without limiting any other right or
remedy of Subtenant under this Sublease, if Master Landlord seeks to terminate
the Master Lease because of an event of default by Sublandlord, Sublandlord
shall use its reasonable good faith efforts to maintain the Master Lease in
full force and effect for the benefit of Subtenant. To the actual knowledge of
Sublandlord, without further inquiry: (a) the Master Lease is in full force and
effect and there exists under the Master Lease no default or event of default
by either Master Landlord or Sublandlord, nor has there occurred any event
which with the giving of notice or the passage of time or both, could
constitute such a default or event of default; (b) there are no pending or
threatened actions, suits or proceedings before
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any court or administrative agency against Sublandlord which could adversely
affect the Premises or any part thereof or the ability of Sublandlord to
perform its obligations under the Master Lease; (c) there is no pending or
threatened condemnation or similar proceeding affecting the Premises or any
portion thereof, and Sublandlord has no knowledge that any such action
currently is contemplated; (d) Sublandlord has not received any written notice
from any insurance company of any defects or inadequacies of the Premises which
would adversely affect the insurability of the Premises or materially increase
the premiums for insurance thereof; and (e) Sublandlord has not received any
written notice from any applicable governmental agency that the condition of
the Premises violates any applicable law or regulation; and (f) there are no
Hazardous Materials on the Premises that require remediation under any
applicable environmental laws. If there is an Event of Default under the Master
Lease which is due to an act or omission of Sublandlord (and not due to an act
or omission of Subtenant or any of its agents, employees, contractors,
invitees, successors, subtenants or assigns), Subtenant can elect, at is sole
discretion, to cure such Event of Default by making payment directly to the
Master Landlord or performing such obligation, and thereafter, until
Sublandlord reimburses Subtenant for its out of pocket costs incurred for such
direct performance (plus interest at the Applicable Interest Rate from the date
paid by Subtenant until the dated reimbursed by Sublandlord), Subtenant can
further elect to make all payments or other performances required hereunder
directly to the Master Landlord, provided Master Landlord elects to recognize
and/or permit such action. If there is an Event of Default under the Master
Lease due to an act or omission of Subtenant or Subtenant's agents, employees,
contractors, invitees, successors, subtenants or assigns, Subtenant shall not
have the rights set forth in the immediately preceding sentence.
30. COUNTERPARTS: This Sublease may be executed in one (1) or more
counterparts each of which shall be deemed an original but all of which
together shall constitute one (1) and the same instrument. Signature copies may
be detached from the counterparts and attached to a single copy of this
Sublease physically to form one (1) document.
IN WITNESS WHEREOF, the parties have executed this Sublease as of the
day and year first above written.
SUBLANDLORD: SUBTENANT:
CONCENTRIC NETWORK CORPORATION IMGIS, INC. DBA "ADFORCE"
By: /s/ PETER J. BERGERON By: /s/ REX S. JACKSON
------------------------------ ----------------------------
Print Name: PETER J. BERGERON Print Name: REX S. JACKSON
---------------------- --------------------
Title: CORPORATE SECRETARY Title: V.P. & G.C.
--------------------------- -------------------------
By:___________________________ By:_____________________________
Print Name:___________________ Print Name:_____________________
Title:________________________ Title:__________________________
Address: Address:
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EXHIBIT A
BASIC LEASE INFORMATION
INDUSTRIAL NET
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LEASE DATE: February 22, 1998
(SAME AS DATE IN FIRST PARAGRAPH OF LEASE)
TENANT: Concentric Network Corporation, Inc.
TENANT'S NOTICE ADDRESS: 10590 N. Tantau Avenue, Cupertino, California
TENANT'S BILLING ADDRESS: 10590 N. Tantau Avenue, Cupertino, California
TENANT CONTACT: Peter Bergeron PHONE NUMBER: 408-342-2812
LANDLORD: Spieker Properties, L.P., a California limited partnership
LANDLORD'S NOTICE ADDRESS: 2180 Sand Hill Road, Suite 100, Menlo Park, California
LANDLORD'S REMITTANCE ADDRESS: P.O. Box 45587, Department 10161, San Francisco, California
PROJECT
DESCRIPTION: That two (2) building complex totaling approximately 64,680
square feet situated on 4.46 acres of land commonly known as
the Cupertino Business Center, Cupertino, California. The
Project is outlined in green on Exhibit "A"
BUILDING
DESCRIPTION: That approximate 41,151 square foot one story building
commonly known as 10590 N. Tantau Avenue. The building is
outlined in blue on Exhibit "A".
PREMISES: That entire approximate 41,151 square foot building commonly
known as 10590 N. Tantau Avenue. The Premises are outlined
in red on Exhibit "A"
PERMITTED USE: General office use.
PARKING DENSITY: Non-exclusive use of 164 parking spaces.
SCHEDULED TERM COMMENCEMENT DATE: May 1, 1998
SCHEDULED LENGTH OF TERM: Sixty (60) months
RENT:
BASE RENT: $94,647.30 per month
----------------------
(subject to adjustment as provided in Paragraph 38.A. hereof)
ESTIMATED FIRST YEAR OPERATING EXPENSES: $8,075.00 per month
----------------------
SECURITY DEPOSIT: $110,723.95
-----------
TENANT'S PROPORTIONATE SHARE:
OF BUILDING: 100.0%
OF PROJECT: 63.62%
</TABLE>
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Basic Lease Information..................................................................................1
Table of Contents........................................................................................2
1. Premises.................................................................................................3
2. Possession and Lease Commencement........................................................................3
3. Term.....................................................................................................3
4. Use......................................................................................................3
5. Rules and Regulations....................................................................................4
6. Rent.....................................................................................................4
7. Operating Expenses.......................................................................................4
8. Insurance and Indemnification............................................................................6
9. Waiver of Rights.........................................................................................7
10. Landlord's Repairs and Maintenance.......................................................................7
11. Tenant's Repairs and Maintenance.........................................................................7
12. Alterations..............................................................................................8
13. Signs....................................................................................................8
14. Inspection/Posting Notices...............................................................................8
15. Utilities................................................................................................8
16. Subordination............................................................................................8
17. Financial Statements.....................................................................................9
18. Estoppel Certificate.....................................................................................9
19. Security Deposit.........................................................................................9
20. Tenant's Remedies........................................................................................9
21. Assignment and Subletting................................................................................9
22. Authority of Tenant.....................................................................................10
23. Condemnation............................................................................................10
24. Casualty Damage.........................................................................................10
25. Holding Over............................................................................................11
26. Default.................................................................................................11
27. Liens...................................................................................................12
28. Substitution............................................................................................12
29. Transfers by Landlord...................................................................................13
30. Right of Landlord to Perform Tenant's Covenants.........................................................13
31. Waiver..................................................................................................13
32. Notices.................................................................................................13
33. Attorney's Fees.........................................................................................13
34. Successors and Assigns..................................................................................13
35. Force Majeure...........................................................................................13
36. Surrender of Premises...................................................................................14
37. Miscellaneous...........................................................................................14
38. Additional Provisions...................................................................................14
Signatures..............................................................................................15
</TABLE>
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Exhibits:
Exhibit A......................................................................Site Plan, Property Description
Exhibit B...............................................................Tenant Improvements and Specifications
Additional Exhibits as Required
</TABLE>
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LEASE
THIS LEASE is made as of the 22nd day of February, 1998, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"LANDLORD"), and Concentric Network Corporation, Inc. (hereinafter called
"TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the
terms and conditions hereinafter set forth, those premises (the "PREMISES")
outlined in red on EXHIBIT A and described in the Basic Lease Information.
The Premises shall be all or part of a building (the "BUILDING") and of a
project (the "PROJECT"), which may consist of more than one building, as
described in the Basic Lease Information. The Building and Project are
outlined in blue and green respectively on EXHIBIT A. Additionally, the
number of buildings which constitute the Project may change from time to
time. Tenant accepts the area of the Premises as specified in this Lease as
the approximate area of the Premises, and acknowledges and agrees that Tenant
shall in no event be entitled to a recalculation of the square footage of the
Premises and that no such recalculation shall reduce Tenant's obligations
under this Lease in any manner, including without limitation the amount of
Base Rent payable by Tenant or Tenant's Proportionate Share of the Building
and of the Project.
2. POSSESSION AND LEASE COMMENCEMENT
A. EXISTING IMPROVEMENTS. Tenant acknowledges that Tenant has
inspected and accepts the Premises in their present condition, broom clean,
"as is," and as suitable for the purpose for which the Premises are leased
and for Tenant's intended use of the Premises. Tenant agrees that the
Premises and other improvements are in good and satisfactory condition as of
when possession was taken. Tenant further acknowledges that no
representations as to the condition or repair of the Premises nor promises to
alter, remodel or improve the Premises have been made by Landlord or any
agents of Landlord unless such are expressly set forth in this Lease.
3. TERM
The term of this Lease (the "TERM") shall commence on May 1, 1998
("TERM COMMENCEMENT DATE") and continue in full force and effect for the number
of months specified as the Length of Term in the Basic Lease Information or
until this Lease is terminated as otherwise provided herein. If the Term
Commencement Date is a date other than the first day of the calendar month, the
Term shall be the number of months of the Length of Term in addition to the
remainder of the calendar month following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use
specified in the Basic Lease Information ("PERMITTED USE") and for no other
use or purpose. Tenant shall control Tenant's employees, agents, customers,
visitors, invitees, licensees, contractors, assignees and subtenants
(collectively, "TENANT'S PARTIES") in such a manner that Tenant and Tenant's
Parties cumulatively do not exceed the parking density specified in the Basic
Lease Information (the "PARKING DENSITY") at any time. Tenant and Tenant's
Parties shall have the nonexclusive right to use, in common with other
parties occupying the Building or Project, the parking areas, driveways and
other common areas of the Building and Project, subject to such rules and
regulations as Landlord may from time to time prescribe.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas,
substances, noise or vibrations to emanate from the Premises or from any portion
of the common areas as a result of Tenant's or any Tenant's Party's use thereof,
nor take any action which would constitute a nuisance or would disturb, obstruct
or endanger any other tenants or occupants of the Building or Project or
interfere with their use of their respective premises or common areas. Storage
outside the Premises of materials, vehicles or any other items is prohibited.
Tenant shall not use or allow the Premises to be used for any immoral, improper
or unlawful purpose, nor shall Tenant cause or maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer the commission
of any waste in, on or about the Premises. Tenant shall not allow any sale by
auction upon the Premises, or place any loads upon the floors, walls or ceilings
which endanger the structure, or place any harmful substances in the drainage
system of the Building or Project. No waste, materials or refuse shall be dumped
upon or permitted to remain outside the Premises except in trash containers
placed inside exterior enclosures designated for that purpose by Landlord.
Landlord shall not be responsible to Tenant for the non-compliance by any other
tenant or occupant of the Building or Project with any of the above-referenced
rules or any other terms or provisions of such tenant's or occupant's lease or
other contract.
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C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant
accepts the Premises in the condition existing as of the date of such entry.
Tenant shall at its sole cost and expense strictly comply with all existing
or future applicable municipal, state and federal and other governmental
statutes, rules, requirements, regulations, laws and ordinances, including
zoning ordinances and regulations, and covenants, easements and restrictions
of record governing and relating to the use, occupancy or possession of the
Premises, to Tenant's use of the common areas, or to the use, storage,
generation or disposal of Hazardous Materials (hereinafter defined)
(collectively "REGULATIONS"). Tenant shall at its sole cost and expense
obtain any and all licenses or permits necessary for Tenant's use of the
Premises. Tenant shall at its sole cost and expense promptly comply with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted. Tenant shall not do or permit anything to be done in,
on, under or about the Project or bring or keep anything which will in any
way increase the rate of any insurance upon the Premises, Building or Project
or upon any contents therein or cause a cancellation of said insurance or
otherwise affect said insurance in any manner. Tenant shall indemnify,
defend, protect and hold Landlord harmless from and against any loss, cost,
expense, damage, attorneys' fees or liability arising out of the failure of
Tenant to comply with any Regulation. Tenant's obligations pursuant to the
foregoing indemnity shall survive the expiration or earlier termination of
this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS"
shall include, but not be limited to, hazardous, toxic and radioactive
materials and those substances defined as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or other similar
designations in any Regulation. Tenant shall not cause, or allow any of
Tenant's Parties to cause, any Hazardous Materials to be used, generated,
stored or disposed of on or about the Premises, the Building or the Project
or surrounding land or environment in violation of any Regulations. Tenant
must obtain Landlord's written consent prior to the introduction of any
Hazardous Materials onto the Project. Notwithstanding the foregoing, Tenant
may handle, store, use and dispose of products containing small quantities of
Hazardous Materials for "general office purposes" (such as toner for copiers)
to the extent customary and necessary for the Permitted Use of the Premises;
provided that Tenant shall always handle, store, use, and dispose of any such
Hazardous Materials in a safe and lawful manner and never allow such
Hazardous Materials to contaminate the Premises, Building, or Project or
surrounding land or environment. Tenant shall immediately notify Landlord of
any Hazardous Materials' contamination of any portion of the Project of which
Tenant becomes aware, whether or not caused by Tenant. Landlord shall have
the right at all reasonable times to inspect the Premises and to conduct
tests and investigations to determine whether Tenant is in compliance with
the foregoing provisions, the costs of all such inspections, tests and
investigations to be borne by Tenant. Tenant shall indemnify, defend, protect
and hold Landlord harmless from and against any and all claims, liabilities,
losses, costs and expenses (including attorneys' and consultants' fees),
demands, causes of action, or judgments directly or indirectly arising out of
the use, generation, storage, release, or disposal of Hazardous Materials by
Tenant or any of Tenant's Parties in, on or about the Premises, the Building
or the Project or surrounding land or environment, excluding any
contamination which may have been caused by any prior tenants. The foregoing
indemnity shall include, without limitation, damages for personal or bodily
injury, property damage, damage to the environment or natural resources
occurring on or off the Premises, losses attributable to diminution in value
or adverse effects on marketability, the cost of any investigation,
monitoring, government oversight, repair, removal, remediation, restoration,
abatement, and disposal, and the preparation of any closure or other required
plans, whether such action is required or necessary prior to or following the
expiration or earlier termination of this Lease. Neither the consent by
Landlord to the use, generation, storage, release or disposal of Hazardous
Materials nor the strict compliance by Tenant with all laws pertaining to
Hazardous Materials shall excuse Tenant from Tenant's obligation of
indemnification pursuant to this Paragraph 4.D. Tenant's obligations pursuant
to the foregoing indemnity shall survive the expiration or earlier
termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with any rules and
regulations and any modifications or additions thereto which Landlord may from
time to time prescribe in writing for the purpose of maintaining the proper
care, cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant's Parties to comply with such
rules and regulations. Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project with
any of such rules and regulations, any other tenant's or occupant's lease or any
Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive,
without notice or demand throughout the Term, Base Rent as specified in the
Basic Lease Information, payable in monthly installments in advance on or before
the first day of each calendar month, in lawful money of the United States,
without deduction or offset whatsoever, at the Remittance Address specified in
the Basic Lease Information or to such other place as Landlord may from time to
time designate in writing. Base Rent for the first full month of the Term shall
be paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base Rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
in addenda appended to this Lease (if referred to in Paragraph 38.A.). As used
herein, the term "Base Rent" shall mean the Base Rent specified in the Basic
Lease Information as it may be so adjusted from time to time. See Addendum 1.
B. ADDITIONAL RENT. All monies other than Base Rent required to be
paid by Tenant hereunder, including, but not limited to, Tenant's
Proportionate Share of Operating Expenses, as specified in Paragraph 7 of
this Lease, the interest and late charge described in Paragraphs 26.C. and
D., and any monies spent by Landlord pursuant to Paragraph 30, shall be
considered additional rent ("ADDITIONAL RENT"). "RENT" shall mean Base Rent
and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be
paid hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate
Share, as defined in the Basic Lease Information, of Operating Expenses
(defined below) in the manner set forth below. Tenant shall pay the
applicable Tenant's Proportionate Share of each such Operating Expenses.
Landlord and Tenant acknowledge that if the number of buildings which
constitute the Project increases or decreases, Landlord shall reasonably
adjust Tenant's Proportionate Share of the Project to reflect the change.
Landlord's determination of Tenant's Proportionate Share of the Building and
of the Project shall be conclusive so long as it is reasonably and
consistently applied. "OPERATING EXPENSES" shall mean all expenses and costs
of every kind and nature which Landlord shall pay or become obligated to pay,
because of or in connection with the ownership, management, maintenance,
repair, preservation, replacement and operation of the Building or Project
and its supporting facilities (as determined in a reasonable manner) other
than those expenses and costs which are specifically attributable to Tenant
or which are expressly made the financial responsibility of Landlord pursuant
to this Lease. Operating Expenses shall include, but are not limited to, the
following:
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes
or fees, gross receipts taxes, service payments in lieu of such taxes
or fees, annual or periodic license or use fees, excises, transit
charges, and other impositions, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind (including
fees "in-lieu" of any such tax or assessment) which are now or
hereafter assessed, levied, charged, confirmed, or imposed by any
public authority upon the Building or Project, its operations or the
Rent (or any portion or component thereof), or any tax, assessment or
fee imposed in substitution, partially or totally, of any of the above.
Operating Expenses shall also include any taxes, assessments,
reassessments, or other fees or impositions with respect to the
development, leasing,
4
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management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof, or upon this
transaction or any document creating or transferring an interest in
the Premises. Taxes shall not include any estate or inheritance tax.
In the event that it shall not be lawful for Tenant to reimburse
Landlord for all or any part of such taxes, the monthly rental
payable to Landlord under this Lease shall be revised to net
Landlord the same net rental after imposition of any such taxes by
Landlord as would have been payable to Landlord prior to the payment
of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but
not limited to, any deductible amounts, premiums and other costs of
insurance incurred by Landlord, including for the insurance coverage
set forth in Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(A) Repairs, replacements, and general maintenance of and for
the Building and Project and public and common areas of the
Building and Project, including, but not limited to, the roof,
pest extermination, landscaped areas, parking and service
areas, driveways, truck staging areas, rail spur areas, fire
sprinkler systems, sanitary and storm sewer lines, utility
services, electric and telephone equipment and wiring
servicing, exterior lighting, and any other items or areas
which affect the operation or exterior appearance of the
Building or Project, which determination shall be at
Landlord's discretion, except for: those items expressly made
the financial responsibility of Landlord pursuant to Paragraph
10 hereof; those items to the extent paid for by the proceeds
of insurance; and those items attributable solely or jointly
to specific tenants of the Building or Project.
(B) Repairs, replacements, and general maintenance shall
include the cost of any capital improvements made to or
capital assets acquired for the Project or Building that in
Landlord's discretion may reduce any other Operating Expenses,
including present or future repair work, are reasonably
necessary for the health and safety of the occupants of the
Building or Project, or are required under any governmental
law or regulation, such costs or allocable portions thereof to
be amortized over such reasonable period as Landlord shall
determine, together with interest on the unamortized balance
at the "prime rate" charged by Wells Fargo Bank, N.A. (San
Francisco) or its successor at the time such improvements or
capital assets are constructed or acquired, plus two (2)
percentage points, but in no event more than the maximum rate
permitted by law.
(C) Payment under or for any easement, license, permit,
operating agreement, declaration, restrictive covenant or
instrument relating to the Building or Project.
(D) All expenses related to services and costs of supplies and
equipment used in maintaining the Premises, Building and
Project, the equipment therein and the adjacent sidewalks,
driveways, parking and service areas, including, without
limitation, expenses related to service agreements regarding
security and fire and other alarm systems, janitorial services
to the extent not addressed in Paragraph 11 hereof, window
cleaning, elevator maintenance, Building exterior maintenance,
landscaping and expenses related to the administration,
management and operation of the Project, including without
limitation salaries, wages and benefits.
(4) UTILITIES. The cost of supplying any utilities which benefit
all or a portion of the Premises, Building or Project to the extent not
addressed in Paragraph 15 hereof.
(5) MANAGEMENT FEE. A management and accounting cost recovery
fee equal to three percent (3%) of the sum of Base Rent.
In the event that the Building and/or Project is not fully occupied
during any fiscal year of the Term as determined by Landlord, an adjustment
shall be made in computing the Operating Expenses for such year so that Tenant
pays its proportionate share of all variable items (i.e., component expenses
that are affected by variations in occupancy levels) of Operating Expenses, as
reasonably determined by Landlord; provided, however, that in no event shall
Landlord be entitled to collect in excess of one hundred percent (100%) of the
total Operating Expenses from all of the tenants in the Building or Project, as
the case may be.
Operating Expenses shall not specific costs incurred for the account
of, separately billed to and paid by specific tenants. Notwithstanding anything
herein to the contrary, in any instance wherein Landlord, in Landlord's
reasonable discretion, deems Tenant to be responsible for any amounts greater
than Tenant's Proportionate Share, Landlord shall have the right to allocate
costs in any manner Landlord deems appropriate.
The above enumeration of services and facilities shall not be deemed to
impose an obligation on Landlord to make available or provide such services or
facilities except to the extent Landlord has specifically agreed elsewhere in
this Lease to make the same available or provide the same. Without limiting the
generality of the foregoing, Tenant acknowledges and agrees that it shall be
responsible for providing adequate security for its use of the Premises and
Project and that Landlord shall have no obligation or liability with respect
thereto, except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING
EXPENSES" for any particular year shall mean Landlord's estimate of the
Operating Expenses for such fiscal year made with respect to such fiscal year
as hereinafter provided. Landlord shall have the right from time to time to
revise its fiscal year and interim accounting periods so long as the periods
as so revised are reconciled with prior periods in a reasonable manner.
During the last month of each fiscal year during the Term, or as soon
thereafter as practicable, Landlord shall give Tenant written notice of the
Estimated Operating Expenses for the ensuing fiscal year. Tenant shall pay
Tenant's Proportionate Share of the Estimated Operating Expenses with
installments of Base Rent for the fiscal year to which the Estimated
Operating Expenses applies in monthly installments on the first day of each
calendar month during such year, in advance. If at any time during the course
of the fiscal year, Landlord determines that Operating Expenses are projected
to vary from the then Estimated Operating Expenses by more than five percent
(5%), Landlord may, by written notice to Tenant, revise the Estimated
Operating Expenses for the balance of such fiscal year, and Tenant's monthly
installments for the remainder of such year shall be adjusted so that by the
end of such fiscal year Tenant has paid to Landlord Tenant's Proportionate
Share of the revised Estimated Operating Expenses for such year.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE
ADJUSTMENT" shall mean the difference between Estimated Operating Expenses
and actual Operating Expenses for any fiscal year determined as hereinafter
provided. Within one hundred twenty (120) days after the end of each fiscal
year, as determined by Landlord, or as soon thereafter as practicable,
Landlord shall deliver to Tenant a statement of actual Operating Expenses for
the fiscal year just ended, accompanied by a computation of Operating Expense
Adjustment. If such statement shows that Tenant's payment based upon
Estimated Operating Expenses is less than Tenant's Proportionate Share of
Operating Expenses, then Tenant shall pay to Landlord the difference within
twenty (20) days after receipt of such statement. If such statement shows
that Tenant's payments of Estimated Operating Expenses exceed Tenant's
Proportionate Share of Operating Expenses, then (provided that Tenant is not
in default under this Lease) Landlord shall pay to Tenant the difference
within twenty (20) days after delivery of such statement to Tenant. If this
Lease has been terminated or the Term hereof has expired prior to the date of
such statement, then the Operating Expense Adjustment shall be paid by the
appropriate party within twenty (20) days after the date of delivery
5
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of the statement. Should this Lease commence or terminate at any time other
than the first day of the fiscal year, Tenant's Proportionate Share of the
Operating Expense Adjustment shall be prorated by reference to the exact
number of calendar days during such fiscal year that this Lease is in effect.
D. NET LEASE. This shall be a triple net Lease and Base Rent shall be
paid to Landlord absolutely net of all costs and expenses, except as
specifically provided to the contrary in this Lease. The provisions for
payment of Operating Expenses and the Operating Expense Adjustment are
intended to pass on to Tenant and reimburse Landlord for all costs and
expenses of the nature described in Paragraph 7.A. incurred in connection
with the ownership, management, maintenance, repair, preservation,
replacement and operation of the Building and/or Project and such additional
facilities now and in subsequent years as may be determined by Landlord to be
necessary to the Building and/or Project.
E. TENANT AUDIT. In the event that Tenant shall dispute the amount set
forth in any statement provided by Landlord under Paragraph 7.B. or 7.C.
above, Tenant shall have the right, not later than twenty (20) days following
receipt of such statement and upon the condition that Tenant shall first
deposit with Landlord the full amount in dispute, to cause Landlord's books
and records with respect to Operating Expenses for such fiscal year to be
audited by certified public accountants selected by Tenant and subject to
Landlord's reasonable right of approval. The Operating Expense Adjustment
shall be appropriately adjusted on the basis of such audit. If such audit
discloses a liability for a refund in excess of ten percent (10%) of Tenant's
Proportionate Share of the Operating Expenses Adjustment previously reported,
the cost of such audit shall be borne by Landlord; otherwise the cost of such
audit shall be paid by Tenant. If Tenant shall not request an audit in
accordance with the provisions of this Paragraph 7.E. within twenty (20) days
after receipt of Landlord's statement provided pursuant to Paragraph 7.B. or
7.C., such statement shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be
for the sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Building against damage or destruction due to risks
including fire, vandalism, and malicious mischief in an amount not less
than the replacement cost thereof, in the form and with deductibles and
endorsements as selected by Landlord. At its election, Landlord may
instead obtain "All Risk" coverage, and may also obtain earthquake,
pollution, and/or flood insurance in amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also carry
insurance against loss of rent, in an amount equal to the amount of
Base Rent and Additional Rent that Landlord could be required to abate
to all Building tenants in the event of condemnation or casualty damage
for a period of twelve (12) months. Landlord may also carry such other
insurance as Landlord may deem prudent or advisable, including, without
limitation, liability insurance in such amounts and on such terms as
Landlord shall determine. Landlord shall not be obligated to insure any
furniture, machinery, goods, inventory or supplies, or other personal
property or fixtures which Tenant may keep or maintain in the Premises,
or any leasehold improvements, additions or alterations within the
Premises.
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property and
fixtures of Tenant and all improvements, additions or alterations made
by or for Tenant to the Premises on an "All Risk" basis, insuring such
property for the full replacement value of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance
applying to the use and occupancy of the Premises and the Project, and
any part of either, and any areas adjacent thereto, and the business
operated by Tenant or by any other occupant of the Premises. Such
insurance shall include Broad Form Contractual Liability insurance
coverage insuring all of Tenant's indemnity obligations under this
Lease. Such coverage shall have a minimum combined single limit of
liability of at least Two Million Dollars ($2,000,000.00), and a
minimum general aggregate limit of Three Million Dollars
($3,000,000.00), with an "Additional Insured - Managers or Lessors of
Premises Endorsement" and the "Amendment of the Pollution Exclusion
Endorsement." All such policies shall be written to apply to all bodily
injury property damage or loss, personal injury and other covered loss,
however occasioned, occurring during the policy term, shall be endorsed
to add Landlord and any party holding an interest to which this Lease
may be subordinated as an additional insured, and shall provide that
such coverage shall be "PRIMARY" and non-contributing with any
insurance maintained by Landlord, which shall be excess insurance only.
Such coverage shall also contain endorsements: (i) deleting any
employer exclusion on personal injury coverage; (ii) including
employees as additional insureds; and (iii) providing for coverage of
employer's automobile non-ownership liability. All such insurance shall
provide for the severability of interests of insureds; and shall be
written on an "OCCURRENCE" basis, which shall afford coverage for all
claims based on acts, omissions, injury and damage, which occurred or
arose (or the onset of which occurred or arose) in whole or in part
during the policy period. Tenant shall also procure at Tenant's sole
cost and expense and keep in effect during the Term of this Lease,
Legal Liability Insurance covering direct physical damage and loss of
use of the Building for which Tenant is legally obligated in an amount
of the full replacement value of the Building.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant
shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit for
bodily injury by disease; and One Million Dollars ($1,000,000) each
employee for bodily injury by disease, throughout the Term at Tenant's
sole cost and expense.
(4) COMMERCIAL AUTO LIABILITY INSURANCE. Tenant shall procure at
Tenant's sole cost and expense and keep in effect from the date of this
Lease and at all times until the end of the Term commercial auto
liability insurance with a combined limit of not less than One Million
Dollars ($1,000,000) for bodily injury and property damage for each
accident. Such insurance shall cover liability relating to any auto
(including owned, hired and non-owned autos).
(5) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty
(30) days' notice of cancellation or change in terms; and (ii) waive
all rights of subrogation by the insurance carrier against Landlord. If
at any time during the Term the amount or coverage of insurance which
Tenant is required to carry under this Paragraph 8.B. is, in Landlord's
reasonable judgment, materially less than the amount or type of
insurance coverage typically carried by owners or tenants of properties
located in the general area in which the Premises are located which are
similar to and operated for similar purposes as the Premises or if
Tenant's use of the Premises should change with or without Landlord's
consent, Landlord shall have the right to require Tenant to increase
the amount or change the types of insurance coverage required under
this Paragraph 8.B. All insurance policies required to be carried under
this Lease shall be written by
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companies rated A VIII or better in "Best's Insurance Guide" and
authorized to do business in the State of California. In any event
deductible amounts shall not exceed Five Thousand Dollars
($5,000.00). Tenant shall deliver to Landlord on or before the Term
Commencement Date, and thereafter at least thirty (30) days before
the expiration dates of the expired policies, certified copies of
Tenant's insurance policies, or a certificate evidencing the same
issued by the insurer thereunder; and, in any event Tenant shall
fail to procure such insurance, or to deliver such policies or
certificates, Landlord may, at Landlord's option and in addition to
Landlord's other remedies in the event of a default by Tenant
hereunder, procure the same for the account of Tenant, and the cost
thereof shall be paid to Landlord as Additional Rent.
(6) INDEMNIFICATION. Landlord shall indemnify, defend by counsel
reasonably acceptable to Tenant, protect and hold Tenant harmless from
and against any and all claims, liabilities, losses, costs, damages,
injuries or expenses, including reasonable attorneys' and court costs,
arising out of or related to the gross negligence or willful misconduct
of Landlord (or its agents, employees or contractors) or Landlord's
breach of this Lease. Notwithstanding the foregoing or anything to the
contrary contained in this Lease, Landlord shall in no event be liable
and Tenant hereby waives all claims against Landlord for any loss,
damage, injury or death to or of any person or property (including
without limitation personal property) caused by theft, fire, rain or
water leakage, or from the breakage, leakage, obstruction or other
defect of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or
light fixtures, electrical or other systems, or by acts of God
(including without limitation flood or earthquake), acts of a public
enemy, riot, strike, insurrection, war, court order, requisition or
order of governmental body or authority or for any damage or
inconvenience which may arise through repair, except as expressly
otherwise provided in Paragraph 10, regardless of Landlord's gross
negligence or misconduct (or its agents, employees or contractors) or
Landlord's breach of this Lease. In addition, Landlord shall in no
event be liable for injury to Tenant's business or any loss of income
or profit therefrom or for consequential damages, regardless of
Landlord's gross negligence or misconduct (or its agents, employees or
contractors) or Landlord's breach of this Lease. Tenant shall indemnify
by counsel reasonably acceptable to Landlord, protect and hold Landlord
harmless from and against any and all claims, liabilities, losses,
costs, loss of rents, liens, damages, injuries or expenses, including
reasonable attorneys' fees and court costs, arising out of or related
to: (1) claims of injury to or death of persons or damage to property
occurring or resulting directly or indirectly from the use or occupancy
of the Premises by Tenant or Tenant's Parties, or from activities of
Tenant or Tenant's Parties; (2) claims arising from work or labor
performed, or for materials or supplies furnished to or at the request
of Tenant in connection with performance of any work done for the
account of Tenant within the Premises or Project; (3) claims arising
from any breach or default on the part of Tenant in the performance of
any covenant contained in this Lease; and (4) claims arising from the
negligence or intentional acts or omissions of Tenant or Tenant's
Parties. The foregoing indemnity by Tenant shall not be applicable to
claims to the extent arising from the gross negligence or willful
misconduct of Landlord (or its agents, employees or contractors) or
Landlord's breach of this Lease. The provisions of this Paragraph shall
survive the expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage
provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive any right to recover against the other
for: (a) damages for injury to or death of persons; (b) damages to property,
including personal property; (c) damages to the Premises or any part thereof;
and (d) claims arising by reason of the foregoing due to hazards covered by
insurance to the extent of proceeds recovered therefrom. This provision is
intended to waive fully, any rights and/or claims arising by reason of the
foregoing, but only to the extent that any of the foregoing damages and/or
claims referred to above are covered, and only to the extent of such coverage,
by insurance actually carried by either Landlord or Tenant. This provision is
also intended to waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of subrogation on any insurance
carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its
rights as specified in this Paragraph 9 with respect to any subtenant that it
has approved pursuant to Paragraph 21 but only in exchange for the written
waiver of such rights to be given by such subtenant to Landlord. Each party
shall cause each insurance policy obtained by it to provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair,
reasonable wear and tear excepted, the structural soundness of the roof,
foundations, and exterior walls of the Building. The term "exterior walls" as
used herein shall not include windows, glass or plate glass, doors, dock bumpers
or dock plates, special store fronts or office entries. Any damage caused by or
repairs necessitated by any act of Tenant or Tenant's Parties may be repaired by
Landlord at Landlord's option and Tenant's expense. Tenant shall immediately
give Landlord written notice of any defect or need of repairs in such components
of the Building after which Landlord shall have a reasonable opportunity and the
right to enter the Premises at all reasonable times to repair same. Landlord's
liability with respect to any defects, repairs, or maintenance for which
Landlord is responsible under any of the provisions of this Lease shall be
limited to the cost of such repairs or maintenance, and there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of repairs,
alterations or improvements in or to any portion of the Premises or Project or
to fixtures, appurtenances or equipment in the Building, except as provided in
Paragraph 24. By taking possession of the Premises, Tenant accepts them as being
in good order, condition and repair and the condition in which Landlord is
obligated to deliver them.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain
all parts of the Premises in a first-class, good, clean and secure condition and
promptly make all necessary repairs and replacements, as determined by Landlord,
including but not limited to, all windows, glass, doors, walls, including
demising walls, and wall finishes, floors and floor covering, heating,
ventilating and air conditioning systems, ceiling insulation, truck doors,
hardware, dock bumpers, dock plates and levelers, plumbing work and fixtures,
downspouts, entries, skylights, smoke hatches, roof vents, electrical and
lighting systems, and fire sprinklers, with materials and workmanship of the
same character, kind and quality as the original. Tenant shall at Tenant's
expense also perform regular removal of trash and debris. If Tenant uses rail
and if required by the railroad company, Tenant agrees to sign a joint
maintenance agreement governing the use of the rail spur, if any. Tenant shall,
at Tenant's own expense, enter into a regularly scheduled preventative
maintenance/service contract with a maintenance contractor for servicing all hot
water, heating and air conditioning systems and equipment within or serving the
Premises. The maintenance contractor and the contract must be approved by
Landlord. The service contract must include all services suggested by the
equipment manufacturer within the operation/maintenance manual and must become
effective and a copy thereof delivered to Landlord within thirty (30) days after
the Term Commencement Date. Landlord may, upon notice to Tenant, enter into such
a service contract on behalf of Tenant or perform the work and in either case
charge Tenant the cost thereof along with a reasonable amount for Landlord's
overhead. Notwithstanding anything to the contrary contained herein, Tenant
shall, at its expense, promptly repair any damage to the Premises or the
Building or Project resulting from or caused by any act of Tenant or Tenant's
Parties.
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12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") exceeding $5,000 in any single instance or exceed $15,000 in any
given year without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, compatible with the Project and its mechanical, plumbing, electrical,
heating/ventilation/air conditioning systems, and (c) will not interfere with
the use and occupancy of any other portion of the Building or Project by any
other tenant or its invitees. Specifically, but without limiting the generality
of the foregoing, Landlord shall have the right of written consent for all plans
and specifications for the proposed Alterations, construction means and methods,
all appropriate permits and licenses, any contractor or subcontractor to be
employed on the work of Alterations, and the time for performance of such work,
and may impose rules and regulations for contractors and subcontractors
performing such work. Tenant shall also supply to Landlord any documents and
information reasonably requested by Landlord in connection with Landlord's
consideration of a request for approval hereunder. Tenant shall cause all
Alterations to be accomplished in a first-class, good and workmanlike manner,
and to comply with all applicable Regulations. Tenant shall at Tenant's sole
expense, perform any additional work required under applicable Regulations due
to the Alterations hereunder. No consent by Landlord to any proposed Alteration
or additional work shall constitute a waiver of Tenant's obligations under this
Paragraph 12. Tenant shall reimburse Landlord for all costs which Landlord may
incur in connection with granting approval to Tenant for any such Alterations,
including any costs or expenses which Landlord may incur in electing to have
outside architects and engineers review said plans and specifications. All such
Alterations shall remain the property of Tenant until the expiration or earlier
termination of this Lease, at which time they shall be and become the property
of Landlord if Landlord so elects. At the time of approval, Landlord will notify
Tenant if Landlord will require that Tenant, at Tenant's expense, remove any or
all Alterations made by Tenant and restore the Premises by the expiration or
earlier termination of this Lease, to their condition existing prior to the
construction of any such Alterations. All such removals any or allestoration
shall be accomplished in a good and workmanlike manner so as not to cause any
damage to the Premises or Project whatsoever. If Tenant fails to remove such
Alterations or Tenant's trade fixtures or furniture, Landlord may keep and use
them or remove any of them and cause them to be stored or sold in accordance
with applicable law, at Tenant's sole expense. In addition to and wholly apart
from Tenant's obligation to pay Tenant's Proportionate Share of Operating
Expenses, Tenant shall be responsible for and shall pay prior to delinquency any
taxes or governmental service fees, possessory interest taxes, fees or charges
in lieu of any such taxes, capital levies, or other charges imposed upon, levied
with respect to or assessed against its fixtures or personal property, on the
value of Alterations within the Premises, and on Tenant's interest pursuant to
this Lease, or any increase in any of the foregoing based on such Alterations.
To the extent that any such taxes are not separately assessed or billed to
Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, Tenant shall cause a timely notice of completion to
be recorded in the office of the recorder of the county in which the Building is
located.
13. SIGNS
All signs, notices and graphics of every kind or character, visible in
or from public view or corridors, the common areas or the exterior of the
Premises, shall be subject to Landlord's prior written approval, which Landlord
shall have the right to withhold in its absolute and sole discretion. Tenant
shall not place or maintain any banners whatsoever or any window decor in or on
any exterior window or window fronting upon any common areas or service area or
upon any truck doors or man doors without Landlord's prior written approval
which Landlord shall have the right to withhold in its absolute and sole
discretion. Any installation of signs or graphics on or about the Premises or
Project shall be subject to any Regulations and to any other requirements
imposed by Landlord. Tenant shall remove all such signs or graphics by the
termination of this Lease. Such installations and removals shall be made in such
manner as to avoid injury to or defacement of the Premises, Building or Project
and any other improvements contained therein, and Tenant shall repair any injury
or defacement including without limitation discoloration caused by such
installation or removal.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice
shall be required, Landlord and Landlord's agents and representatives, shall
have the right to enter the Premises to inspect the same, to clean, to perform
such work as may be permitted or required hereunder, to make repairs or
alterations to the Premises or Project or to other tenant spaces therein, to
deal with emergencies, to post such notices as may be permitted or required by
law to prevent the perfection of liens against Landlord's interest in the
Project or to exhibit the Premises to prospective tenants, purchasers,
encumbrancers or to others, or for any other purpose as Landlord may deem
necessary or desirable; provided, however, that Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's business operations. Tenant
shall not be entitled to any abatement of Rent by reason of the exercise of any
such right of entry. At any time within six (6) months prior to the expiration
of the Term or following any earlier termination of this Lease or agreement to
terminate this Lease, Landlord shall have the right to erect on the Premises
and/or Project a suitable sign indicating that the Premises are available for
lease.
15. UTILITIES
Tenant shall pay directly for all water, gas, heat, air conditioning,
light, power, telephone, sewer, sprinkler charges and other utilities and
services used on or from the Premises, together with any taxes, penalties,
surcharges or the like pertaining thereto, and maintenance charges for utilities
and shall furnish all electric light bulbs, ballasts and tubes. If any such
services are not separately metered to Tenant, Tenant shall pay a proportion, as
determined by Landlord, of all charges jointly serving other premises. Landlord
shall not be liable for any damages directly or indirectly resulting from nor
shall the Rent or any monies owed Landlord under this Lease herein reserved be
abated by reason of: (a) the installation, use or interruption of use of any
equipment used in connection with the furnishing of any such utilities or
services; (b) the failure to furnish or delay in furnishing any such utilities
or services when such failure or delay is caused by acts of God or the elements,
labor disturbances of any character, or any other accidents or other conditions
beyond the reasonable control of Landlord; or (c) the limitation, curtailment,
rationing or restriction on use of water, electricity, gas or any other form of
energy or any other service or utility whatsoever serving the Premises or
Project. Landlord shall be entitled to cooperate voluntarily and in a reasonable
manner with the efforts of national, state or local governmental agencies or
utility suppliers in reducing energy or other resource consumption. The
obligation to make services available hereunder shall be subject to the
limitations of any such voluntary, reasonable program.
16. SUBORDINATION
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, this Lease shall be subject
and subordinate at all times to: (a) all ground leases or underlying leases
which may now exist or hereafter be executed affecting the Premises and/or the
land upon which the Premises and Project are situated, or both; and (b) any
mortgage or deed of trust which may now exist or be placed upon the Building,
the Project and/or the land upon which the Premises or the Project are situated,
or said ground leases or underlying leases, or Landlord's interest or estate in
any of said items which is specified as security.
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Notwithstanding the foregoing, Landlord shall have the right to subordinate
or cause to be subordinated any such ground leases or underlying leases or
any such liens to this Lease. In the event that any ground lease or
underlying lease terminates for any reason or any mortgage or deed of trust
is foreclosed or a conveyance in lieu of foreclosure is made for any reason,
Tenant shall, notwithstanding any subordination, attorn to and become the
Tenant of the successor in interest to Landlord and Tenant shall not be
disturbed in its possession under this Lease by such successor in interest so
long as Tenant is not in default under this Lease. Within ten (10) days after
request by Landlord, Tenant shall execute and deliver any additional
documents evidencing Tenant's attornment or the subordination of this Lease
with respect to any such ground leases or underlying leases or any such
mortgage or deed of trust, in the form requested by Landlord or by any ground
landlord, mortgagee, or beneficiary under a deed of trust, subject to such
nondisturbance requirement.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to
Landlord Tenant's and any guarantor's current financial statements or other
information discussing financial worth of Tenant and any guarantor, which
Landlord shall use solely for purposes of this Lease and in connection with the
ownership, management, financing and disposition of the Project.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this Lease
has not been modified (or stating all modifications, written or oral, to this
Lease), the date to which Rent has been paid, the unexpired portion of this
Lease, that there are no current defaults by Landlord or Tenant under this Lease
(or specifying any such defaults), and such other matters pertaining to this
Lease as may be reasonably requested by Landlord. Failure by Tenant to execute
and deliver such certificate shall constitute an acceptance of the Premises and
acknowledgment by Tenant that the statements included are true and correct
without exception. Tenant agrees that if Tenant fails to execute and deliver
such certificate within such ten (10) day period, Landlord may execute and
deliver such certificate on Tenant's behalf and that such certificate shall be
binding on Tenant. Landlord and Tenant intend that any statement delivered
pursuant to this Paragraph may be relied upon by any mortgagee, beneficiary,
purchaser or prospective purchaser of the Project or any interest therein. The
parties agree that Tenant's obligation to furnish such estoppel certificates in
a timely fashion is a material inducement for Landlord's execution of this
Lease, and shall be an event of default if Tenant fails to fully comply or makes
any material misstatement in any such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a
security deposit as stated in the Basic Lease Information, which sum shall be
held by Landlord, without obligation to pay interest, as security for the
performance of Tenant's covenants and obligations under this Lease. The Security
Deposit is not an advance rental deposit or a measure of damages incurred by
Landlord in case of Tenant's default. Upon the occurrence of any event of
default by Tenant, Landlord may from time to time, without prejudice to any
other remedy provided herein or by law, use such fund as a credit to the extent
necessary to credit against any arrears of Rent or other payments due to
Landlord hereunder, and any other damage, injury, expense or liability caused by
such event of default, and Tenant shall pay to Landlord, on demand, the amount
so applied in order to restore the Security Deposit to its original amount.
Although the Security Deposit shall be deemed the property of Landlord, any
remaining balance of such deposit shall be returned by Landlord to Tenant at
such time after termination of this Lease that all of Tenant's obligations under
this Lease have been fulfilled. Landlord may use and commingle the Security
Deposit with other funds of Landlord.
20. TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease are not personal obligations of Landlord
or of the individual or other partners of Landlord or its or their partners,
directors, officers, or shareholders, and Tenant agrees to look solely to
Landlord's interest in the Project for the recovery of any amount from Landlord,
and shall not look to other assets of Landlord nor seek recourse against the
assets of the individual or other partners of Landlord or its or their partners,
directors, officers or shareholders. Any lien obtained to enforce any such
judgment and any levy of execution thereon shall be subject and subordinate to
any lien, mortgage or deed of trust on the Project.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. Tenant shall not assign or pledge this Lease or
sublet the Premises or any part thereof, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises or
any part thereof by anyone other than Tenant, or suffer or permit
any such assignment, pledge, subleasing or occupancy, without
Landlord's prior written consent except as provided herein. If
Tenant desires to assign this Lease or sublet any or all of the
Premises, Tenant shall give Landlord written notice (the "TRANSFER
NOTICE") at least forty-five (45) days prior to the anticipated
effective date of the proposed assignment or sublease, which shall
contain all of the information reasonably requested by Landlord to
address Landlord's decision criteria specified hereinafter.
Landlord shall then have a period of fifteen (15) days following
receipt of the Transfer Notice to notify Tenant in writing that
Landlord elects either: (1) to terminate this Lease as to the
space so affected as of the date so requested by Tenant; or (2) to
consent to the proposed assignment or sublease, subject, however,
to Landlord's prior written consent of the proposed assignee or
subtenant and of any related documents or agreements associated
with the assignment or sublease. If Landlord should fail to notify
Tenant in writing of such election within said period, Landlord
shall be deemed to have waived option (1) above, but written
consent by Landlord of the proposed assignee or subtenant shall
still be required. If Landlord does not exercise option (1) above,
Landlord's consent to a proposed assignment or sublease shall not
be unreasonably withheld.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other
instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be reasonable for Landlord to withhold
Landlord's consent in the following instances: the use of the Premises
by such proposed assignee or subtenant would not be a Permitted Use or
would violate any exclusivity arrangement which Landlord has with any
other tenant or occupant or would increase the Parking Density of the
Building or Project; the proposed assignee or subtenant is not of sound
financial condition as determined by Landlord in Landlord's sole
discretion; the proposed assignee or subtenant is a governmental
agency; the proposed assignee or subtenant does not have a good
reputation as a tenant of property; the proposed assignee or subtenant
is a person with whom Landlord is negotiating to lease space in the
Project or is a present tenant of the Project; the assignment or
subletting would entail any Alterations which would lessen the value of
the leasehold improvements in the Premises; or Tenant is in default of
any obligation of Tenant under this Lease, or Tenant has defaulted
under this Lease on three (3) or more occasions during any twelve (12)
months preceding the date that Tenant shall request consent. Failure by
Landlord to consent to a proposed assignee or subtenant shall not cause
a termination of this Lease. Upon a termination under Paragraph
21.A.(1)(i), Landlord may lease the Premises to any party, including
parties with whom Tenant has negotiated an assignment or sublease,
without incurring any liability to Tenant. At the option of Landlord, a
surrender and termination of this Lease shall operate as an assignment
to Landlord of some or all subleases or subtenancies. Landlord shall
exercise this option by giving notice of that assignment to such
subtenants on or before the effective date of the surrender and
termination.
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B. BONUS RENT. Any Rent or other consideration realized by Tenant under
any such sublease or assignment in excess of the Rent payable hereunder,
after amortization of a reasonable brokerage commission incurred by Tenant,
shall be divided and paid, five percent (5%) to Tenant, fifty percent (50%)
to Landlord. In any subletting or assignment undertaken by Tenant, Tenant
shall diligently seek to obtain the maximum rental amount available in the
marketplace for comparable space available for primary leasing.
C. CORPORATION. Notwithstanding the provisions of this Paragraph 21,
Tenant may assign this Lease or sublet any portion of the Premises to any
corporation which controls, is controlled by or is under common control with,
Tenant (each, a "PERMITTED TENANT AFFILIATE"), provided that the Permitted
Tenant Affiliate assumes, in full, the obligations of Tenant under this Lease
(or assumes, in the case of a sublease of a portion of the Term of the
Premises, the obligations of Tenant with respect to such portion) and has a
net worth at least equal to Tenant's net worth immediately before the
assignment or subletting. If Tenant is a corporation, a dissolution of the
corporation or a transfer (by one (1) or more transactions) of a majority of
the voting stock of Tenant shall be deemed to be an assignment of this Lease
subject to the provisions of this Paragraph 21; provided, however, that the
provisions of this sentence shall not apply to transactions with a
corporation into or with which Tenant is merged or consolidated or to which
substantially all of Tenant's assets are transferred (each a "surviving
corporation") where (i) the surviving corporation has a net worth at least
equal to Tenant's net worth immediately before the merger, consolidation or
asset transfer and (ii) the surviving corporation assumes, in full, the
obligations of Tenant under this Lease (or assumes, in the case of a sublease
of a portion of the Term or the Premises, the obligations of Tenant with
respect to such portion).
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or a change in the identity of the persons
responsible for the general credit obligations of said entity shall constitute
an assignment for all purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or
otherwise, shall relieve Tenant of any obligation under this Lease or alter
the primary liability of the Tenant named herein for the payment of Rent or
for the performance of any other obligations to be performed by Tenant,
including obligations contained in Paragraph 25 with respect to any assignee
or subtenant. Any assignment or subletting which conflicts with the
provisions hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority
to enter into this Lease and to perform all of Landlord's obligations hereunder
and that all persons signing this Lease on its behalf are authorized to do.
Tenant represents and warrants that it has full right and authority to enter
into this Lease, and to perform all of Tenant's obligations hereunder, and that
all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any
substantial part of the Project of which the Premises are a part should be
taken or condemned for any public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the
Permitted Use of the Premises, this Lease shall terminate and the Rent shall
be abated during the unexpired portion of this Lease, effective when the
physical taking of said Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the
Project of which the Premises are a part should be taken or condemned for any
public use under government law, ordinance or regulation, or by right of
eminent domain, or by private purchase in lieu thereof, and the taking
materially interferes with the Permitted Use of the Premises, and this Lease
is not terminated as provided in Paragraph 23.A. above, the Rent payable
hereunder during the unexpired portion of this Lease shall be reduced,
beginning on the date when the physical taking shall have occurred, to such
amount as may be fair and reasonable under all of the circumstances.
C. AWARD. Landlord shall be entitled to any and all payment, income,
rent, award or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance and Tenant shall have no claim
against Landlord or otherwise for the value of any unexpired portion of this
Lease. Notwithstanding the foregoing, any compensation specifically and
separately awarded Tenant for Tenant's personal property and moving costs,
shall be and remain the property of Tenant.
D. WAIVER OF CCP SECTION .1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed
by fire, tornado, or other casualty (collectively, "CASUALTY"), Tenant shall
give immediate written notice thereof to Landlord. Within thirty (30) days
after Landlord's receipt of such notice, Landlord shall notify Tenant whether
in Landlord's estimation material restoration of the Premises can reasonably
be made either: (1) within ninety (90) days; (2) in more than ninety (90)
days but within one hundred eighty (180) days; or (3) in more than one
hundred eighty (180) days from the date of such notice and receipt of
required permits for such restoration. Landlord's determination shall be
binding on Tenant.
B. WITHIN 90 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that material restoration can in Landlord's
estimation be reasonably completed within ninety (90) days after the date of
such notice and receipt of required permits for such restoration, this Lease
shall not terminate. Provided that insurance proceeds are received by
Landlord to fully repair the damage, Landlord shall proceed to rebuild and
repair the Premises in the manner determined by Landlord, except that
Landlord shall not be required to rebuild, repair or replace any part of the
Alterations which may have been placed on or about the Premises by Tenant. If
the Premises are untenantable in whole or in part following such damage, the
Rent payable hereunder during the period in which they are untenantable shall
be abated proportionately, but only to the extent of rental abatement
insurance proceeds received by Landlord during the time and to the extent the
Premises are unfit for occupancy.
C. GREATER THAN 90 DAYS. If the Premises or Building should be damaged
by Casualty to such extent that rebuilding or repairs can in Landlord's
estimation be reasonably completed in more than ninety (90) days but within
one hundred eighty (180) days after the date of such damage and receipt of
required permits for such rebuilding or repair, then Landlord shall have the
option of either: (1) terminating this Lease effective upon the date of the
occurrence of such damage, in which event the Rent shall be abated during the
unexpired portion of this Lease; or (2) electing to rebuild or repair the
Premises in the manner determined by Landlord. Notwithstanding the above,
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Landlord shall not be required to rebuild, repair or replace any part of any
Alterations which may have been placed, on or about the Premises by Tenant.
If the Premises are untenantable in whole or in part following such damage,
the Rent payable hereunder during the period in which they are untenantable
shall be abated proportionately, but only to the extent of rental abatement
insurance proceeds received by Landlord during the time and to the extent the
Premises are unfit for occupancy. In the event that Landlord should fail to
complete such repairs and rebuilding within one hundred eighty (180) days
after the date upon which Landlord is notified by Tenant of such damage and
receipt of required permits, such period of time to be extended for delays
caused by the fault or neglect of Tenant or otherwise by Tenant or because of
acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies
or fuels, or delays of the contractors or subcontractors or any other causes
or contingencies beyond the reasonable control of Landlord, Tenant may at
Tenant's option within ten (10) days after the expiration of such one hundred
eighty (180) day period (as such may be extended), terminate this Lease by
delivering written notice of termination to Landlord as Tenant's exclusive
remedy, whereupon all rights hereunder shall cease and terminate thirty (30)
days after Landlord's receipt of such termination notice.
D. GREATER THAN 180 DAYS. If the Premises or Building should be damaged
by Casualty that rebuilding or repairs cannot in Landlord's estimation be
completed one hundred eighty (180) days after such damage and receipt of
required permits for such rebuilding or repair, this Lease shall terminate
and the Rent shall be abated during the unexpired portion of this Lease,
effective upon the date of the occurrence of such damage.
E. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if
the Premises or any other portion of the Building are damaged by Casualty
resulting from the fault, negligence, or breach of this Lease by Tenant or
any of Tenant's Parties, Base Rent and Additional Rent shall not be
diminished during the repair of such damage and Tenant shall be liable to
Landlord for the cost and expense of the repair and restoration of the
Building caused thereby to the extent such cost and expense is not covered by
insurance proceeds.
F. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary,
in the event that the Premises or Building are damaged or destroyed and are
not fully covered by the insurance proceeds received by Landlord or in the
event that the holder of any indebtedness secured by a mortgage or deed of
trust covering the Premises requires that the insurance proceeds be applied
to such indebtedness, then in either case Landlord shall have the right to
terminate this Lease by delivering written notice of termination to Tenant
within thirty (30) days after the date of notice to Landlord that said damage
or destruction is not fully covered by insurance or such requirement is made
by any such holder, as the case may be, whereupon this Lease shall terminate.
G. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive
remedy in the event of damage or destruction to the Premises or the Building.
As a material inducement to Landlord entering into this Lease, Tenant hereby
waives any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of
the Civil Code of California with respect to any destruction of the Premises,
Landlord's obligation for tenantability of the Premises and Tenant's right to
make repairs and deduct the expenses of such repairs, or under any similar
law, statute or ordinance now or hereafter in effect.
H. TENANT'S PERSONAL PROPERTY. In the event of any damage or
destruction of the Premises or the Building, under no circumstances shall
Landlord be required to repair any injury or damage to, or make any repairs
to or replacements of, Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over,
Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any
rent from Tenant or any other person while Tenant is holding over without
Landlord's written consent. If Tenant shall retain possession of the Premises or
any portion thereof without Landlord's consent following the expiration of this
Lease or sooner termination for any reason, then Tenant shall pay to Landlord
for each day of such retention one hundred fifty percent (150%) the amount of
daily rental as of the last month prior to the date of expiration or earlier
termination. Tenant shall also indemnify, defend, protect and hold Landlord
harmless from any loss, liability or cost, including reasonable attorneys' fees,
resulting from delay by Tenant in surrendering the Premises, including, without
limitation, any claims made by the succeeding tenant founded on such delay.
Acceptance of Rent by Landlord following expiration or earlier termination shall
not constitute a renewal of this Lease, and nothing contained in this Paragraph
25 shall waive Landlord's right of reentry or any other right. Additionally, in
the event that upon expiration or earlier termination of this Lease, Tenant has
not fulfilled its obligation with respect to repairs and cleanup of the Premises
or any other Tenant obligations as set forth in this Lease, then Landlord shall
have the right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of this
Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any
expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment or vacation of the Premises for a
continuous period in excess of five (5) days. Tenant waives any right
to notice Tenant may have under Section 1951.3 of the Civil Code of the
State of California, the terms of this Paragraph 26.A. being deemed
such notice to Tenant as required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount due and payable hereunder upon the date when said payment
is due.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure
continuing for fifteen (15) days after written notice of such failure.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit
of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of thirty
(30) days. In the event that under applicable law, the trustee in
bankruptcy or Tenant has the right to affirm this Lease and continue to
perform the obligations of Tenant hereunder, such trustee or Tenant
shall, in such time period as may be permitted by the bankruptcy court
having jurisdiction, cure all defaults of Tenant hereunder outstanding
as of the date of the affirmance of this Lease and provide to Landlord
such adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or the Premises, if such
appointment remains undismissed or undischarged for a period of fifteen
(15) days after the order therefor.
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(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or the Premises, if such
attachment or other seizure remains undismissed or undischarged for a
period of fifteen (15) days after the levy thereof.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of
default, Landlord shall have the right to give a written termination
notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate
unless on or before such date all Rent in arrears and all costs and
expenses incurred by or on behalf of Landlord hereunder shall have been
paid by Tenant and all other events of default of this Lease by Tenant
at the time existing shall have been fully remedied to the satisfaction
of Landlord. At any time after such termination, Landlord may recover
possession of the Premises or any part thereof and expel and remove
therefrom Tenant and any other person occupying the same, by any lawful
means, and again repossess and enjoy the Premises without prejudice to
any of the remedies that Landlord may have under this Lease, or at law
or equity by any reason of Tenant's default or of such termination.
Landlord hereby reserves the right to recognize the continued
possession of any subtenant.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may
have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under
Paragraph 26.B.(1) hereof, and Landlord may enforce all of Landlord's
rights and remedies under this Lease and at law or in equity, including
without limitation, the right to recover Rent as it becomes due, and
Landlord, without terminating this Lease, may exercise all of the
rights and remedies of a landlord under Section 1951.4 of the Civil
Code of the State of California or any successor code section. Acts of
maintenance, preservation or efforts to lease the Premises or the
appointment of a receiver under application of Landlord to protect
Landlord's interest under this Lease or other entry by Landlord upon
the Premises shall not constitute an election to terminate Tenant's
right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for ten (10) days
after such occurrence or such default occurs more than three times in
any twelve (12) month period, Landlord may require that Tenant increase
the Security Deposit to the amount of three times the current month's
Rent at the time of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant
to the provisions of Paragraph 26.B.(1) hereof, Landlord shall have the
rights and remedies of a Landlord provided by Section 1951.2 of the Civil
Code of the State of California, or any successor code sections. Upon such
termination, in addition to any other rights and remedies to which Landlord
may be entitled under applicable law or at equity, Landlord shall be entitled
to recover from Tenant: (1) the worth at the time of award of the unpaid Rent
and other amounts which had been earned at the time of termination, (2) the
worth at the time of award of the amount by which the unpaid Rent that would
have been earned after the date of termination until the time of award
exceeds the amount of such Rent loss that Tenant proves could have been
reasonably avoided; (3) the worth at the time of award of the amount by which
the unpaid Rent for the balance of the Term after the time of award exceeds
the amount of such Rent loss that the Tenant proves could be reasonably
avoided; and (4) any other amount and court costs necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or which, in the ordinary course of
things, would be likely to result therefrom. The "worth at the time of award"
as used in (1) and (2) above shall be computed at the lesser of the "prime
rate," as announced from time to time by Wells Fargo Bank, N.A. (San
Francisco) or its successor, plus five (5) percentage points, or the maximum
interest rate allowed by law ("APPLICABLE INTEREST RATE"). The "worth at the
time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San
Francisco at the time of the award plus one percent (1%). If this Lease
provides for any periods during the Term during which Tenant is not required
to pay Base Rent or if Tenant otherwise receives a Rent concession, then upon
the occurrence of an event of default, Tenant shall owe to Landlord the full
amount of such Base Rent or value of such Rent concession, plus interest at
the Applicable Interest Rate, calculated from the date that such Base Rent or
Rent concession would have been payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have
the right without notice or demand to add to the amount of any payment
required to be made by Tenant hereunder, and which is not paid and received
by Landlord on or before the first day of each calendar month, an amount
equal to five percent (5%) of the delinquency for each month or portion
thereof that the delinquency remains outstanding to compensate Landlord for
the loss of the use of the amount not paid and the administrative costs
caused by the delinquency, the parties agreeing that Landlord's damage by
virtue of such delinquencies would be extremely difficult and impracticable
to compute and the amount stated herein represents a reasonable estimate
thereof. Any waiver by Landlord of any late charges shall not constitute a
waiver of other late charges or any other remedies available to Landlord.
E. REMEDIES CUMULATIVE. All rights, privileges and elections or
remedies of the parties are cumulative and not alternative, to the extent
permitted by law and except as otherwise provided herein.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from
liens arising out of or related to work or services performed, materials or
supplies furnished or obligations incurred by Tenant or in connection with work
made, suffered or done by or on behalf of Tenant in or on the Premises or
Project. In the event that Tenant shall not, within ten (10) days following the
imposition of any such lien, cause the same to be released of record by payment
or posting of a proper 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 Landlord shall deem proper, including
payment of the claim giving rise to such lien. All sums paid by Landlord on
behalf of Tenant and all expenses incurred by Landlord in connection therefor
shall be payable to Landlord by Tenant on demand with interest at the Applicable
Interest Rate. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Project and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not less than ten (10)
business days prior written notice of the commencement of any work in the
Premises or Project which could lawfully give rise to a claim for mechanics' or
materialmen's liens to permit Landlord to post and record a timely notice of
non-responsibility.
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28. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, first arising and accruing after
the passing of title to Landlord's successor-in-interest. In such event, Tenant
agrees to look solely to the responsibility of the successor-in-interest of
Landlord under this Lease with respect to the performance of the covenants and
duties of "Landlord" to be performed first arising and accruing after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant
with respect to the failure to perform any of the obligations of "Landlord," to
the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
29. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Rent. If Tenant shall fail to pay any sum
of money, other than Base Rent, required to be paid by Tenant hereunder or shall
fail to perform any other act on Tenant's part to be performed hereunder,
including Tenant's obligations under Paragraph 11 hereof, and such failure shall
continue for fifteen (15) days after notice thereof by Landlord, in addition to
the other rights and remedies of Landlord, Landlord may make any such payment
and perform any such act on Tenant's part. In the case of an emergency, no prior
notification by Landlord shall be required. Landlord may take such actions
without any obligation and without releasing Tenant from any of Tenant's
obligations. All sums so paid by Landlord and all incidental costs incurred by
Landlord and interest thereon at the Applicable Interest Rate, from the date of
payment by Landlord, shall be paid to Landlord on demand as Additional Rent.
30. WAIVER
If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be deemed
to be a waiver of any subsequent breach of the same or any other term, covenant
or condition contained herein. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord.
31. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. RENT. All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at Landlord's Remittance
Address set forth in the Basic Lease Information, or at such other address as
Landlord may specify from time to time by written notice delivered in
accordance herewith. Tenant's obligation to pay Rent and any other amounts to
Landlord under the terms of this Lease shall not be deemed satisfied until
such Rent and other amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are
required to be given by either party to the other hereunder shall be in
writing and either personally delivered, sent by commercial overnight
courier, or mailed, certified or registered, postage prepaid, and addressed
to the party to be notified at the Notice Address for such party as specified
in the Basic Lease Information or to such other place as the party to be
notified may from time to time designate by at least fifteen (15) days notice
to the notifying party. Notices shall be deemed served upon receipt or
refusal to accept delivery. Tenant appoints as its agent to receive the
service of all default notices and notice of commencement of unlawful
detainer proceedings the person in charge of or apparently in charge of
occupying the Premises at the time, and, if there is no such person, then
such service may be made by attaching the same on the main entrance of the
Premises.
32. ATTORNEYS' FEES
In the event that Landlord places the enforcement of this Lease, or any
part thereof, or the collection of any Rent due, or to become due hereunder, or
recovery of possession of the Premises in the hands of an attorney, Tenant shall
pay to Landlord, upon demand, Landlord's reasonable attorneys' fees and court
costs, whether incurred at trial, appeal or review. In any action which Landlord
or Tenant brings to enforce its respective rights hereunder, the unsuccessful
party shall pay all costs incurred by the prevailing party including reasonable
attorneys' fees, to be fixed by the court, and said costs and attorneys' fees
shall be a part of the judgment in said action.
33. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord,
its successors and assigns, and shall be binding upon and inure to the benefit
of Tenant, its successors, and to the extent assignment is approved by Landlord
as provided hereunder, Tenant's assigns.
34. FORCE MAJEURE
If performance by a party of any portion of this Lease is made
impossible by any prevention, delay, or stoppage caused by strikes, lockouts,
labor disputes, acts of God, inability to obtain services, labor, or materials
or reasonable substitutes for those items, government actions, civil commotions,
fire or other casualty, or other causes beyond the reasonable control of the
party obligated to perform, performance by that party for a period equal to the
period of that prevention, delay, or stoppage is excused. Tenant's obligation to
pay Rent, however, is not excused by this Paragraph 34.
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35. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease,
surrender the Premises to Landlord in the same condition as existed on the date
Tenant originally took possession thereof, including, but not limited to, all
interior walls cleaned, all interior painted surfaces repainted in the original
color, all holes in walls repaired, all carpets shampooed and cleaned, all HVAC
equipment in operating order and in good repair, and all floors cleaned, waxed,
and free of any Tenant-introduced marking or painting, all to the reasonable
satisfaction of Landlord. Tenant shall remove all of its debris from the
Project. At or before the time of surrender, Tenant shall comply with the terms
of Paragraph 12.A. hereof with respect to Alterations to the Premises and all
other matters addressed in such Paragraph. If the Premises are not so
surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises at the time of vacating. In the event of
Tenant's failure to give such notice or participate in such joint inspection,
Landlord's inspection at or after Tenant's vacating the Premises shall
conclusively be deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration.
36. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its
provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the
laws of the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, contains
all the agreements of the parties hereto and supersedes any previous
negotiations. There have been no representations made by the Landlord or its
agents or understandings made between the parties other than those set forth
in this Lease and its Exhibits.
E. MODIFICATION. This Lease may not be modified except by a written
instrument signed by the parties hereto.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions
hereof shall be unenforceable or ineffective, all of the other provisions
shall be and remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form
memorandum hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not
constitute an option or offer to lease and this Lease is not effective
otherwise until execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount
than the total Rent due nor any endorsement on any check or letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction of full payment of Rent, and Landlord may accept such payment
without prejudice to Landlord's right to recover the balance of such Rent or
to pursue other remedies.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate
for public use portions of the Project without Tenant's consent; provided
that no such grant or dedication shall materially interfere with Tenant's
Permitted Use of the Premises. Upon Landlord's request, Tenant shall execute,
acknowledge and deliver to Landlord documents, instruments, maps and plats
necessary to effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that
this Lease has been agreed to by both the parties, that both Landlord and
Tenant have consulted with attorneys with respect to the terms of this Lease
and that no presumption shall be created against Landlord because Landlord
drafted this Lease. Except as otherwise specifically set forth in this Lease,
with respect to any consent, determination or estimation of Landlord required
or allowed in this Lease or requested of Landlord, Landlord's consent,
determination or estimation shall be given or made solely by Landlord in
Landlord's good faith opinion, whether or not objectively reasonable.
L. EXHIBITS. The Exhibits attached hereto are hereby incorporated
herein by this reference.
M. 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
or in the vicinity of the Building shall in no way affect this Lease or
impose any liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord
and Tenant and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the
observance and performance of all of the other covenants, terms and
conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Premises for the term hereby demised
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under Landlord, subject,
nevertheless, to all of the other terms and conditions of this Lease.
Landlord shall not be liable for any hindrance, interruption, interference or
disturbance by other tenants or third persons, nor shall Tenant be released
from any obligations under this Lease because of such hindrance,
interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein
as Tenant, such multiple parties shall have joint and several responsibility
to comply with the terms of this Lease.
37. ADDITIONAL PROVISIONS
A. ADDENDA. Exhibits A and addenda attached hereto are hereby
incorporated into and made a part of this Lease as though fully set forth
herein.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ Illegible
-----------------------------------
Its: Regional SR. V.P.
-------------------------------
Date: 3/3/98
-------------------------------------
TENANT
Concentric Network Corporation, Inc.------
------------------------------------------
A Delaware corporation
------------------------------------------
(type of entity)
By: /s/ Illegible
---------------------------------------
Its: CEO
-----------------------------------
<PAGE>
EXHIBIT A
[SITE PLAN showing a rectangular site with parking spaces running along the
southern and eastern sides and two buildings with N. Tantau Avenue running
along the western side and Pruneridge Avenue along the north.]
SITE PLAN
<PAGE>
EXHIBIT B
ADDITIONAL PARAGRAPHS TO LEASE AGREEMENT DATED JANUARY 21, 1998, BETWEEN
SPIEKER PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP, AS LANDLORD AND
CONCENTRIC NETWORK CORPORATION, INC., A DELAWARE CORPORATION AS TENANT FOR AN
APPROXIMATE 41,151 SQUARE FOOT PREMISES KNOWN AS 10590 N. TANTAU AVENUE,
CUPERTINO, CALIFORNIA.
39. TENANT IMPROVEMENTS
Landlord will provide up to $115,000 tenant improvement allowance to be
utilized by Tenant within the Premises. Tenant will submit plans and
specifications for Landlord's approval prior to the commencement of any
construction. Tenant will be responsible for procuring permits and all
necessary govermental approvals and for the completion of the improvements in
accordance with the approved plans. At the completion of construction, or
periodically, but not more than two (2) times, Tenant will provide Landlord a
breakdown of costs incurred to date. Landlord will reimburse Tenant such
costs up to a maximum amount of $115,000. Tenant will have six (6) months
from the date of Lease commencement to complete the improvements.
<PAGE>
ADDENDA TO LEASE AGREEMENT DATED JANUARY 21, 1998, BETWEEN SPIEKER
PROPERTIES, L.P., A CALIFORNIA LIMITED PARTNERSHIP, AS LANDLORD AND
CONCENTRIC NETWORK CORPORATION, INC., A DELAWARE CORPORATION AS TENANT FOR AN
APPROXIMATE 41,151 SQUARE FOOT PREMISES KNOWN AS 10590 N. TANTAU AVENUE,
CUPERTINO, CALIFORNIA.
ADDENDUM 1, PARAGRAPH 6, RENT
Months 1-12 The Base Rent shall be $94,647.30 per month. Tenant shall also
pay Tenant's proportionate share of Operating Expenses as set
forth in Paragraph 7 of the Lease.
Months 13-24 The Base Rent shall be $98,433.19 per month. Tenant shall also
pay Tenant's proportionate share of Operating Expenses as set
forth in Paragraph 7 of the Lease.
Months 25-36 The Base Rent shall be $102,370.52 per month. Tenant shall also
pay Tenant's proportionate share of Operating Expenses as set
forth in Paragraph 7 of the Lease.
Months 37-48 The Base Rent shall be $106,465.34 per month. Tenant shall also
pay Tenant's proportionate share of Operating Expenses as set
forth in Paragraph 7 of the Lease.
Months 49-60 The Base Rent shall be $110,723.95 per month. Tenant shall also
pay Tenant's proportionate share of Operating Expenses as set
forth in Paragraph 7 of the Lease.
<PAGE>
EXHIBIT B -- DATA CENTER
[Rectangular floor plan with shaded area in center part of top side described
as "Data Center." Illegible description in lower right hand corner.]
<PAGE>
EXHIBIT C
The following HVAC units located on the roof of the premises are not in
service and therefore would not be included in the warranty:
HVAC units: #8, 17 and 25.
<PAGE>
EXHIBIT D
Concentric Network Corporation
Company Confidential
Cupertino Data Center Equipment List
1. One 350KW Caterpilar Diesel Generator enclosed in a sound-attenuating
weatherproof enclosure atop a 600 gallon, double-walled, leak-sensored
fuel tank.
2. One 150KVA Liebert UPS with maintenance (aka wrap-around) bypass cabinet,
two battery cabinets with 40 battery strings in each. An Onan 480V triple
phase 800 Amp-rated ATS and all necessary electrical wiring is also
included with this unit.
3. Two Fike FM-200 panels covering the data center and the adjacent control
room. Also an integrated subfloor sprinkler and preaction
double-interlock system is also included.
4. The 12" raised floor in the data center and adjacent control room
5. One Liebert 250 Amp 480V Power Distribution Unit
6. Two Liebert 22-Ton HVAC room units
7. Three 208V KwH metering devices
Telecommunications Bandwidth
- - OC-12 on fiber via PacBell
- - OC-48 on fiber via WorldCom
- - ~30 T-1 lines on Copper
- - 4 PRI lines on copper
- - 28 BRI lines on copper
- - ~16 POTS lines on copper
<PAGE>
Cupertino Master Lease Agreement
Exhibit 10.8
STANDARD FORM OFFICE LEASE
"AS-IS"
It is Lease dated May 29, 1998 (this "Lease") is entered into by and
between DE ANZA PLAZA II, LLC, a Delaware limited liability company
("Landlord"), and IMGIS, a California corporation ("Tenant").
ARTICLE 1.
BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following terms, the application of which shall be governed by
the provisions in the remaining Articles of this Lease:
1. Address of Landlord: c/o Insignia/ESG of California, Inc.
--------------------------------------------------
160 W. Santa Clara Street, Suite 1350
--------------------------------------------------
San Jose, CA 95113 Attn: Mark E. Schmidt
--------------------------------------------------
2. Premises Address: 10101 N. De Anza Blvd., Ste. 230
--------------------------------------------------
Cupertino, CA 95014
--------------------------------------------------
3. Address of Tenant:
(a) Notices: 10101 N. De Anza Blvd., Ste. 230
--------------------------------------------------
Cupertino, CA 95014
--------------------------------------------------
(b) Billing: 10101 N. De Anza Blvd., Ste. 230
--------------------------------------------------
Cupertino, CA 95014
--------------------------------------------------
4. Tenant's Trade Name: IMGIS
--------------------------------------------------
5. Tenant's Contact: Nadine Franczyk Telephone: (408)873-3680
----------------------- --------------------
6. Premises Square footage: Approximately 4,025 Square Feet
----------
Project Square Footage: Approximately 74,589 Square Feet
-----------
7. Commencement Date: July 1, 1998
--------------------------------------------------
8. Term: Five (5) years
------------
9. Initial Monthly Rent: $12,880.00/month
-----------
(subject to adjustment per Addendum)
10. Security Deposit: $56,914.45
---------------
11. Permitted Uses: General office purposes only, all in accordance with
Applicable Laws and Restrictions (as hereafter defined) and pursuant to
approvals to be obtained by Tenant from all relevant City, County and
other required governmental agencies and authorities.
12. Broker: CPS; Cornish & Carey Commercial
-----------------------------------
13. Landlord's Architect: n/a
---------------------------------------------------
14. Guarantor: n/a
--------------------------------------------------------------
15. Vehicle Parking Spaces: Thirteen (13) non-exclusive parking spaces
-------------------------------------------------
16. Additional Insureds: De Anza Plaza I, LLC, De Anza Plaza II, LLC,
---------------------------------------------------
Insignia/ESG of California, Inc.
---------------------------------------------------
17. Tenant's Liability Insurance Limits: $2,000,000
------------------------------------
18. Tenant's Share: See Section 7.2 and Exhibit I
------------------------------------
19. Operating Expense Base: Operating Expenses for the 1998 calendar year
-------------------------------------------------
Exhibits:
A Description of Premises G Rules and Regulations
B Project Site Plan H
C I
D Commencement Date Memorandum J
E K
F L Calculation of Tenant's Share
Exhibits C,E,F,H,I,J and K
Riders: have been intentionally omitted.
Addendum to Lease
-----------------------------------------------------------------------------
-1-
<PAGE>
ARTICLE II
DEFINITIONS
2.1. Certain Definitions. The capitalized terms set forth below,
unless the context clearly requires otherwise, shall have the following
meanings in this Lease:
"Additional Rent" means any and all sums (whether or not specifically
called "Additional Rent" in this Lease) other than Monthly Rent which Tenant
is or becomes obligated to pay to Landlord under this Lease. See also Rent.
"Alterations" means any alterations, decorations, modifications,
additions or improvements made in, on, about, under or contiguous to the
Building or the Premises after the Commencement Date, including, but not
limited to, lighting, HVAC and electrical fixtures, pipes and conduits,
transfer, storage and disposal facilities, partitions, drapery, wall
coverings, shelves, cabinetwork, carpeting and other floor coverings, ceiling
tiles, fixtures and carpentry installations.
"Applicable Laws" means the laws, rules, regulations, ordinances,
restrictions, and practices described in Section 5.2.
"Applicable Rate" means the greater of ten percent (10%) per annum or
five percent (5%) in excess of the discount rate of the Federal Reserve Bank
of San Francisco in effect on the twenty-fifth (25th) day of the calendar
month immediately prior to the event giving rise to the Applicable Rate
Imposition; provided, however, the Applicable Rate shall in no event exceed
the maximum interest rate permitted to be charged by applicable law.
"Broker" means the person or entity identified in Item 12 of the Basic
Lease Provisions.
"Building" means that certain building within which the Premises are
located.
"Casualty" is defined in Section 12.1.
"CC&R's" means the Declaration of Covenants, Conditions and Restrictions
applicable to the Project recorded in the Official Records of the County as
the same may be amended from time to time.
"City" means the city in which the Premises are located.
"Commencement Date" means the commencement date of the Term, described
in Section 3.2.
"Common Area" means all areas and facilities within the Project
exclusive of the Premises and other portions of the Project leased (or to be
leased) exclusively to other tenants. The Common Area includes, but is not
limited to, parking areas, access and perimeter roads, sidewalks, landscaped
areas and similar areas and facilities. Tenant's use of the Common Area, and
its rights and obligations with respect thereto, are more particularly
described in Article X.
"County" means the county in which the Premises are located.
"Event of Default" means the Tenant defaults described in Section 15.1.
"Guarantor" means the person(s) or entity identified in Item 14 of the
Basic Lease Provisions, if any.
"HVAC" means the heating, ventilating and air conditioning system
serving the Building.
"Hazardous Materials" is defined in Section 6.1.
"Landlord's Agents" means Landlord's authorized agents, representatives,
property managers (whether as agents or independent contractors),
consultants, contractors, partners, subsidiaries, affiliates, directors,
officers and employees, including without limitation the Additional Insureds
named in Item 16 of the Basic Lease Provisions.
"Landlord's Architect" means the architect or architectural firm from
time to time designated by Landlord to perform the function of Landlord's
Architect set forth in this Lease. Landlord's Architect initially shall be
the architect or architectural firm designated in Item 13 of the Basic Lease
Provisions.
"Lease" means this instrument together with all exhibits, amendments,
addends and riders attached hereto and made a part hereof.
"Monthly Rent" means the monthly rental which Tenant is to pay to
Landlord pursuant to Section 4.1, as the same may be adjusted from time to
time as set forth in this Lease. See also Rent.
"Mortgage" means any mortgage, deed of trust, or similar lien on or
covering the Project or any part thereof.
"Mortgagee" means any mortgagee of a mortgage, beneficiary of a deed of
trust or lender having a lien on or covering the Project or any part thereof.
"Notice" means each and every notice, communication, request, demand,
reply or advice, or duplicate thereof, in this Lease provided or permitted to
be given, made or accepted by either party to any other party, which shall be
in writing and given in accordance with the provisions of Section 21.6.
"Operating Expenses" means, collectively, Project Costs and Real
Property Taxes.
"Operating Expense Base" means the allowance for Operating Expenses that
Landlord will credit to Tenant's Share of Operating Expenses under Article
VII, which allowance amount is set forth under Item 19 of the Basic Lease
Provisions.
"Premises" means the premises shown in EXHIBIT A, and all areas
appurtenant thereto, if any, for the exclusive use of Tenant, as shown in
EXHIBIT A. The Premises are located within and constitute a portion of the
Building at the address set forth in Item 2 of the Basic Lease Provisions.
-2-
<PAGE>
"Premises Square Footage" means (a) the entire area included within the
Premises, being the area bounded by the inside surface of any exterior glass
walls (or the inside surface of the permanent exterior wall where there is no
glass) of the Building bounding the Premises, the inside surface of the
exterior of all walls separating the Premises from any public corridors or
such other public areas on such floor, and the centerline of all walls
separating the Premises from other areas leased or to be leased to other
tenants on such floor; and (b) an amount equal to Tenant's Share of the lobby
areas, elevator shafts, stairwells, corridors, restrooms, mechanical rooms,
janitorial rooms, electrical rooms and telephone closets in the Building. The
Premises Square Footage as of the execution of this Lease is set forth in
Item 6 of the Basic Lease Provisions.
"Project" means that certain real property, and all Improvements
thereon, including the Building and other buildings, if any, located within
the boundaries of such property, shown on the Project Site Plan.
"Project Costs" is defined in Section 7.3.
"Project Site Plan" means EXHIBIT B.
"REA" means the Reciprocal Easement Agreement applicable to the Project,
if any, recorded in the Official Records of the County as the same may be
amended from time to time.
"Real Property Taxes" is defined in Section 7.4.
"Rent" means Monthly Rent and Additional Rent, collectively.
"Restrictions" means, collectively, the CC&R's, the REA and any other
covenants, conditions or restrictions affecting the Premises or any portion
thereof, as the same may be amended from time to time.
"Rules and Regulations" means the rules and regulations attached hereto
as EXHIBIT G and any modifications thereto promulgated by Landlord or
Landlord's Agents from time to time.
"Security Deposit" means the amount set forth in Item 10 of the Basic
Lease Provisions, which shall be paid to Landlord by Tenant pursuant to
Section 4.6.
"Substantial Completion" and "substantially completed" means repair of
the Premises following a Casualty has been fully completed except for minor
details of construction, mechanical adjustments or decoration which do not
materially interfere with Tenant's use and enjoyment of the Premises (items
normally referred to as "punch list" items).
"Tenant Delays" means any and all delays due to the fault of the Tenant,
including without limitation Tenant's failure to deliver to Landlord prior to
the Commencement Date executed copies of policies of insurance or
certificates thereof as required under Section 11.8.
"Tenant's Agents" means Tenant's agents, representatives, consultants,
contractors, affiliates, subsidiaries, officers, directors, employees,
subtenants, guests and invitees.
"Tenant's Personal Property" means Tenant's removable trade fixtures,
furniture, equipment and other personal property located in or on the
Premises.
"Term" means the term of this Lease, as provided in Section 3.2.
"Unavoidable Delay" means any delays which are beyond a party's
reasonable control, including, but not limited to, delays due to inclement
weather, strikes, acts of God, inability to obtain labor or materials,
inability to secure governmental approvals or permits, governmental
restrictions, civil commotion, fire, earthquake, explosion, flood, hurricane,
the elements, or the public enemy, action or interference of governmental
authorities or agents, war, invasion, insurrection, rebellion, riots,
lockouts or any other cause whether similar or dissimilar to the foregoing
which is beyond a party's reasonable control; provided however, that in no
event shall any of the foregoing ever apply with respect to the payment of
any monetary obligation.
2.2. Other Definitions. Terms defined elsewhere in this Lease, unless
the context clearly requires otherwise, shall have the meaning as there given.
ARTICLE III
PREMISES AND TERM
3.1. Lease of Premises. Subject to and upon the terms and conditions
set forth herein, Landlord hereby leases the Premises to Tenant, and Tenant
hereby leases the Premises from Landlord.
3.2. Term and Commencement. Unless sooner terminated as provided herein,
the Term of this Lease shall be for that period of years and months set forth
in Item 8 of the Basic Lease Provisions, as the same may be extended in
accordance with any option or options to extend the Term granted herein, and
shall commence on the date set forth in Item 7 of the Basic Lease Provisions
(the "Commencement Date"). Promptly following the Commencement Date, Landlord
and Tenant shall execute a Commencement Date Memorandum in the form shown in
EXHIBIT D.
3.3.
3.4. Delay in Possession. If for any reason Landlord cannot deliver
possession of the Premises to Tenant on or before the Commencement Date,
Landlord shall not be subject to any liability therefor, and such failure
shall not affect the validity of this Lease or the obligations of Tenant
hereunder, but in such case.
-3-
<PAGE>
Tenant shall not be obligated to pay Monthly Rent or Additional Rent other
than as provided in Section 3.3 and Section 3.5 until possession of the
Premises has been delivered to Tenant (which date shall then be deemed the
"Commencement Date" for all purposes under this Lease). If, due to Landlord's
delay in delivering possession of the Premises, the Commencement Date has not
occurred within one hundred twenty (120) days following the date set forth in
Item 7 of the Basic Lease Provisions plus periods attributable to Tenant
Delays or Unavoidable Delay, Tenant may, at its option, by Notice to Landlord
within ten (10) days thereafter, terminate this Lease, in which event the
parties shall be discharged from all further obligations hereunder; provided,
however, if Tenant fails to give such notice to Landlord within such ten-day
period, Tenant shall no longer have the right to terminate this Lease under
this Section 3.4. Tenant understands that, notwithstanding anything to the
contrary contained herein, Landlord shall have no obligation to deliver
possession of the Premises to Tenant for so long as Tenant fails to deliver
to Landlord executed copies of policies of insurance or certificates thereof
as required under Section 11.8.
3.5. Tenant Delays. The Commencement Date shall not be delayed or
postponed due to Tenant Delays, and the Term, Tenant's obligations to pay
Rent and all of Tenant's other obligations under this Lease shall commence
upon the date which would have been the Commencement Date but for Tenant
Delays.
3.6. Condition of Premises. The taking of possession or use of the
Premises by Tenant for any purpose other than as provided in Section 3.3
shall conclusively establish that Tenant has inspected the Premises and
accepts them as being in good and sanitary order, condition and repair.
3.7. No Representations. Tenant acknowledges that neither Landlord nor
any of Landlord's Agents has made any representations or warranties as to the
suitability or fitness of the Premises for the conduct of Tenant's business,
including, but not limited to, any representations or warranties regarding
zoning or other land use matters, or for any other purpose, and that neither
Landlord nor any of Landlord's Agents has agreed to undertake any alterations
or additions to the Premises except as expressly provided in this Lease.
ARTICLE IV
RENT AND ADJUSTMENTS
4.1. Monthly Rent. From and after the Commencement Date, Tenant shall
pay to the Landlord, for each calendar month of the Term, the Monthly Rent
set forth in Item 9 of the Basic Lease Provisions, as the same may be
adjusted from time to time as provided in Section 4.2. Monthly Rent shall be
due and payable to Landlord in lawful money of the United States, in advance,
on the first (1st) day of each calendar month of the Term, without abatement,
deduction, claim or offset, and without prior notice, invoice or demand, at
Landlord's address forth in Item 1 of the Basic Lease Provisions or at such
place as Landlord may from time to time designate. Tenant's payment of
Monthly Rent for the first (1st) month of the Term shall be delivered to
Landlord concurrently with Tenant's execution of this Lease.
4.2. Adjustments. Monthly Rent shall be adjusted from time to time as
provided in the Addendum to Lease.
4.3. Additional Rent. All Additional Rent shall be due and payable to
Landlord in lawful money of the United States, at Landlord's address set
forth in Item 1 of the Basic Lease Provisions or at such other place as
landlord may from time to time designate, without abatement, deduction, claim
or offset, within ten (10) days of receipt of Landlord's invoice or statement
for same, or, if this Lease provides another time for the payment of certain
items of Additional Rent, then at such other time.
4.4. Prorations. If the Commencement Date is not the first (1st) day
of a month, or if the expiration of the Term of this Lease is not the last
day of a month, a prorated installment of Monthly Rent based on a thirty
(30) day month shall be paid for the fractional month during which the Term
commences or terminates.
4.5. Late Payment Charges. Tenant acknowledges that late payment by
Tenant to Landlord of Rent under this Lease will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which is extremely
difficult or impracticable to determine. Such costs include, but are not
limited to, processing and accounting charges, late charges that may be
imposed on Landlord by the terms of any Mortgage, and late charges and
penalties that may be imposed due to late payment of Real Property Taxes.
Therefore, if any installment of Monthly Rent or any payment of Additional
Rent due from Tenant is not received by Landlord in good funds by the second
(2nd) calendar day from the applicable due date, Tenant shall pay to Landlord
an additional sum equal to five percent (5%) of the amount overdue as a late
charge for every month or portion thereof that such amount remains unpaid.
The parties acknowledge that this late charge represents a fair and
reasonable estimate of the costs that Landlord will incur by reason of the
late payment by Tenant. Acceptance of any late Rent and late charge therefor
shall not prevent Landlord from exercising any of the other rights and
remedies available to Landlord for any other Event of Default under this
Lease. Notwithstanding the foregoing (i) should any payment of Rent by
personal check be rejected for insufficient funds, Landlord shall have the
right, upon notice to Tenant, to require that all future payments by Tenant
under this Lease be by cashier's check acceptable to Landlord, and (ii) upon
the third (3rd) occurrence during the Term of Tenant's failure to timely pay
Rent when due, Landlord may, upon notice to Tenant, require that Monthly Rent
for the balance of the Term be made in quarterly installments, in advance, in
an amount equal to the sum of the Monthly Rent amounts payable during such
three (3) month period.
4.6. Security Deposit. Tenant has deposited with Landlord the sum set
forth in item 10 of the Basic Lease Provisions as a Security Deposit for the
full and faithful performance of every provision of this Lease to be
performed by Tenant. Landlord may apply, in its sole discretion at any time
during the Term of this Lease, all or any part of the Security Deposit to the
payment of all prepaid expenses by Landlord for which Tenant would be
required to reimburse Landlord under this Lease, including without limitation
for Broker commissions. Such application of the Security Deposit is not and
shall never be dependent upon an Event of Default. Upon an Event of Default,
and whether or not Landlord is informed of or has knowledge of the Event of
Default, the Security Deposit (if not already applied as hereinabove
provided) shall be deemed to be automatically applied, without waiver of any
rights Landlord may have under this Lease or at law or in equity as a result
of an Event of Default, to the payment of any Rent not paid when due, the
repair of damage to the Premises or the payment of any other amount which
Landlord may spend or become obligated to spend by reason of an Event of
Default, or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of an Event of Default, to the full extent
permitted by law. If any portion of the Security Deposit is so applied,
Tenant shall, within ten (10) days after written demand therefor, deposit
cash with Landlord in an amount sufficient to restore the Security Deposit to
its original amount. Landlord shall not be required to keep the Security
Deposit separate from its general funds. The unused portion of the Security
Deposit, if any, shall be returned to Tenant within thirty (30) days of the
expiration of this Lease or any termination of this Lease not resulting from
an Event of Default, so long as Tenant has vacated the Premises in the manner
required
-4-
<PAGE>
by this Lease and paid all sums required to be paid under this Lease,
provided however that Landlord may retain the Security Deposit until such
time as any amounts of Additional Rent due from Tenant have been determined
and paid In full. Tenant hereby waives the provisions of Section 1950.7(c) of
the California Civil Code and any present or future laws otherwise governing
the return of the Security Deposit to Tenant to the extent of reasonably
anticipated Additional Rent retained by Landlord pursuant to the previous
sentence.
ARTICLE V
USE
5.1. Tenant's Use. Tenant shall use the Premises solely for the
purposes set forth in Item 11 of the Basic Lease Provisions and shall use
the Premises for no other purpose. Tenant's use of the Premises shall be
subject to all of the terms and conditions of this Lease, including, but not
limited to, all the provisions of this Article V. Tenant, at Tenant's sole
cost and expense, shall procure, maintain and make available for Landlord's
inspection throughout the Term, all governmental approvals, licenses and
permits required for the proper and lawful conduct of Tenant's permitted use
of the Premises. At Landlord's request, Tenant shall deliver copies of all
such approvals, licenses and permits to Landlord.
5.2. Compliance With Applicable Laws. Throughout the Term, Tenant, at
Tenant's sole cost and expense, shall comply with, and shall not use the
Premises, Building or Common Area, or suffer or permit anything to be done in
or about the same which will in any way conflict with, (i) any and all
present and future laws, statutes, zoning restrictions, ordinances, orders,
regulations, directions, rules and requirements of all governmental or
private authorities having jurisdiction over all or any part of the Premises
(including, but not limited to, state, municipal, county and federal
governments and their departments, bureaus, boards and officials) pertaining
to the use or occupancy of, or applicable to, the Premises or privileges
appurtenant to or in connection with the enjoyment of the Premises, (ii) any
and all applicable federal, state and local laws, regulations or ordinances
pertaining to air and water quality, Hazardous Materials (as defined in
Section 6.1), waste disposal, air emissions and other environmental or
health and safety matters, zoning, land use and utility availability, which
impose any duty upon Landlord or Tenant directly or with respect to the use
or occupation of the Project or any portion thereof, (iii) the requirements
of the Board of Fire Underwriters or other similar body now or hereafter
constituted relating to or affecting the condition, use or occupancy of the
Project or any portion thereof, (iv) any covenants, conditions, easements or
restrictions, including but not limited to the Restrictions, now or hereafter
affecting or encumbering the Project or any portion thereof, regardless of
when they become effective, (v) the Rules and Regulations, and (vi) good
business practices (collectively, (i) through (vi) above are hereinafter
referred to as "Applicable Laws"). Tenant shall not commit any waste of the
Premises, Building or Project, or any public or private nuisance or any other
act or thing which might or would disturb the quiet enjoyment of any other
tenant of Landlord or any occupant of nearby property. Tenant shall not place
or permit to be placed any loads upon the floors, walls or ceilings in excess
of the maximum designed load specified by Landlord or which might damage the
Premises or the Building, or place or permit to be placed any harmful liquids
in the drainage systems, and Tenant shall not dump or store, or permit to be
dumped or stored, any inventory, waste materials, refuse or other materials
or allow any such materials to remain outside the Building proper, except in
designated enclosed trash areas. Tenant shall not conduct or permit any
auctions, sheriff's sales or other like activities at the Project or any
portion thereof.
5.3. Restrictions. Tenant agrees that this Lease is subject and
subordinate to the Restrictions, as the same may now or hereafter exist, and
that it will execute and deliver to Landlord within fifteen (15) days of
Landlord's request therefor, any further documentation or instruments which
Landlord deems necessary or desirable to evidence or effect such
subordination. Without limiting the provisions of Section 5.2, Tenant shall
throughout the Term timely comply with all of the terms, provisions,
conditions and restrictions of the Restrictions which pertain to, restrict or
affect the Premises or Tenant's use thereof, or Tenant's use of any other
area of the Project permitted hereunder, including the payment by Tenant of
any periodic or special dues or assessments charged against the Premises or
Tenant which may be allocated to the Premises or Tenant in accordance with
the provisions of the Restrictions. Tenant shall hold Landlord, Landlord's
Agents and the Premises harmless and shall indemnify, protect and defend
Landlord and Landlord's Agents from and against any loss, expense, damage,
attorney's fees and costs or liability arising out of or in connection with
the failure of Tenant to so perform or comply with the Restrictions. Tenant
agrees that it will subordinate this Lease to any other covenants, conditions
and restrictions and any reciprocal easement agreements or any similar
agreements which Landlord may hereafter record against the Premises and to
any amendment or modification to any of the existing Restrictions, provided
that such subordination does not unreasonably interfere with Tenant's use and
employment of the Premises.
5.4. Landlord's Right of Entry. Landlord and Landlord's Agents shall
have the right to enter the Premises at all reasonable times upon reasonable
notice to Tenant, except for emergencies in which case no notice shall be
required, to inspect the Premises, to take samples and conduct environmental
investigations, to post notices of nonresponsibility and similar notices and
signs indicating the availability of the Premises for sale, to show the
Premises to interested parties such as prospective lenders and purchasers, to
make necessary Alterations or maintenance and repairs, to perform Tenant's
obligations as permitted herein when Tenant has failed to do so and, at any
reasonable time after one hundred eighty (180) days prior to the expiration
of the Term, to place upon the Premises reasonable signs indicating the
availability of the Premises for lease and to show the Premises to
prospective tenants, all without being deemed to have caused an eviction of
Tenant and without any liability to Tenant or abatement of Rent. The above
rights are subject to reasonable security regulations of Tenant, and in
exercising its rights set forth herein, Landlord shall endeavor to cause the
least possible interference with Tenant's business. Landlord shall at all
times have the right to retain a key which unlocks all of the doors in the
Premises, excluding Tenant's vaults and safes, and Landlord and Landlord's
Agents shall have the right to use any and all means which Landlord may deem
proper to open the doors in an emergency to obtain entry to the Premises, and
any entry to the Premises so obtained by Landlord or Landlord's Agents shall
not under any circumstances be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction of Tenant from the
Premises.
ARTICLE VI
HAZARDOUS MATERIALS
6.1. Definition of Hazardous Materials. For purposes of this Lease, the
term "Hazardous Materials" includes (i) any "hazardous materials" as defined
in Section 25501(k) of the California Health and Safety Code unless Tenant
establishes, to the satisfaction of Landlord, that because of the quantity,
concentration, or physical or chemical characteristics, such substance or
matter does not pose a present or potential hazard to human health and
safety or to the environment, (ii) any other substance or matter which
results in liability to any person or entity from exposure to such
substance or matter under any statutory or common law theory, and (iii) any
substance or matter which is in excess of relevant and appropriate levels set
forth in any applicable
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federal, state or local law or regulation pertaining to any hazardous or
toxic substance, material or waste, or for which any applicable federal,
state or local agency orders or otherwise requires removal, treatment or
remediation.
6.2. Use of Hazardous Materials. Tenant shall not cause or permit any
Hazardous Materials to be brought upon, stored, used, generated, released
into the environment or disposed of on, under, from or about the Premises
(which for purposes of this Article VI shall include, but is not limited to,
subsurface soil and ground water) by Tenant or Tenant's Agents without the
prior written consent of Landlord. Landlord may, in its sole discretion,
place such conditions as Landlord deems appropriate with respect to such
Hazardous Materials, and may further require that Tenant demonstrates to
Landlord that such Hazardous Materials are necessary or useful to Tenant's
business and will be generated, stored, used and disposed of in a manner that
complies with all Applicable Laws regulating such Hazardous Materials and
with good business practices. Without limiting any other rights or remedies
of Landlord under this Lease, Tenant shall pay the cost of any cleanup work
performed on, under or about the Premises, the Building and the Project as
required by this Lease or any Applicable Laws in connection with the removal,
disposal, neutralization or other treatment of such Hazardous Materials
caused or permitted by Tenant or Tenant's Agents.
6.3. Disclosures. Tenant shall promptly notify Landlord of, and shall
promptly provide Landlord with true, correct, complete and legible copies of,
all of the following environmental items relating to the Premises: reports
filed pursuant to any self-reporting requirements; reports filed pursuant to
any Applicable Laws or this Lease; all permit applications, permits,
monitoring reports, workplace exposure and community exposure warnings or
notices, and all other reports, disclosures, plans or documents (even those
which may be characterized as confidential) relating to water discharges, air
pollution, waste generation or disposal, underground storage tanks or
Hazardous Materials; all orders, reports, notices, listings and
correspondence (even those which may be considered confidential) of or
concerning the release, investigation, compliance, clean up, remedial and
corrective actions, and abatement of Hazardous Materials whether or not
required by Applicable Laws; and all complaints, pleadings and other legal
documents filed against Tenant related to Tenant's use, handling, storage or
disposal of Hazardous Materials.
6.4. Inspection: Compliance. Landlord and Landlord's Agents shall have
the right, but not the obligation, to inspect, investigate, sample and/or
monitor the Premises, including any air, soil, water, groundwater or other
sampling, and any other testing, digging, drilling or analyses, at any time
to determine whether Tenant is complying with the terms of this Article VI,
and in connection therewith, Tenant shall provide Landlord with full access
to all relevant facilities, records and personnel. If Tenant is not in
compliance with any of the provisions of this Article VI, or in the event of
a release of any Hazardous Material on, under, from or about the Premises,
Landlord and Landlord's Agents shall have the right, but not the obligation,
without limitation on any of Landlord's other rights and remedies under this
Lease, to immediately enter upon the Premises and to discharge Tenant's
obligations under this Article VI at Tenant's expense, including without
limitation the taking of emergency or long-term remedial action. Landlord and
Landlord's Agents shall endeavor to minimize interference with Tenant's
business but shall not be liable for any such interference. All sums
reasonably disbursed, deposited or incurred by Landlord in connection
herewith, including, but not limited to, all costs, expenses and actual
attorneys fees, shall be due and payable by Tenant to Landlord, as an item of
Additional Rent, on demand by Landlord, together with interest thereon at the
Applicable Rate from the date of such demand until paid by Tenant.
6.5. Indemnification. To the fullest extent permitted by law, Tenant
hereby agrees to indemnify, hold harmless, protect and defend (with attorneys
acceptable to Landlord) Landlord and Landlord's Agents, and any successors to
all or any portion of Landlord's interest in the Premises, the Building and
the Project and their directors, officers, partners, employees, authorized
agents, affiliates, representatives and Mortgagees, from and against any and
all liabilities, losses, damages (including, but not limited to, damages for
the loss or restriction on use of rentable or usable space or any amenity of
the Premises, the Building and the Project or damages arising from any
adverse impact on marketing of space in the Premises, the Building and the
Project), diminution in the value of the Premises, the Building and the
Project, judgments, fines, demands, claims, recoveries, deficiencies, costs
and expenses (including, but not limited to, reasonable attorneys' fees,
disbursements and court costs and all other professional or consultant's
expenses), whether foreseeable or unforeseeable, arising directly or
indirectly out of the presence, use, generation, storage, treatment, on or
off-site disposal or transportation of Hazardous Materials on, into, from,
under or about the Premises, the Building and the Project by Tenant or
Tenant's Agents, and specifically including the cost of any required or
necessary repair, restoration, clean-up (including, but not limited to, the
costs of investigation and removal of Hazardous Materials) or detoxification
of the Premises, the Building and the Project and the preparation of any
closure or other required plans, whether or not such action is require or
necessary during the Term or after the expiration of this Lease.
6.6 [See Addendum]
ARTICLE VII
OPERATING EXPENSES; TAXES; UTILITIES
7.1. Tenant to Bear Tenant's Share of Operating Expenses. Tenant shall
pay to Landlord Tenant's Share (as defined in Section 7.2) of Operating
Expenses in excess of the Operating Expense Base as follows: Prior to the
Commencement Date and thereafter prior to the commencement of each of
Landlord's fiscal years during the Term, Landlord shall give Tenant a written
estimate of Tenant's Share of Operating Expenses in excess of the Operating
Expense Base for the ensuing fiscal year or partial fiscal year, as the case
may be. Tenant shall pay, as an item of Additional Rent, such estimated
amount in equal monthly installments, in advance, on or before the first
(1st) day of each calendar month concurrent with its payment of Monthly
Rent. If Landlord has not furnished its written estimate by the time set
forth above, Tenant shall pay monthly installments of Operating Expenses in
excess of the Operating Expense Base at the rate established for the prior
fiscal year, if any; provided that when the new estimate is delivered to
Tenant, Tenant shall at the next monthly payment date pay Landlord any
accrued deficiency based on the new estimate, or Landlord shall credit any
accrued overpayment based on such estimate toward Tenant's next installment
payment hereunder. Within a reasonable period of time after the end of each
fiscal year (in no event less than one hundred (120) days after the end of
each fiscal year unless sooner completed by Landlord) Landlord shall furnish
Tenant a statement showing in reasonable detail Tenant's share of the actual
Operating Expenses in excess of the Operating Expense Base incurred for the
period in question. If Tenant's estimated payments are less than Tenant's
Share of actual Operating Expenses in excess of the Operating Expense Base as
shown by the applicable statement, Tenant shall pay the difference to
Landlord within thirty (30) days thereafter. If Tenant shall have overpaid
Landlord, Landlord shall credit such overpayment toward Tenant's next
installment payment hereunder. When the final
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determination is made of Tenant's Share of the actual Operating Expenses in
excess of the Operating Expense. Base for the fiscal year in which this Lease
terminates, Tenant shall, even if this Lease has terminated, pay to Landlord
within fifteen (15) days after notice the excess of Tenant's Share of such
actual Operating Expenses in excess of the Operating Expense Base over the
estimate of Tenant's Share of such Operating Expenses paid. Conversely, any
overpayment shall be rebated by Landlord to Tenant. If Landlord shall
determine at any time that the estimate of Tenant's Share of Operating
Expenses in excess of the Operating Expense Base for the current fiscal year
is or will become inadequate to meet Tenant's Share of all such Operating
Expenses for any reason, Landlord shall immediately determine the
approximate amount of such inadequacy and issue a supplemental estimate as
to Tenant's Share of such Operating Expenses and Tenant shall pay any
increase as reflected by such supplemental estimate. Landlord shall keep or
cause to be kept separate and complete books of accounting covering all
Operating Expenses and showing the method of calculating Tenant's Share of
Operating Expenses in excess of the Operating Expense Base, and shall
preserve for at least twelve (12) months after the close of each fiscal year
all material documents evidencing said Operating Expenses for that fiscal
year. Tenant, at its sole cost and expense, through any certified public
accountant designated by it, shall have the right, during reasonable business
hours and not more frequently than once during any fiscal year, to examine
and/or audit the books and documents mentioned above evidencing such costs
and expenses for the previous fiscal year. Any delay or failure by Landlord
in delivering any estimate or statement pursuant to this Section 7.1 shall
not constitute a waiver of its right to require Tenant to pay Tenant's Share
of Operating Expenses in excess of the Operating Expense Base pursuant hereto.
7.2. Definition of Tenant's Share. The term "Tenant's Share" means
that portion of an Operating Expense determined by multiplying the cost of
such item by a fraction, the numerator of which is the Premises Square
Footage and the denominator of which is the total square footage of the floor
area, as of the date on which the computation is made, to be charged with
such Operating Expense. A determination of Tenant's Share for various
Operating Expenses is set forth in Exhibit I attached to and made a part of
this Lease.
7.3. Definition of Project Costs. The term "Project Costs" means all
costs and expenses incurred by Landlord or Landlord's Agents in connection
with the operation of the Project, including, but not limited to, the
following: repair and maintenance of the roof, foundation and exterior walls
of the buildings in the Project, periodic painting of the buildings in the
Project, periodic cleaning of the exterior windows of the buildings in the
Project, landscaping services, outside pest control, normal maintenance and
repair of the HVAC through maintenance contracts or otherwise, sweeping,
maintenance services, repairs to and replacement of asphalt paving, bumpers,
striping, light bulbs, light standards, monument and directional signs and
lighting systems, perimeter walls, retaining walls, sidewalks, planters,
landscaping and sprinkler system in planting area, any and all assessments
levied against the Project pursuant to the Restrictions, water, electrical
and other utility services not supplied directly to a tenant, removal of
trash, rubbish and other refuse from the Project, cleaning of and replacement
of signs of the Project, including relamping and repairs made as required;
repair, operation and maintenance of the Common Area, including, but not
limited to, removal of any obstructions not reasonably required for the
Common Area uses, prohibition and removal of the sale or display of
merchandise or the storing of materials and/or equipment in the Common Area,
and payment of all electrical, water and other utility charges or fees for
services furnished to the Common Area; obtaining and maintaining public
liability, property damage and other forms of insurance which Landlord may or
is required to maintain in connection with the Project (including the payment
of any deductibles thereunder); costs incurred in connection with compliance
of any laws or changes in laws applicable to the Project, excepting any laws
or changes in laws regarding Hazardous Materials; establishment of reasonable
reserves for replacements and/or repair of Common Area improvements,
equipment and supplies; employment of such personnel as Landlord may deem
reasonably necessary, if any, to direct parking and police the Common Area
and facilities; the cost of any capital improvements (other than tenant
improvements for specific tenants) made by or on behalf of Landlord to the
Project or Common Area to the extent of the amortized amount thereof over the
useful life of such capital improvements calculated at a market cost of
funds, all as determined by Landlord, for each such year of useful life
during the Term; depreciation of machinery and equipment used in connection
with the maintenance and operation of the Common Area for which a reasonable
reserve has not been established as herein provided; employment of personnel
used in connection with any of the foregoing, including, but not limited to,
payment or provision for unemployment insurance, worker's compensation
insurance and other employee costs; the cost of bookkeeping, accounting and
auditing and legal services provided in connection with any of the foregoing;
the cost of any tax, insurance or other consultant utilized in connection
with the Project; and any other items reasonably necessary from time to time
to properly repair, replace, maintain and operate the Project. Project Costs
shall also include a management fee to cover Landlord's management, overhead
and administrative expenses; provided, however, if Landlord elects to
delegate its duties hereunder to a professional property manager, then
Project Costs shall not include any management fee to Landlord (except for
any costs and/or administrative and overhead expenses reasonably incurred by
Landlord in monitoring and auditing the performance delegated to the
professional property manager), but under such circumstances any reasonable
amounts paid to the professional property manager shall be added to and
deemed a part of Project Costs. If Landlord elects to perform any maintenance
or repair herein described in conjunction with properties other than the
Project, and if a common maintenance contractor is contracted with for such
purpose, the contract amount allocable to the Project, as reasonably
determined by Landlord, shall be added to and deemed a part of Project Costs
hereunder. Increases in Project Costs by reason of a disproportionate impact
by Tenant thereon (for example, and not by way of limitation, increases in
costs of trash collection because of Tenant's excessive generation of trash
or increases in costs of Common Area maintenance because of Tenant's
unpermitted storage of inventory or materials in the Common Area), In
Landlord's reasonable judgment, may be billed by Landlord, as an item of
Additional Rent, directly to Tenant.
7.4. Definition of Real Property Taxes. The term "Real Property Taxes"
means any form of tax, assessment, charge, license, fee, rent tax, levy,
penalty (if a result of Tenant's delinquency), real property or other tax
(other than Landlord's net income, estate, succession, inheritance, or
franchise taxes), now or hereafter imposed with respect to the Project or any
part thereof (including any Alterations), this lease or any Rent payable
under this Lease by any authority having the direct or indirect power to tax,
or by any city, county, state or federal government or any improvement
district or other district or division thereof, whether such tax or any
portion thereof (i) is determined by the area of the Project or any part
thereof or the Rent payable under this Lease by Tenant including, but not
limited to, any gross income or excise tax levied by any of the foregoing
authorities with respect to receipt of the Rent due under this Lease, (ii) is
levied or assessed in lieu of, in substitution for, or in addition to,
existing or additional taxes with respect to the Project or any part thereof
whether or not now customary or within the contemplation of Landlord or
Tenant, or (iii) is based upon any legal or equitable interest of Landlord in
the Project or any part thereof.
7.5. Apportionment of Taxes. If the Project is assessed as part of a
larger parcel, then Landlord shall equitably apportion the Real Property
Taxes assessed against the real property which includes the Project and
reasonably determine the amount of Real Property Taxes attributable to the
Project. If other buildings exist on the assessed parcel, the Real Property
Taxes apportioned to the project shall be based upon the ratio
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of the square footage of all buildings within the Project to the square
footage of all buildings on the assessed parcel, and the amount of Real
Property Taxes so apportioned to the Project shall be included as part of
Operating Expenses. Landlord's reasonable determination of such apportionment
shall be conclusive.
7.6. Tax on Improvements; Permitted contests. Tenant shall, at
Landlord's election, be directly responsible for and shall pay the full
amount of any increase in Real Property Taxes attributable to any
improvements of any kind whatsoever placed in, on or about the Premises for
the benefit of, at the request of, or by Tenant. Tenant may contest the
amount or validity of any Real Property Taxes by appropriate proceedings,
provided that Tenant gives Landlord prior Notice of any such contest and
keeps Landlord advised as to all proceedings, and provided further that
Tenant shall continue to reimburse Landlord for Landlord's payment of such
Reel Property Taxes unless such proceedings shall operate to prevent or stay
such payment and the collection of the tax so contested. Landlord shall join
in any such proceedings if any Applicable Laws shall so require, provided
that Tenant shall hold harmless, indemnify, protect and defend Landlord from
and against any liability, claim, demand, cost or expense in connection
therewith, including, but not limited to, actual attorneys' fees and costs
reasonably incurred.
7.7. Utilities and Services. Provided that no Event of Default has
occurred and is continuing, Landlord agrees to furnish to the Premises during
reasonable hours of generally recognized business days, subject to the
conditions and in accordance with the standards set forth in the Rules and
Regulations, as may be amended in writing by Landlord from time to time
during the Term of this Lease and delivered to Tenant, reasonable quantities
of electric current for normal lighting and fractional horsepower office
machines, water for lavatory and drinking purposes, heat and air conditioning
required in Landlord's judgment for the comfortable use and occupation of the
Premises, Janitorial service, and to the extent provided in the Building
only, elevator service by non-attended automatic elevators. The cost of all
such utilities and services shall be included within the definition of
Project Costs, and shall be paid by Tenant in the manner set forth in Section
7.1. Landlord shall not be liable for, and Tenant shall not be entitled to
any abatement or reduction of Rent by reason of Landlord's failure to furnish
any of the foregoing when such failure is caused by accident, breakage,
repairs, Unavoidable Delay or for any other causes. If Tenant requires or
utilizes more water or electrical power than is considered reasonable or
normal by Landlord, Landlord may at its option require Tenant to pay, as
Additional Rent, the cost, as reasonably determined by Landlord, incurred by
such extraordinary usage. In addition, Landlord may install separate meter(s)
for the Premises, at Tenant's sole expense, and Tenant thereafter shall pay
all charges of the metered service. Tenant shall cooperate with any present
or future government conservation requirements and with any conservation
practices established by Landlord. If there is any failure, stoppage or
interruption of any services provided hereunder, Landlord shall use
reasonable diligence to resume services promptly. Landlord shall at all times
have free access to all mechanical installations of the Building and
Premises, including but not limited to air conditioning equipment and vents,
fans, ventilating and machine rooms and electrical closets.
ARTICLE VIII
ALTERATIONS
8.1. Permitted Alterations. After the Commencement Date. Tenant shall
not make or permit any Alterations in, on or about the Premises without the
prior written consent of Landlord. Notwithstanding the foregoing, in no event
shall any Alterations (i) affect the exterior of the Building or the outside
areas (or be visible from adjoining sites), (ii) affect or penetrate any of
the structural portions of the Building, including, but not limited to, the
roof, (iii) require any change to the basic floor plan of the Premises, any
change to the structural or mechanical components of the Premises, or any
governmental approval or permit as a prerequisite to the construction
thereof, (iv) interfere in any manner with the proper functioning of or
Landlord's access to any mechanical, electrical, plumbing or HVAC systems,
facilities or equipment located in or serving the Building, or (v) diminish
the value of the Premises. All Alterations shall be constructed pursuant to
plans and specifications previously provided to and, when applicable,
approved in writing by Landlord, shall be installed by a licensed contractor
at Tenant's sole expense in compliance with all Applicable Laws, and shall be
accomplished in a good and workmanlike manner conforming in quality and
design with the Premises existing as of the Commencement Date. No Hazardous
Materials, including, but not limited to, asbestos or asbestos-containing
materials, shall be used by Tenant or Tenant's Agents in the construction of
any Alterations permitted hereunder. All Alterations made by Tenant shell be
and become the property of Landlord upon the installation thereof and shall
not be deemed Tenant's Personal Property; provided, however, that Landlord
may, at its option, require that Tenant, upon the termination of this Lease,
at Tenant's expense, remove any or all non-structural Alterations installed
by or on behalf of Tenant and return the Premises to its condition as of the
Commencement Date of this Lease, normal wear and tear excepted.
Notwithstanding any other provisions of this Lease, Tenant shall be solely
responsible for the maintenance, repair and replacement of any and all
Alterations made by or on behalf of Tenant (including without limitation by
Landlord on behalf of Tenant) to the Premises.
8.2. Trade Fixtures. Tenant shall, at its own expense, provide, install
and maintain in good condition all of Tenant's Personal Property required in
the conduct of its business in the Premises.
8.3. Mechanics' Liens. Tenant shall give Landlord Notice of Tenant's
intention to perform any work on the Premises which might result in any claim
of lien at least twenty (20) days prior to the commencement of such work to
enable Landlord to post and record a notice of nonresponsibility or other
notice Landlord deems proper prior to the commencement of any such work.
Tenant shall not permit any mechanic's, materialmen's or other liens to be
filed against the property of which the Premises are a part or against
Tenant's leasehold interest in the Premises. If Tenant fails to cause the
release of record of any lien(s) filed against the Premises or its Leasehold
estate therein by payment or posting of a proper bond within ten (10) days
from the date of the lien filing(s), then Landlord may, at Tenant's expense,
cause such lien(s) to be released by any means Landlord deems proper,
including, but not limited to, payment of or defense against the claim giving
rise to the lien(s). All sums reasonably disbursed, deposited or incurred by
Landlord in connection with the release of the lien(s), including, but not
limited to, all costs, expenses and actual attorneys fees, shall be due and
payable by Tenant to Landlord. as an item of Additions Rent. on demand by
Landlord, together with interest thereon at the Applicable Rate from the date
of such demand until paid by Tenant.
8.4 Alterations by Landlord, Landlord reserves the right at any time
and from time to time without the same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor or otherwise
affecting Tenant's obligations under this Lease, to make such changes,
alterations, additions, improvements, repairs or replacements in or to the
Building (including the Premises required to do so by any Applicable Laws)
and the fixtures and equipment thereof, as well as in or to the street
entrances, walls, passages, and stairways thereof, or to change the name by
which the Building is commonly known, as Landlord may deem necessary or
desirable. Nothing contained herein shall be deemed to relieve Tenant of any
duty, obligation or liability of Tenant with respect to making any repair,
replacement or improvement or complying with any Applicable Laws in
connection with the Premises, and nothing contained herein shall be deemed or
construed to
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impose upon Landlord any obligation, responsibility or liability whatsoever
for the care, supervision or repair of the Building or any part thereof other
than as otherwise especially provided in this lease.
ARTICLE IX
MAINTENANCE AND REPAIR
9.1. Landlord's Maintenance and Repair Obligations. Landlord shall,
subject to receiving Tenant's Share of Operating Expenses in excess of the
Operating Expense Base, and subject to Section 9.2, Article XII and Article
XII, maintain in good condition and repair the roof (excluding any
skylights, but including as needed any replacement thereof), exterior walls
and foundation of the Building, provide normal maintenance services for the
HVAC serving the Building through maintenance contracts or otherwise, and
paint the exterior of the Building and clean the exterior windows of the
Building as and when such painting or window cleaning, as the case may be,
becomes necessary in Landlord's sole discretion. Landlord shall also provide
maintenance and repair services to the electrical, plumbing, and mechanical
systems serving the Premises. Landlord shall not be required to make any
repairs to the roof, exterior walls, foundation or any systems within the
Premises unless and until Tenant has notified Landlord in writing of the need
for such repair and Landlord shall have a reasonable period of time
thereafter to commence and complete said repair, if warranted. The cost of
any maintenance and repairs on the part of Landlord provided for in this
Section 9.1 shall be considered part of Project Costs, except that repairs
which Landlord deems arise out of any act or omission of Tenant or Tenant's
Agents shall be made at the expense of Tenant. Landlord's obligation to so
repair and maintain the Premises shall be limited to the cost of effecting
such repair and maintenance and in no event shall Landlord be liable for any
costs or expenses in excess of said amounts, including, but not limited to,
any consequential damages, opportunity costs or lost profits incurred or
suffered by Tenant.
9.2. Tenant's Maintenance and Repair Obligations. Tenant shall at all
times during the Term of this Lease, at Tenant's sole cost and expense,
clean, keep, maintain, repair and make necessary improvements to, the
Premises and every portion thereof and all improvements therein or thereto,
in good and sanitary order and condition to the reasonable satisfaction of
Landlord and in compliance with all Applicable Laws, usual wear and tear
excepted. Any damage or deterioration of the Premises shall not be deemed
usual wear and tear if the same could have been prevented by good maintenance
practices by Tenant. Tenant's repair and maintenance obligations herein shall
include, but are not limited to, all necessary maintenance and repairs to all
portions of the Premises, and all exterior entrances, all glass, windows,
window casements, show window moldings, partitions, doors, door jambs, door
closures, hardware, fixtures, electrical lighting and outlets, plumbing
fixtures, sewage facilities, interior walls, floors, callings, skylights,
fans and exhaust equipment, and fire extinguisher equipment and systems. As
part of its maintenance obligations hereunder, Tenant shall, at Landlord's
request, provide Landlord with copies of all maintenance schedules, reports
and notices prepared by, for, or on behalf of Tenant. Landlord may impose
reasonable restrictions and requirements with respect to repairs by Tenant,
which repairs shall be at least equal in quality to the original work, and
the provisions of Section 8.3 shall apply to all such repairs. Tenant's
obligation to repair includes the obligation to replace, as necessary,
regardless of whether the benefit of such replacement extends beyond the
Term. Notwithstanding the foregoing, Landlord shall have the right, upon
notice to Tenant, to undertake the responsibility for maintenance and repair
of automatic fire extinguisher equipment, such as sprinkler systems and
alarms, and other obligations of Tenant hereunder which Landlord deems
appropriate to undertake that affect the Building as a whole, in which event
the cost thereof shall be included as part of Project Costs and paid by
Tenant in the manner set forth in Section 7.1. Tenant shall not permit or
authorize any person to go onto the roof of the Building without the prior
written consent of Landlord.
9.3. Waiver. Tenant hereby waives all rights provided for by the
provisions of Sections 1941 and 1942 of the California Civil Code and any
present or future laws regarding Tenant's right to make repairs at the
expense of Landlord or to terminate this Lease because of the condition of
the Premises.
9.4. Self-Help. If Tenant refuses or fails to repair and maintain the
Premises as required hereunder within ten (10) days from the date on which
Landlord makes a written demand on Tenant to effect such repair and
maintenance, Landlord may enter upon the Premises and make such repairs or
perform such maintenance without liability to Tenant for any loss or damage
that may accrue to Tenant or its merchandise, fixtures or other property or
to Tenant's business by reason thereof. All sums reasonably disbursed,
deposited or incurred by Landlord in connection with such repairs or
maintenance, plus ten percent (10%) for overhead, shall be due and payable by
Tenant to Landlord, as an item of Additional Rent, on demand by Landlord,
together with interest at the Applicable Rate on such aggregate amount from
the date of such demand until paid by Tenant.
ARTICLE X
COMMON AREA AND PARKING
10.1. Grant of Nonexclusive Common Area License and Right. Landlord
hereby grants to Tenant and its permitted subtenants, in common with Landlord
and all persons, firma and corporations conducting business in the Project
and their respective customers, guests, licensees, invitees, subtenants,
employees and agents, to use the Common Area within the Project for vehicular
parking, for pedestrian and vehicular ingress, egress and travel, and for
such other purposes and for doing such other things as may be provided for,
authorized and/or permitted by the Restrictions, such nonexclusive license
and right to be appurtenant to Tenant's leasehold estate created by this
Lease. The nonexclusive license and rights granted pursuant to the provisions
of this Article X shall be subject to the provisions of the Restrictions,
which pertain in any way to the Common Area covered by such Restrictions, and
the provisions of this Lease.
10.2. Use of Common Area. Notwithstanding anything to the contrary
herein, Tenant and its successors, assigns, employees, agents and invitees
shall use the Common Area only for the purposes permitted hereby and by the
Restrictions and the Rules and Regulations. All uses permitted within the
Common Area shall be undertaken with reason and judgment so as not to
interfere with the primary use of the Common Area which is to provide parking
and vehicular and pedestrian access throughout the Common Area within the
Project and to adjacent public streets for the Landlord, Landlord's Agents,
Its tenants, subtenants and all persons, firms and corporations conducting
business within the Project and their respective customers, guests and
licensees. In no event shall Tenant erect, install, or place, or cause to be
erected, installed, or placed any structure, building, trailer, fence, wall,
signs or other obstructions on the Common Area except as otherwise permitted
herein and in the Restrictions, and Tenant shall not store or sell any
merchandise, equipment or materials on the Common Area.
10.3. Control of Common Area. Subject to provisions of the
Restrictions, all Common Area and all improvements located from time to time
within the Common Area shall at all times be subject to the exclusive control
and management of the Landlord. Landlord shall have the right to construct,
maintain and operate
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lighting facilities within the Common Area; to police the Common Area from time
to time; to change the area, level, location and arrangement of the parking
areas and other improvements within the Common Area: to restrict parking by
tenants, their officers, agents and employees to employee parking areas; to
enforce parking charges (by operation of meters or otherwise); to close all
or any portion of the Common Area or improvements therein to such extent as
may, in the opinion of counsel for Landlord, be legally sufficient to prevent
a dedication thereof or the accrual of any rights to any person or to the
public therein; to close temporarily all or any portion of the Common Area
and/or the improvements thereon; to discourage noncustomer parking; and to do
and perform such other acts in and to said Common Area and improvements
thereon as, in the use of good business judgment, Landlord shall determine to
be advisable.
10.4. Maintenance of Common Area. Subject to the provisions of the
Restrictions, Landlord shall operate and maintain (or cause to be operated
and maintained) the Common Area in a first-class condition, in such manner as
Landlord in its sole discretion shall determine from time to time. Without
limiting the scope of such discretion, Landlord shall have the full right and
authority to employ or cause to be employed all personnel and to make or
cause to be made all rules and regulations pertaining to or necessary for the
proper operation and maintenance of the Common Area and the improvements
located thereon. The cost of such maintenance of the Common Area shall be
included as part of Project Costs. No part of the Common Area may be used for
the storage of any items, including without limitation, vehicles, materials,
inventory and equipment. All trash and other refuse shall be placed In
designated receptacles. No work of any kind, including, but not limited to,
painting, drying, cleaning, repairing, manufacturing, assembling, cutting,
merchandising or displaying shall be permitted upon the Common Area.
10.5. Revocation of License. All Common Area and Improvements located
thereon which Tenant is permitted to use and occupy pursuant to the
provisions of this Lease are to be used and occupied under a revocable
license and right, and If any such license be revoked, or if the amount of
such areas be diminished, Landlord shall not be subject to any liability nor
shall Tenant be entitled to compensation or diminution or abatement of Rent,
and such revocation or diminution of such areas shall not be deemed
constructive or actual eviction. It is understood and agreed that the
condemnation or other taking or appropriation by any public or quasi-public
authority, or sale in lieu of condemnation, of all or any portion of the
Common Area shall not constitute a violation of Landlord's agreements
hereunder, and Tenant shall not be entitled to participate in or make any
claim for any award or other condemnation proceeds arising from any such
taking or appropriation of the Common Area. Notwithstanding the foregoing,
so long as no Event of Default has occurred and is continuing, Landlord shall
provide to Tenant the number of vehicle parking spaces set forth in item 15
of the Basic Lease Provisions throughout the Term (subject to the rights of
Landlord under this Article X).
10.6. Landlord's Reserved Rights. Landlord reserves the right to
install, use, maintain, repair, relocate and replace pipes, ducts, conduits,
wires and appurtenant meters and equipment included in the Premises or
outside the Premises, change the boundary lines of the Project and install,
use, maintain, repair, alter or relocate, expand and replace any Common Area;
provided, however, Landlord shall not unreasonably interfere with Tenant's
use of the Premises. Such rights of Landlord shall include, but are not
limited to, designating from time to time certain portions of the Common Area
as exclusively for the benefit of certain tenants in the Project.
10.7. Parking. Tenant shall be entitled to the number of vehicle
parking spaces set forth in Item 15 of the Basic Lease Provisions, which
spaces shall be unreserved and unassigned, on those portions of the Common
Area designated by Landlord for parking. Tenant shall not use more parking
spaces than such number. All parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks.
Tenant shall not permit or allow any vehicles that belong to or are controlled
by Tenant or Tenant's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those
designated by Landlord for such activities. If Tenant permits or allows any
of the prohibited activities described above, then Landlord shall have the
right, without notice, in addition to such other rights and remedies that
Landlord may have, to remove or tow away the vehicle involved and charge the
cost to Tenant, which cost shall be immediately payable upon demand by
Landlord. Parking within the Common Area shall be limited to striped parking
stalls, and no parking shall be permitted in any driveways, accessways or in
any area which would prohibit or impede the free flow of traffic within the
Common Area. There shall be no overnight parking of any vehicles of any kind,
and vehicles which have been abandoned or parking in violation of the terms
hereof may be towed away at the owner's expense.
ARTICLE XI
INDEMNITY AND INSURANCE
11.1. Indemnification. To the fullest extent permitted by law, Tenant
hereby agrees to defend (with attorneys acceptable to), indemnify, protect
and hold harmless Landlord and Landlord's Agents and any successors to all
or any portion of Landlord's interest in the Premises and their directors,
officers, partners, employees, authorized agents, representatives, affiliates
and Mortgagees, from and against any and all damage, loss, claim, liability
and expense including, but not limited to, actual attorneys' fees and legal
costs, incurred directly or indirectly by reason of any claim, suit or
judgment brought by or on behalf of (i) any person or persons for damage,
loss or expense due to, but not limited to, bodily injury or property damage
sustained by such person or persons which arise out of, are occasioned by, or
are in any way attributable to the use or occupancy of the Premises or the
acts or omissions of the Tenant or Tenant's Agents in or about the Premises
or the Project (including but not limited to any Event of Default hereunder),
or (ii) Tenant or Tenant's Agents for damage, loss or expanse due to, but not
limited to, bodily Injury or property damage which arise out of, are
occasioned by, or are in any way attributable to the use of any of the Common
Area, except to the extent caused by the sole active negligence or willful
misconduct of Landlord.
11.2. Property Insurance. Landlord shall obtain and keep in force
during the term of this Lease a policy or policies of insurance, with
deductibles at the sole discretion of Landlord, covering loss or damage to
the Premises, the Building, and objects owned by Landlord and normally
covered under a "Boiler and Machinery" policy (as such term is used in the
insurance industry), at least in the amount of the full replacement cost
thereof, and in no event less than the total amount required by Mortgagees,
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, special extended perils ("all risk"
or "special causes of action," as such terms are used in the insurance
industry, including, at Landlord's option, collapse, earthquake and flood)
and other perils as required by the Mortgagees or deemed necessary by
Landlord. A stipulated value or agreed amount endorsement deleting any co-
insurance provision of said policy or policies shall be procured with said
insurance. The cost of such insurance policies shall be included in the
definition of Project Costs, and shall be paid by Tenant in the manner set
forth in Section 7.1. Such insurance Policies shall provide for payment of
loss thereunder to Landlord or, at Landlord's election, to the Mortgagees. If
the Premises are part of a larger building, or if the Premises are part of a
group of buildings owned by Landlord which are adjacent to the Premises, then
Tenant shall pay for any increase in the property insurance of the Building
or such other building or buildings within the Project if such increase is
caused by
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Tenant's acts, omissions, use or occupancy of the Premises. Tenant shall
obtain and keep in force during the Term, at its sole cost and expense, (i) an
"all risk" or "special causes of action" property policy in the amount of the
full replacement cost covering Tenant's Personal Property and any Alterations
made by or at the request of Tenant, with Landlord insured as its interest
may appear.
11.3. LIABILITY/MISCELLANEOUS INSURANCE. Tenant shall maintain in full
force and collect at all times during the term (plug such earlier and later
periods as Tenant may be in occupancy of the Premises), at its sole cost and
expense, for the protection of Tenant, Landlord and Landlord's Agents and
Mortgagees, policies of insurance issued by a carrier or carriers acceptable
to Landlord and the Mortgagees which afford the following coverages: (i)
statutory workers' compensation, (ii) employer's liability with minimum
limits of Five Hundred Thousand Dollars ($500,000), (iii)
comprehensive/commercial general liability insurance including, but not
limited to, fire and water, legal liability, broad form property damage,
personal injury, completed operations, products liability, independent
contractors, warehouser's legal liability and, if alcoholic beverages are
served, manufactured, distributed or sold in the Premises, comprehensive
liquor liability, and owned, non-owned and hired vehicles, of not less than
the limits set forth in Item 17 of the Basic Lease Provisions (or current
limit carried, whichever is greater), naming Landlord, the Mortgagees, and
the Additional Insureds named in Item 16 of the Basic Lease Provisions as
additional insureds, and including a cross-liability or severability of
interests indorsement, and (iv) such other insurance in such form and amounts
as may be required by Landlord or the Mortgagees from time to time. Landlord
or Landlord's Agents on behalf of Landlord may, at Landlord's election,
obtain liability insurance in such amounts and on such terms as Landlord
shall determine, and the cost thereof shall be included in Project Costs and
paid by Tenant in the manner described in Section 7.1.
11.4. DEDUCTIBLES. Any policy of insurance required pursuant to this
Lease containing a deductible exceeding Five Thousand Dollars ($5,000.00) per
occupancy must be approved in writing by Landlord prior to the issuance of
such policy. Tenant shall be solely responsible for the payment of any
deductible.
11.5 BLANKET COVERAGE. Any insurance required of Tenant pursuant to
this Lease may be provided by means of a so-called "blanket policy", so long
as (i) the Premises are specifically covered (by rider, endorsement or
otherwise), (ii) the limits of the policy are applicable on a "per location"
basis to the Premises and provide for restoration of the aggregate limits,
and (iii) the policy otherwise complies with the provisions of this Lease.
11.7. SUFFICIENCY OF COVERAGE. Neither Landlord nor any of Landlord's
Agents makes any representation that the types of insurance and limits
specified to be carried by Tenant under this Lease are adequate to protect
Tenant. If Tenant believes that any such insurance coverage is insufficient,
Tenant shall provide, at its own expense, such additional insurance as
Tenant deems adequate. Nothing contained herein shall limit Tenant's
liability under this Lease, and Tenant's liability under any provision of
this Lease, including without limitation under any indemnity provisions,
shall not be limited to the amount of any insurance obtained.
11.8. INSURANCE REQUIREMENTS. Tenant's insurance (i) shall be in a form
satisfactory to Landlord and the Mortgagees and shall be carried with
companies that have a general policyholder's rating of not less than "A" and
that are determined by Landlord, in its sole discretion, as financially sound
on a current basis, (ii) shall provide that such policies shall not be
subject to material alteration or cancellation except after at least thirty
(30) days prior written notice to Landlord, and (iii) shall be primary, and
any insurance carried by Landlord or Landlord's Agents shall be
noncontributing. Tenant's policy or policies, or duly executed certificates
for them in the form and content acceptable to Landlord, shall be deposited
with Landlord prior to the Commencement Date, and prior to renewal of such
policies. If Tenant falls to procure and maintain the insurance required to
be procured by Tenant under this Lease, Landlord may, but shall not be
required to, order such insurance at Tenant's expense. All sums reasonably
disbursed, deposited or incurred by Landlord in connection therewith,
including, but not limited to, all costs, expenses and actual attorneys' fees,
shall be due and payable by Tenant to Landlord, as an item of Additional
Rent, on demand by Landlord, together with Interest thereon at the Applicable
Rate from the date of such demand until paid by Tenant.
11.9. IMPOUND FUNDS. If requested by any Mortgagees to whom Landlord
has granted a security interest in the Premises, or if any Event of Default
occurs under this Lease, Tenant shall, at Landlord's election, pay Landlord,
concurrently with each payment of Monthly Rent, a sum equal to one-twelfth
(1/12) of the annual insurance premiums payable by Tenant for all insurance
which Tenant is required to obtain pursuant to this Article XI. Such sums
(the "Impound Funds") shall be held by Landlord and applied to the payment of
such insurance premiums when due; provided, however, Landlord shall not be
required to keep the Impound Funds separate from other funds, Tenant shall
not be entitled to interest on the Impound Funds and no trust relationship
shall be created with respect to the Impound Funds. The amount of the Impound
Funds when unknown shall be reasonably estimated by Landlord. If the Impound
Funds paid to Landlord by Tenant under this Section 11.9 are insufficient to
discharge the obligations of Tenant to pay such insurance premiums as the
same become due, Tenant shall pay to Landlord, within ten (10) days after
Landlord's written request therefor, such additional sums necessary to pay
such obligations. If an Event of Default has occurred, any balance remaining
from the Impound Funds may, at the option of Landlord, be applied to any
obligation then due under this Lease in lieu of being applied to the payment
of insurance premiums. The unused portion of the Impound Funds, if any, shall
be returned to Tenant within thirty (30) days of the expiration of this Lease
or any termination of this Lease not resulting from an Event of Default,
provided that Tenant has vacated the Premises in the manner required by this
Lease.
11.10. LANDLORD'S DISCLAIMER. Notwithstanding any other provisions of
this Lease, and to the fullest extent permitted by law, Landlord and
Landlord's Agents shall not be liable for any loss or damage to persons or
property resulting from theft, vandalism, fire, explosion, falling materials,
glass, tile or sheetrock, steam, gas, electricity, water or rain which may
leak from any part of the Premises, or from the pipes, appliances or plumbing
works therein or from the roof, street or subsurface or whatsoever, unless
caused by or due to the sole active negligence or willful misconduct of
Landlord. Landlord and Landlord's Agents shall not be liable for interference
with light or air, or for any latent defect in the Premises except as
otherwise expressly provided in this Lease. Tenant shall give prompt Notice
to Landlord in case of a casualty, accident or repair needed to the Premises.
11.11. WAIVER OF SUBROGATION. Landlord, except to the extent Tenant's
insurance covers loss to Landlord plus Tenant's obligations with respect to
maintenance and repair and payment of insurance deductibles hereunder,
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and Tenant each hereby waives all rights of recovery against the other and
the other's agents on account of loss and damage occasioned to such waiving
party to the extent only that such loss or damage is insured against under
any insurance policies required by this Article XI (and to the extent such
insurance is inadequate to cover such loss, this waiver shall not apply to
amounts of loss above such coverage). Tenant and Landlord shall, upon
obtaining policies of insurance required hereunder, give notice to the
insurance carriers that the foregoing waiver of subrogation is contained in
this Lease. Notwithstanding the foregoing, it is agreed that in the event
that any loss is due to the act, omission or negligence or willful misconduct
of Tenant or Tenant's Agents, Tenant's liability insurance shall be primary
and shall cover all losses and damages prior to any other insurance hereunder.
ARTICLE XII
DAMAGE OR DESTRUCTION
12.1. LANDLORD'S OBLIGATION TO REBUILD. if the Premises are damaged or
destroyed by fire or other casualty (a "Casualty"), Tenant shall promptly
give notice thereof to Landlord, and Landlord shall thereafter repair the
Premises as set forth in Sections 12.4 and 12.5 unless Landlord has the right
to terminate this Lease as provided in Section 12.2 and Landlord elects to so
terminate or Tenant has the right to terminate this Lease as provided in
Section 12.3 and Tenant elects to so terminate.
12.2. LANDLORD'S RIGHT TO TERMINATE. Landlord shall have the right to
terminate this Lease following a Casualty if any of the following occurs: (i)
Insurance proceeds (together with any additional amounts Tenant elects, at
its option, to contribute) are not available to Landlord to pay one hundred
percent (100%) of the cost to fully repair the Premises, excluding the
deductible (for which Tenant shall pay Tenant's Share of such deductible);
(ii) Landlord's Architect determines that the Premises cannot, with
reasonable diligence, be fully repaired by Landlord (or cannot be safely
repaired because of the presence of hazardous factors, including, but not
limited to, Hazardous Materials, earthquake faults, radiation, chemical waste
and other similar dangers) within one hundred eighty (180) days after the
date of such Casualty; (iii) the Premises are destroyed or damaged during the
last twelve (12) months of the Term; or (iv) an Event of Default has occurred
and is continuing at the time of such Casualty. If Landlord elects to
terminate this Lease following a Casualty pursuant to this Section 12.2,
Landlord shall give Tenant Notice of its election to terminate within thirty
(30) days after landlord has knowledge of such Casualty, and this Lease shall
terminate fifteen (15) days after the date of such Notice.
12.3. TENANT'S RIGHT TO TERMINATE. Subject to the later terms hereof,
Tenant shall have the right to terminate this Lease following the destruction
of the Premises (or damage to the Premises so extensive as to reasonably
prevent Tenant's substantial use and enjoyment of the Premises) if any of
the following occurs: (i) the Premises cannot, with reasonable diligence, be
fully repaired by Landlord within one hundred eighty (180) days after the
date of the damage or destruction, as determined by Landlord's Architect;
(ii) the Premises cannot safely be repaired because of the presence of
hazardous factors, including Hazardous Materials, earthquake faults,
radiation, chemical waste and other similar dangers; or (iii) the damage or
destruction occurs during the last twelve (12) months of the Term and cannot,
with reasonable diligence, be fully repaired by Landlord within ninety (90)
days after the date of the destruction or damage, as determined by
Landlord's Architect. Notwithstanding the foregoing, Tenant shall not have
the right to terminate under this Section 12.3 if (a) an Event of Default has
occurred and is continuing at the time of such damage or destruction or at
the time of exercising the right to terminate, or (b) the damage or
destruction was caused, in whole or in part, by the act or omission of Tenant
or Tenant's Agents. If Tenant elects to terminate this Lease pursuant to this
Section 12.3, Tenant shall give Landlord Notice of its election to terminate
within ten (10) days after the date of such damage or destruction, and this
Lease shall terminate thirty (30) days after the date of such Notice.
12.4. EFFECT OF TERMINATION. If this Lease is terminated following a
Casualty pursuant to Section 12.2 or Section 12.3, Landlord shall, subject to
the rights of the Mortgagees, be entitled to receive and retain all the
insurance proceeds resulting from or attributable to such Casualty, except
for those proceeds payable under policies obtained by Tenant which
specifically insure Tenant's Personal Property. If neither party exercises
any such right to terminate this Lease, this Lease will continue in full
force and effect, and Landlord shall, promptly following the tenth (10th) day
after the date of such Casualty and receipt of the amounts set forth in
clause (i) of Section 12.2, commence the process of obtaining necessary
permits and approvals for the repair of the Premises, and shall commence such
repair and prosecute the same diligently to completion as soon thereafter as
is practicable. Tenant shall fully cooperate with Landlord in removing
Tenant's Personal Property and any debris from the Premises to facilitate the
making of such repairs.
12.5. LIMITED OBLIGATION TO REPAIR. Landlord's obligation, should it
elect or be obligated to repair the Premises following a Casualty, shall be
limited to the basic Building and Tenant shall, at its expense, replace or
fully repair all Tenant's Personal Property and any Alterations installed by
Tenant existing at the time of such Casualty.
12.6. ABATEMENT OF MONTHLY RENT. During any period when Landlord or
Landlord's Architect reasonably determines that there is substantial
interference with Tenant's use of the Premises by reason of a Casualty,
Monthly Rent shall be temporarily abated in proportion to the degree of such
substantial interference, but only to the extent of any business
interruption or loss of income insurance proceeds received by Landlord from
Tenant's insurance described in Section 11.2. Such abatement shall commence
upon the date Tenant notifies Landlord of such Casualty and shall end upon
the Substantial Completion of the repair of the Premises which landlord
undertakes or is obligated to undertake hereunder. Tenant shall not be
entitled to any compensation or damages from Landlord for loss of the use of
the Premises, Tenant's Personal Property or other damage or any
inconvenience occasioned by a Casualty or by the repair or restoration of the
Premises thereafter, including, but not limited to, any consequential
damages, opportunity costs or lost profits incurred or suffered by Tenant.
Tenant hereby waives the provisions of Section 1932(2) and Section 1933(4) of
the California Civil Code, and the provisions of any similar or successor
statutes.
12.7. LANDLORD'S DETERMINATION. The determination in good faith by
Landlord's Architect of or relating to the estimated cost of repair of any
damage, replacement cost, the time period required for repair or the
interference with or suitability of the Premises for Tenant's use or
occupancy shall be conclusive for purposes of this Article XII and Article
XIII.
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ARTICLE XIII
CONDEMNATION
13.1. TOTAL TAKING--TERMINATION. If title to the Premises or so much
thereof is taken for any public or quasi-public use under any statute or by
right of eminent domain so that reconstruction of the Premises will not
result in the Premises being reasonably suitable for Tenant's continued
occupancy for the uses and purposes permitted by this Lease, this Lease shall
terminate as of the date possession of the Premises or part thereof is so
taken.
13.2. PARTIAL TAKING. If any part of the Premises is taken for any
public or quasi-public use under any statute or by right of eminent domain
and the remaining part is reasonably suitable for Tenant's continued
occupancy for the uses permitted by this lease, this Lease shall, as to the
part so taken, terminate as of the date that possession of such part of the
Premises is taken and the Monthly Rent shall be reduced in the same
proportion that the floor area of the portion of the Premises so taken (less
any addition thereto by reason of any reconstruction) bears to the original
floor area of the Premises, as reasonably determined by Landlord or
Landlord's Architect. Landlord shall, at its own cost and expense, make all
necessary repairs or alterations to the Premises so as to make the portion of
the Premises not taken a complete architectural unit. Such work shall not,
however, exceed the scope of the work done by Landlord in originally
constructing the Premises. If severance damages from the condemning authority
are not available to Landlord in sufficient amounts to permit such
restoration, Landlord may terminate this Lease upon Notice to Tenant.
Monthly Rent due and payable hereunder shall be temporarily abated during
such restoration period in proportion to the degree to which there is
substantial interference with Tenant's use of the Premises, as reasonably
determined by Landlord or Landlord's Architect. Each party hereby waives the
provisions of Section 1265.130 of the California Code of Civil Procedure and
any present or future law allowing either party to petition the Superior
Court to terminate this Lease in the event of a partial taking of the
Building or Premises.
13.3. NO APPORTIONMENT OF AWARD. No award for any partial or total
taking shall be apportioned, it being agreed and understood that Landlord
shall be entitled to the entire award for any partial or entire taking.
Tenant assigns to Landlord its interest in any award which may be made in
such taking or condemnation, together with any and all rights of Tenant
arising in or to the same or any part thereof. Nothing contained herein
shall be deemed to give Landlord any interest in or require Tenant to assign
to Landlord any separate award made to Tenant for the taking of Tenant's
Personal Property, for the interruption of Tenant's business or its moving
costs, or for the loss of its goodwill.
13.4. TEMPORARY TAKING. No temporary taking of the Premises (which for
purposes hereof shall mean a taking of all or any part of the Premises for
one hundred eighty (180) days or less) shall terminate this Lease or give
Tenant any right to any abatement of Rent. Any award made to Tenant by
reason of such temporary taking shall belong entirely to Tenant and
Landlord shall not be entitled to share therein. Each party agrees to execute
and deliver to the other all instruments that may be required to effectuate
the provisions of this Section 13.4.
13.5. SALE UNDER THREAT OF CONDEMNATION. A sale made in good faith to
any authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed a
taking under the power of eminent domain for all purposes of this Article
XIII.
ARTICLE XIV
ASSIGNMENT AND SUBLETTING
14.1. PROHIBITION. Tenant shall not directly or indirectly, voluntarily
or by operation of law, assign which term shall include any transfer,
assignment, pledge, mortgage or hypothecation) this lease, or any right or
interest hereunder, or sublet the Premises or any part thereof, or allow any
other person or entity to occupy or use all or any part of the Premises
without first obtaining the written consent of Landlord in each instance,
which consent shall not be unreasonably withheld. No assignment, encumbrance,
subletting, or other transfer in violation of the terms of this Article XIV,
whether voluntary or involuntary, by operation of law, under legal process or
proceedings, by receivership, in bankruptcy, or otherwise shall be valid or
effective and, at the option of Landlord, shall constitute an Event of
Default under this Lease. To the extent not prohibited by provisions of the
Bankruptcy Code of 1978, 11 U.S.C. Section 101 ET SEQ.. (the "Bankruptcy
Code"), Tenant on behalf of itself, creditors, administrators and assigns
waives the applicability of Sections 541(c) and 365(e) of the Bankruptcy
Code unless the proposed assignee of the trustee for the estate of the
bankrupt meets Landlord's standards for consent as set forth below. Landlord
has entered into this Lease with Tenant in order to obtain for the benefit
of the Project the unique attraction of Tenant's name and business; the
foregoing prohibition on assignment or subletting is expressly agreed to by
Tenant in consideration of such fact. If this Lease is assigned to any
person or entity pursuant to the provisions of the Bankruptcy Code, any and
all monies or other considerations payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Landlord, shall
be and remain the exclusive property of Landlord and shall not constitute
property of Tenant or the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and be promptly
paid or delivered to Landlord. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed
without further act or deed to have assumed all of the obligations arising
under this Lease on and after the date of such assignment. Any such
assignee shall upon demand execute and deliver to Landlord an instrument
confirming such assumption.
14.2. LANDLORD'S CONSENT. In the event Landlord consents to any
assignment or subletting, such consent shall not constitute a waiver of any
of the restrictions of this Article XIV and the same shall apply to each
successive assignment or subletting hereunder, if any. In no event shall
Landlord's consent to an assignment or subletting affect the continuing
primary liability of Tenant (which, following assignment, shall be joint and
several with the assignee), or relieve Tenant of any of its obligations
hereunder without an express written release being given by Landlord. In the
event that Landlord shall consent to an assignment or subletting under this
Article XIV, such assignment or subletting shall not be effective until the
assignee or sublessee shall assume all of the obligations of this Lease on
the part of Tenant to be performed or observed and whereby the assignee or
sublessee shall agree that the provisions contained in this Lease shall,
notwithstanding such assignment or subletting, continue to be binding upon it
with respect to all future assignments and sublettings. Such assignment or
sublease agreement shall be duly executed and a fully executed copy thereof
shall be delivered to Landlord, and Landlord may collect Monthly Rent and
Additional Rent due hereunder directly from the assignee or sublessee.
Collection of Monthly Rent and Additional Rent directly from an assignee or
sublessee shall not constitute a consent or a waiver of the necessity of
consent to such assignment or subletting, nor shall such collection
constitute a recognition of such assignee or sublessee as the Tenant
hereunder or a release of Tenant from the performance of all of its
obligations hereunder.
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14.3 INFORMATION. Regardless of whether Landlord's consent is
required under this Article XIV, Tenant shall notify Landlord in writing of
Tenant's intent to assign this Lease or any right or interest hereunder, or
to sublease the Premises or any part thereof, end of the name of the proposed
assignee or sublessee, the nature of the proposed assignee's or sublessee's
business to be conducted on the Premises, the terms and provisions of the
proposed assignment or sublease, a copy of the proposed assignment or
sublease form, and such other information as Landlord may reasonably request
concerning the proposed assignee or sublessee, including, but not limited to,
net worth, income statements and other financial statements for a two-year
period preceding Tenant's request for consent, evidence of insurance
complying with the requirements of Article XI, and the fee described in
Section 14.7.
14.4. STANDARD FOR CONSENT. Landlord shall, within thirty (30) days of
receipt of such Notice and all information requested by Landlord concerning
the proposed assignee or sublessee, elect to take one of the following
actions:
(a) consent to such proposed assignment or sublease;
(b) refuse to consent to such proposed assignment or sublease,
which refusal shall be on reasonable grounds; or
(c) if Tenant proposes to sublease all or part of the Premises for
the entire remaining Term, Landlord may, at its option exercised by thirty
(30) days Notice to Tenant, elect to recapture such portion of the Premises
as Tenant proposes to sublease and as of the thirtieth (30th) day after
Landlord so notifies Tenant of its election to recapture, this Lease shall
terminate as to the portion of the Premises recaptured and the Monthly Rent
payable under this Lease shall be reduced in the same proportion that the
floor area of that portion of the Premises so recaptured bears to the floor
area of the Premises prior to such recapture.
Tenant agrees, by way of example and without limitation, that it shall
not be unreasonable for Landlord to withhold its consent to a proposed
assignment or subletting if any of the following situations exist or may
exist:
(i) Landlord determines that the proposed assignee's or
sublessee's use of the Premises conflicts with Article V or Article VI,
presents an unacceptable risk, as determined by Landlord, under Article
VI, or conflicts with any other provision under this Lease;
(ii) Landlord determines that the proposed assignee or
sublessee is not as financially responsible as Tenant as of the date of
Tenant's request for consent or as of the effective date of such
assignment or subletting;
(iii) Landlord determines that the proposed assignee or
sublessee lacks sufficient business reputation or experience to conduct
on the Premises a business of a type and quality equal to that
conducted by Tenant:
(iv) Landlord determines that the proposed assignment or
subletting would breach a covenant, condition or restriction in some
other lease, financing agreement or other agreement relating to the
Project, the Building, the Premises or this Lease; or
(v) An Event of Default has occurred and is continuing at
the time of Tenant's request for Landlord's consent, or as of the
effective date of such assignment or subletting.
Tenant acknowledges that if Tenant has any exterior sign rights under this
Lease, such rights are personal to Tenant and may not be assigned or
transferred to any assignee of this Lease or sublessee of the Premises
without Landlord's prior written consent, which consent may be withheld in
Landlord's sole and absolute discretion.
14.5. BONUS VALUE. Tenant agrees that seventy-five percent (75%) of any
amounts paid by assignee or sublessee. however described, in excess of (i)
the Monthly Rent payable by Tenant hereunder (or, in the case of sublease of
a portion of the Premises, in excess of the Monthly Rent reasonably
allocable to such portion), plus (ii) Tenant's direct out-of-pocket costs
which Tenant certifies to Landlord have been paid to provide occupancy
related services to such assignee or sublessee of a nature commonly provided
by landlords of similar space, shall be the property of Landlord and such
amounts shall be payable directly to Landlord by the assignee or sublessee.
At Landlord's request, a written agreement shall be entered into by and among
Tenant, Landlord and the proposed assignee or sublessee confirming the
requirements of this Section 14.5.
14.6. CERTAIN TRANSFERS. The sale of all or substantially all of
Tenant's assets (other than bulk sales in the ordinary course of business),
or, if Tenant is a corporation, an unincorporated association, or a
partnership, the transfer, assignment or hypothecation of any stock or
interest in such corporation, association or partnership in the aggregate in
excess of twenty-five percent (25%) (except for publicly traded shares of
stock constituting a transfer of twenty-five percent (25%) or more in the
aggregate, so long as no change in the controlling interests of Tenant occurs
as a result thereof) shall be deemed an assignment within the meaning
and provisions of this Article XIV.
14.7. LANDLORD'S FEE AND EXPENSES. If Tenant requests Landlord's consent
to an assignment or subletting by Tenant under this Lease, Tenant shall pay
to Landlord a fee of Five Hundred Dollars ($500) and all of Landlord's
out-of-pocket expenses, including, but not limited to, attorneys' fees
reasonably incurred related to such assignment or subletting by Tenant,
whether or not the assignment or subletting is approved.
14.8. TRANSFER OF THE PREMISES BY LANDLORD. Upon any conveyance of the
Premises and assignment by Landlord of this Lease, Landlord shall and is
hereby entirely released from all liability under any and all of its
covenants and obligations contained in or derived from this Lease occurring
after the date of such conveyance and assignment, and Tenant agrees to
attorn to any entity purchasing or otherwise acquiring the Premises.
14.9 [See Addendum]
ARTICLE XV
DEFAULTS AND REMEDIES
15.1. TENANT'S DEFAULT. At the option of Landlord, a default under this
Lease by Tenant shall exist if any of the following events shall occur
(each is called an "Event of Default"):
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(a) Tenant fails to pay the Rent payable hereunder, as and when
due, for a period of three (3) days after Notice by Landlord; provided,
however, the Notice given hereunder shall be in lieu of, and not in addition
to, any notice required under Section 1161, ET SEQ., of the California Code
of Civil Procedure;
(b) Tenant attempts to make or suffers to be made any transfer,
assignment or subletting, except as provided in Article XIV hereof;
(c) Any of Tenant's rights under this Lease are sold or otherwise
transferred by or under court order or legal process or otherwise or if any
of the actions described in Section 15.2 are taken by or against Tenant or
any Guarantor;
(d) The Premises are used for any purpose other than as permitted
pursuant to Article V;
(e) Tenant vacates or abandons the Premises or fails to
continuously and uninterruptedly conduct its business in the Premises;
(f) Any representation or warranty given by Tenant under or in
connection with this Lease proves to be materially false or misleading;
(g) Tenant fails to timely comply with the provisions of Article VI
("Hazardous Materials"), Article XIV ("Assignment and Subletting"), Article
XVI ("Subordination; Estoppel Certificate; Financials"), Section 21.5
("Modifications for Mortgagees") or Section 21.19 ("Authority'); or
(h) Tenant fails to observe, keep, perform or cure within fifteen
(15) days after Notice by Landlord any of the other terms, covenants,
agreements or conditions contained in this Lease or those set forth in any
other agreements or rules or regulations which Tenant is obligated to
observe or perform. In the event such default reasonably could not be cured
or corrected within such fifteen-day period, but is reasonably susceptible to
cure or correction, then Tenant shall not be in default hereunder if Tenant
commences the cure or correction of such default within such fifteen-day
period and diligently prosecutes the same to completion after commencing
such cure or correction. The Notice required by this subparagraph 15.1(h)
shall be in lieu of, and not in addition to, any notice required under
Section 1161, ET SEQ., of the California Code of Civil Procedure.
Notices given under this Section 15.1 shall specify the alleged default and
shall demand that Tenant perform the provisions of this Lease or pay the Rent
that is in arrears, as the case may be, within the applicable period of
time, or quit the Premises. No such Notice shall be deemed a forfeiture or a
termination of this Lease unless Landlord so elects in the Notice.
15.2. BANKRUPTCY OR INSOLVENCY. In no event shall this Lease be
assigned or assignable by operation of law and in no event shall this Lease
be an asset of Tenant in any receivership, bankruptcy, insolvency or
reorganization proceeding. In the event:
(a) A court makes or enters any decree or order adjudging Tenant to
be insolvent, or approving as properly filed by or against Tenant a petition
seeking reorganization or other arrangement of Tenant under any provisions of
the Bankruptcy Code or any applicable state law, or directing the winding up
or liquidation of Tenant and such decree or order shall have continued for a
period of thirty (30) days;
(b) Tenant makes or suffers any transfer which constitutes a
fraudulent or otherwise avoidable transfer under any provisions of the
Bankruptcy Code or any applicable state law;
(c) Tenant assigns its assets for the benefit of its creditors; or
(d) The material part of the property of Tenant or any property
essential to Tenant's business or of Tenant's interest in this Lease is
sequestered, attached or executed upon, and Tenant fails to secure a return
or release of such property within ten (10) days thereafter, or prior to sale
pursuant to such sequestration, attachment or levy, whichever is earlier;
then this Lease shall, at Landlord's election, immediately terminate and be
of no further force or effect whatsoever, without the necessity for any
further action by Landlord, except that Tenant shall not be relieved of
obligations which have accrued prior to the date of such termination. Upon
such termination, the provisions herein relating to the expiration or earlier
termination of this Lease shall control and Tenant shall immediately
surrender the Premises in the condition required by the provisions of this
Lease. Additionally, landlord shall be entitled to all relief, including
recovery of damages from Tenant, which may from time to time be permitted, or
recoverable, under the Bankruptcy Code or any other applicable state laws.
15.3. LANDLORD'S REMEDIES. Upon the occurrence of an Event of Default,
then, in addition to and without waiving any other rights and remedies
available to Landlord at law or in equity or otherwise provided in this
Lease, Landlord may, at its option, cumulatively or in the alternative,
exercise the following remedies:
(a) Landlord may terminate Tenant's right to possession of the
Premises, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. No act by
Landlord other than giving Notice to Tenant of Landlord's election to
terminate Tenant's right to possession shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, or the appointment of a receiver
on Landlord's initiative to protect Landlord's interest under this Lease
shall not constitute a termination of Tenant's right to possession.
Termination shall terminate Tenant's right to possession of the Premises but
shall not relieve Tenant of any obligation under this Lease which has
accrued prior to the date of such termination. Upon such termination,
Landlord shall have the right to re-enter the Premises, and remove all
persons and property, and Landlord shall also be entitled to recover from
Tenant:
(i) The worth at the time of award of the unpaid Monthly Rent
and Additional Rent which had been earned at the time of termination;
(ii) The worth at the time of award of the amount by which the
unpaid Monthly Rent and Additional Rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that Tenant proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by which the
unpaid Monthly Rent and Additional Rent for the balance of the Term after the
time of award exceeds the amount of such rental loss that Tenant proves could
be reasonably avoided;
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(iv) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would
be likely to result from Tenant's default, including, but not limited to, the
cost of recovering possession of the Premises, comissions and other expenses
of reletting, including necessary repair, demolition and renovation of the
Premises to the condition existing immediately prior to Tenant's occupancy,
the unamortized portion of any brokerage commissions funded by Landlord in
connection with this Lease, the cost of rectifying any damage to the Premises
occasioned by the act or omission of Tenant, reasonable attorneys' fees, and
any other reasonable costs; and
(v) At Landlord's election, all other amounts in addition to
or in lieu of the foregoing as may be permitted by law.
As used in subsections (i) and (ii) above, the "worth at the time of
award" shall be computed by allowing interest at the maximum legal rate
permitted by law. As used in subsection (iii) above, the "worth at the time
of award" shall be computed by discounting the amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
(b) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event this Lease will continue in full
force and effect as long as Landlord does not terminate Tenant's right to
possession, and Landlord may continue to enforce all of its rights and
remedies under this Lease, including the right to collect all Rent as it
becomes due. In the event that Landlord elects to avail itself of the remedy
provided by this subparagraph 15.3(b), Landlord shall not unreasonably
withhold its consent to an assignment or subletting of the Premises subject
to the reasonable standards for Landlord's consent as are contained in this
Lease. In addition, in the event Tenant has entered into a sublease which
is valid under the terms of this Lease, Landlord may also, at its option,
cause Tenant to assign to Landlord the interest of Tenant under said
sublease, including, but not limited to, Tenant's right to payment of Rent as
it becomes due. Landlord may elect to enter the Premises and relet them, or
any part of them, to third parties for Tenant's account. Tenant shall be
liable immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including, but not limited to, broker's commissions, expenses of
cleaning and remodeling the Premises required by the reletting, attorneys
fees and like costs. Reletting can be for a period shorter or longer than the
remaining Term of this Lease and for the entire Premises or any portion
thereof. Tenant shall pay to Landlord the Monthly Rent and Additional Rent
due under this Lease on the dates the Monthly Rent and such Additional Rent
are due, less the Rent Landlord actually collects from any reletting. Except
as provided in the preceding sentence, if Landlord relets the Premises or any
portion thereof, such reletting shall not relieve Tenant of any obligation
hereunder. Notwithstanding the above, no act by Landlord allowed by this
subparagraph 15.3(b) shall terminate this Lease unless Landlord notifies
Tenant in writing that Landlord elects to terminate this Lease.
15.4. NO SURRENDER. Tenant waives any right of redemption or relief
from forfeiture under California Code of Civil Procedure Sections 1174 and
1179, or under any other present or future law in the event Tenant is evicted
or Landlord takes possession of the Premises by reason of an Event of
Default. No act or thing done by Landlord or Landlord's Agents during the
Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed
by Landlord. No employee of Landlord or of Landlord's Agents shall have any
power to accept the keys to the Premises prior to the termination of this
Lease, and the delivery of the keys to any employee shall not operate as a
termination of this Lease or a surrender of the Premises.
15.5. INTEREST ON LATE PAYMENTS. Any Rent due under this Lease that is
not paid to Landlord within three (3) days of the date when due shall
commence to bear interest at the Applicable Rate until fully paid. Neither
the accrual nor the payment of interest shall cure any default by Tenant
under this Lease.
15.6. ATTORNEYS' AND OTHER FEES. All sums reasonably incurred by
Landlord in connection with an Event of Default or holding over of possession
by Tenant after the expiration or termination of this Lease, including, but
not limited to, all costs, expenses and actual accountants', appraisers',
attorneys' and other professional fees, and any collection agency or other
collection charges, shall be due and payable by Tenant to Landlord on demand,
and shall bear interest at the Applicable Rate from the date of such demand
until paid by Tenant. In addition, in the event that any action shall be
instituted by either of the parties hereto for the enforcement of any of its
rights in and under this Lease, the party in whose favor judgment shall be
rendered shall be entitled to recover from the other party all expenses
reasonably incurred by the prevailing party in such action, including actual
costs and reasonable attorneys fees.
15.7. LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
in the performance of any obligation required to be performed by it hereunder
unless and until it has failed to perform such obligation within thirty (30)
days after receipt of Notice by Tenant to Landlord (and the Mortgagees who
have provided Tenant with notice) specifying the nature of such default;
provided, however, that if the nature of Landlord's obligation is such that
more than thirty (30) days are required for its performance, then Landlord
shall not be deemed to be in default if it shall commence such performance
within such thirty (30) day period and thereafter diligently prosecutes the
same to completion.
15.8. LIMITATION OF LANDLORD'S LIABILITY. The obligations of Landlord
do not constitute the personal obligations of the individual partners,
trustees, directors, officers or shareholders of Landlord or its constituent
partners. If Landlord shall fail to perform any covenant, term, or condition
of this Lease upon Landlord's part to be performed, Tenant shall be required
to deliver to Landlord Notice of the same. If, as a consequence of such
default, Tenant shall recover a money judgment against Landlord, such
judgment shall be satisfied only out of the proceeds of sale received upon
execution of such judgment and levied thereon against the right, title and
interest of Landlord in the Building and out of rent or other income from
such property receivable by Landlord or out of consideration received by
Landlord from the sale or other disposition of all or any part of Landlord's
right, title or interest in the Building, and no action for any deficiency
may be sought or obtained by Tenant.
15.9. MORTGAGEE PROTECTION. Upon any default on the part of Landlord,
Tenant will give notice by registered or certified mail to any Mortgagee who
has provided Tenant with notice of its interest together with an address for
receiving notice, and shall offer such Mortgagee a reasonable opportunity to
cure the default (which in no event shall be less than sixty (60) days),
including time to obtain possession of the Premises by power of sale or a
Judicial foreclosure, if such should prove necessary, to effect a cure.
Tenant agrees that each of the Mortgagees to whom this Lease has been
assigned by Landlord is an express third party beneficiary hereof. Tenant
shall not make any prepayment of Monthly Rent more than one (1) month in
advance without the prior written consent of such Mortgagee. Tenant waives
any right under California Civil Code Section 1950.5 or any other present or
future law to the collection of any deposit from such Mortgagee or any
purchaser at a foreclosure sale of such Mortgagee's interest unless such
Mortgagee or such purchaser shall have actually received and not refunded
the deposit. Tenant agrees to make all payments under this Lease to the
Mortgagee with the most senior encumbrance upon receiving a direction, in
writing, to pay said amounts to such Mortgagee.
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Tenant shall comply with such written direction to pay without determining
whether an event of default exists under such Mortgagee's loan to Landlord.
15.10. LANDLORD'S RIGHT TO PERFORM. If Tenant shall at any time fail
to make any payment or perform any other act on its part to be made or
performed under this Lease, Landlord may (but shall not be obligated to), at
Tenant's expense, and without waiving or releasing Tenant from any
obligation of Tenant under this Lease, make such payment or perform such
other act to the extent Landlord may deem desirable, and in connection
therewith, pay expenses and employ counsel. All sums paid by Landlord and
all penalties, interest and costs, including, but not limited to, collection
costs and attorneys' fees reasonably incurred in connection therewith,
shall be due and payable by Tenant to Landlord, as an item of Additional
Rent, on demand by Landlord, together with interest thereon at the Applicable
Rate from the date of such demand until paid by Tenant.
15.11. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand or
right of any kind by Tenant which is based upon or arises in connection with
this Lease shall be barred unless Tenant commences an action thereon within
six (6) months after the date that the act, omission, event or default upon
which the claim, demand or right arises, has occurred.
15.12. WAIVER OF JURY TRIAL. To the full extent permitted by law,
Tenant hereby waives the right to trial by jury in any action, proceeding or
counterclaim brought by Tenant on any matter whatsoever arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the Premises and/or any claim of injury or
damage.
ARTICLE XVI
SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
16.1. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE. Without the
necessity of any additional document being executed by Tenant for the purpose
of effecting a subordination, and at the election of Landlord or any
Mortgagee or any ground lessor with respect to the land of which the Premises
are a part, this Lease shall be subject and subordinate at all times to (i)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Building, and (ii) the lien of any Mortgage which may
now exist or hereafter be executed in any amount for which the Project, the
Building, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. Landlord or any such
Mortgagee or ground lessor shall have the right, at its election, to
subordinate or cause to be subordinated any such ground leases or underlying
leases or any such liens to this Lease. No subordination shall permit
material interference with Tenant's rights hereunder, and any ground lessor
or Mortgagee shall recognize Tenant and its permitted successors and assigns
as the tenant of the Premises and shall not disturb Tenant's right to quiet
possession of the Premises during the Term so long as no Event of Default has
occurred and is continuing under this Lease. If Landlord's interest in the
Premises is acquired by any ground Lessor or Mortgagee, or in the event
proceedings are brought for the foreclosure of, or in the event of exercise
of the power of sale under, any Mortgage made by Landlord covering the
Premises or any part thereof, or in the event a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination and upon the request of such successor in interest to
Landlord, attorn to and become the Tenant of the successor in interest to
Landlord and recognize such successor in interest as the Landlord under this
Lease. Although this Section 16.1 is self-executing, Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
requested by Landlord, or any Mortgagee or ground lessor, any additional
documents evidencing the priority or subordination of this Lease with respect
to any such ground leases or underlying leases or the lien of any such
Mortgage, or evidencing the attornment of Tenant to any successor in Interest
to Landlord as herein provided. Tenant's failure to timely execute and
deliver such additional documents shall, at Landlord's option, constitute an
Event of Default hereunder.
16.2. ESTOPPEL CERTIFICATE. Tenant shall within ten (10) days following
written request by Landlord, execute and deliver to Landlord any documents,
including estoppel certificates, in a form required by Landlord (i)
certifying that this Lease is unmodified and in full force and effect or, if
modified, attaching a copy of such modification and certifying that this
Lease, as so modified, is in full force and effect and the date to which the
Rent and other charges are paid in advance, if any, (ii) acknowledging that
there are not, to Tenant's knowledge, any uncured defaults on the part of the
Landlord or stating the nature of any uncured defaults, (iii) evidencing the
status of this Lease as may be required by a Mortgagee or a purchaser of the
Premises, (iv) certifying the current Monthly Rent amount and the amount and
form of Security Deposit on deposit with Landlord, and (v) certifying to such
other information as Landlord, Landlord's Agents, Mortgagees and prospective
purchasers may reasonably request, including, but not limited to, any
requested information regarding Hazardous Materials. Tenant's failure to
deliver an estoppel certificate within ten (10) days after delivery of
Landlord's written request therefor shall constitute an Event of Default
hereunder.
16.3. FINANCIAL INFORMATION. Tenant shall deliver to Landlord, prior to
the execution of this Lease, and within ten (10) days following written
request therefor by Landlord at any time during the Term, Tenant's current
financial statements, and Tenant's financial statements for the two (2)
years prior to the current fiscal financial statement's year, certified to be
true, accurate and complete by the chief financial officer of Tenant,
including a balance sheet and profit and loss statement for the most recent
prior year (collectively, the "Statements") , which Statements shall
accurately and completely reflect the financial condition of Tenant. Landlord
agrees that it will keep the Statements confidential, except that Landlord
shall have the right to deliver the same to any proposed purchaser of the
Premises, the Project or any portion thereof, and to the Mortgagees of
Landlord or such purchaser. Tenant acknowledges that Landlord is relying on
the Statements in its determination to enter into this Lease, and Tenant
represents to Landlord, which representation shall be deemed made on the date
of this Lease and again on the Commencement Date, that no material change in
the financial condition of Tenant, as reflected in the Statements, has
occurred since the date Tenant delivered the Statements to Landlord. If any
material change in Tenant's financial condition, as reflected in the
Statements, occurs prior to the date of this Lease or prior to the
Commencement Date, as the case may be, or if Tenant fails to inform Landlord
of any such material change, Landlord shall have the right, in addition to
any other rights and remedies of Landlord, to terminate this Lease by notice
to Tenant given within thirty (30) days after Landlord learns of such
material change.
ARTICLE XVII
SIGNS AND GRAPHICS
Landlord shall designate the location on the Premises, if any, for one
(1) or more identification signs for Tenant. Tenant shall have no right to
maintain identification signs in any other location in, on or about the
Premises and shall not display or erect any other signs, displays or other
advertising materials that are visible from the exterior of the Building.
The size, design, color and other physical aspects of permitted
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signs shall be subject to Landlord's written approval prior to installation,
which approval may be withheld in landlord's discretion, any Restrictions and
any applicable municipal or other governmental permits and approvals. All
such signs end graphics shall conform to the Sign Criteria. The cost of all
signs and graphics, including the installation, maintenance and removal
thereof, shall be at Tenant's sole cost and expense. If Tenant fails to
maintain its signs, or if Tenant fails to remove same upon termination of
this Lease and repair any damage caused by such removal (including, but not
limited to, repainting the affected area, if required by Landlord), Landlord
may do so at Tenant's expense. All sums reasonably disbursed, deposited or
incurred by Landlord in connection with such removal, including, but not
limited to, all costs, expenses and actual attorneys' fees, shall be due and
payable by Tenant to Landlord on demand by Landlord, together with interest
thereon at the Applicable Rate from the date of such demand until paid by
Tenant.
ARTICLE XVIII
QUIET ENJOYMENT
Landlord covenants that Tenant, upon performing the terms, conditions
and covenants of this Lease, shall have quiet and peaceful possession of the
Premises as against any person claiming the same by, through or under
Landlord.
ARTICLE XIX
SURRENDER: HOLDING OVER
19.1. SURRENDER OF THE PREMISES. Upon the expiration or earlier
termination of this Lease, Tenant shall surrender the Premises to Landlord in
its condition existing as of the Commencement Date, normal wear and tear and
acts of God excepted, with all interior walls in good repair, all carpets
shampooed and cleaned, the HVAC equipment, plumbing, electrical and other
mechanical installations in good operating order and all floors cleaned and
waxed, all to the reasonable satisfaction of Landlord. Tenant shall remove
from the Premises all of Tenant's Alterations which Landlord requires Tenant
to remove pursuant to Section 8.1 and all Tenant's Personal Property, and
shall repair any damage and perform any restoration work caused by such
removal. If Tenant fails to remove such Alterations and Tenant's Personal
Property which Tenant is authorized and obligated to remove pursuant to the
above, and such failure continues after the termination of this Lease,
Landlord may retain such property and all rights of Tenant with respect to it
shall cease, or Landlord may place all or any portion of such property in
public storage for Tenant's account. Tenant shall pay to Landlord, upon
demand, the costs of removal of any such Alterations and Tenant's Personal
Property and storage and transportation costs of same, and the cost of
repairing and restoring the Premises, together with attorneys' fees and
interest on said amounts at the Applicable Rate from the date of expenditure
by Landlord. If the Premises are not so surrendered at the termination of
this Lease, Tenant hereby agrees to indemnify Landlord and Landlord's Agents
against all loss or liability resulting from any delay by Tenant in so
surrendering the Premises, including, but not limited to, any claims made by
any succeeding tenant, losses to Landlord due to lost opportunities to lease
to succeeding tenants, and actual attorneys' fees and costs.
19.2. HOLDING OVER. If Tenant remains in possession of all or any part
of the Premises after the expiration of the Term with the prior written
consent of Landlord, such possession shall constitute a month-to-month
tenancy only and shall not constitute a renewal or extension for any further
term. If Tenant remains in possession of all or any part of the Premises
after the expiration of the Term without the prior written consent of
Landlord, such possession shall constitute a tenancy at sufferance. In
either of such events, Monthly Rent shall be increased to an amount equal to
one hundred fifty percent (150%) of the Monthly Rent payable during the last
month of the Term, and any other sums due hereunder shall be payable in the
amounts and at the times specified in this Lease. Any such tenancy shall
be subject to every other term, condition, and covenant contained in this
Lease.
ARTICLE XX
[INTENTIONALLY OMITTED]
ARTICLE XXI
MISCELLANEOUS AND INTERPRETIVE PROVISIONS
21.1. BROKER. Landlord and Tenant each warrant and represent to the
other that neither has had any dealings with any real estate broker, agent
or finder in connection with the negotiation of this Lease or the
introduction of the parties to this transaction, except for the Broker (whose
commission shall be paid by Landlord), and that it knows of no other real
estate broker, agent or finder who is or might be entitled to a commission or
fee in connection with this Lease. In the event of any additional claims for
brokers' or finders' fees with respect to this Lease, Tenant shall indemnify,
hold harmless, protect and defend Landlord from and against such claims if
they shall be based upon any statement or representation or agreement made
by Tenant, and Landlord shall indemnify, hold harmless, protect and defend
Tenant from and against such claims if they shall be based upon any
statement, representation or agreement made by Landlord.
21.2. EXAMINATION OF LEASE. Submission of this Lease for examination or
signature by Tenant does not create a reservation of or option to lease.
This Lease shall become effective and binding only upon full execution of
this Lease by both Landlord and Tenant.
21.3. NO RECORDING. Tenant shall not record this lease or any
memorandum of this Lease without Landlord's prior written consent, but if
Landlord so requests, Tenant agrees to execute, have acknowledged and
deliver a memorandum of this Lease in recordable form which Landlord
thereafter may file for record.
21.4. QUITCLAIM. Upon any termination of this Lease, Tenant shall, at
Landlord's request, execute, have acknowledged and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right,
title and interest of Tenant in and to the Premises by reason of this Lease
or otherwise.
21.5. MODIFICATIONS FOR MORTGAGEES. If in connection with obtaining
financing for the Premises or any portion thereof, Landlord's Mortgagees
shall request reasonable modifications to this Lease as a condition to such
financing, Tenant shall not unreasonably withhold, delay or defer its consent
thereto, provided such
-18-
<PAGE>
modifications do not adversely affect Tenant's rights hereunder. Tenant's
failure to so consent shall constitute an Event of Default under this Lease.
21.6. NOTICE. Any Notice required or desired to be given under this
Lease shall be in writing and shall be addressed to the address of the party
to be served. The addresses of Landlord and Tenant are as set forth in Items
1 and 3, respectively, of the Basic Lease Provision, except that (a) prior to
the Commencement Date, the address for Notices to Tenant shall be as set
forth opposite Tenant's signature on this Lease, and (b) from and after the
Commencement Date, notwithstanding the addresses for Tenant set forth in
Item 3 of the Basic Lease Provisions, all Notices regarding the operation
and maintenance of the Project shall be delivered to Tenant at the Premises.
Each such Notice shall be deemed effective and given (i) upon receipt, if
personally delivered (which shall include delivery by courier or overnight
delivery service), (ii) upon being telephonically confirmed as transmitted,
if sent by telegram, telex or telecopy, (iii) two (2) business days after
deposit in the United States mail in Orange County or in the county in which
the Premises are located, certified and postage prepaid, properly addressed
to the party to be served, or (iv) upon receipt if sent in any other way. Any
party hereto may from time to time, by Notice to the other in accordance with
this Section 21.6, designate a different address than that set forth above
for the purposes of Notice.
21.7. CAPTIONS. The captions and headings used in this Lease are for
the purpose of convenience only and shall not be construed to limit or extend
the meaning of any part of this Lease.
21.8. EXECUTED COPY. Any fully executed copy of this Lease shall be
deemed an original for all purposes.
21.9. TIME. Time is of the essence for the performance of each term,
condition and covenant of this Lease.
21.10. SEVERABILITY. If any one or more of the provisions contained
herein shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Lease, but this Lease shall be construed
as if such invalid, illegal or unenforceable provision had not been contained
herein.
21.11. SURVIVAL. All covenants and indemnities set forth herein which
contemplate the payment of sums, or the performance by Tenant after the Term
or following an Event of Default, including specifically, but not limited to,
the covenants and indemnities set forth in Section 5.3, Article VI, Article
VII, Section 8.1, Section 9.2, Section 11.1, Section 11.10, Article XV, and
Article XIX, and all representations and warranties of Tenant, shall
survive the expiration or sooner termination of this Lease.
21.12. CHOICE OF LAW. This Lease shall be construed and enforced in
accordance with the laws of the State of California. The language in all
parts of this Lease shall in all cases be construed as a whole according to
its fair meaning and not strictly for or against either Landlord or Tenant.
21.13. GENDER; SINGULAR, PLURAL. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a
partnership or corporation or joint venture, the singular includes the plural
and the plural includes the singular.
21.14. NON-AGENCY. It is not the intention of Landlord or Tenant to
create hereby a relationship of master-servant or principal-agent, and under
no circumstance shall Tenant herein be considered the agent of Landlord, it
being the sole purpose and intent of the parties hereto to create a
relationship of Landlord and tenant.
21.15. SUCCESSORS. The terms, covenants, conditions and agreements
contained in this Lease shall, subject to the provisions as to assignment,
subletting, and bankruptcy contained herein and any other provisions
restricting successors or assigns, apply to and bind the heirs, successors,
legal representatives and assigns of the parties hereto.
21.16. WAIVER; REMEDIES CUMULATIVE. The waiver by either party of any
term, covenant, agreement or condition herein contained shall not be deemed
to be a waiver of any subsequent breach of the same or any other term,
covenant, agreement or condition herein contained, nor shall any custom or
practice which may grow up between the parties in the administration of this
Lease be construed to waive or to lessen the right of Landlord to insist upon
the performance by Tenant in strict accordance with all of the provisions of
this Lease. The subsequent acceptance of Rent hereunder by Landlord shall
not be deemed to be a waiver of any preceding breach by Tenant of any
provisions, covenant, agreement or condition of this Lease, other than the
failure of Tenant to pay the particular Rent payment so accepted, regardless
of Landlord's knowledge of such preceding breach at the time of acceptance of
such Rent payment. Landlord's acceptance of any check, letter or payment
shall in no event be deemed an accord and satisfaction, and Landlord shall
accept the check, letter or payment without prejudice to Landlord's right to
recover the balance of the Rent or pursue any other remedy available to it.
The rights and remedies of either party under this Lease shall be
cumulative and in addition to any and all other rights and remedies which
either party has or may have.
21.17. UNAVOIDABLE DELAY. Except for the monetary obligations of Tenant
under this Lease, neither party shall be chargeable with, liable for, or
responsible to the other for anything or in any amount for any Unavoidable
Delay and any Unavoidable Delay shall not be deemed a breach of or default in
the performance of this Lease, it being specifically agreed that any time
limit provision contained in this Lease (other than the scheduled expiration
of the Term) shall be extended for the same period of time lost by
Unavoidable Delay.
21.18. ENTIRE AGREEMENT. This Lease is the entire agreement between
the parties, and supersedes any prior agreements, representations,
negotiations or correspondence between the parties except as expressed
herein. Except as otherwise provided herein, no subsequent change or addition
to this Lease shall be binding unless in writing and signed by the parties
hereto.
21.19. AUTHORITY. If Tenant is a corporation or a partnership, each
individual executing this Lease on behalf of the corporation or partnership,
as the case may be, represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said entity in accordance with
its corporate bylaws, statement of partnership or certificate of limited
partnership, as the case may be, and that this Lease is binding upon said
entity in accordance with its terms. If Tenant is a corporation, Tenant
shall, if requested by Landlord, within thirty (30) days after execution of
this Lease and prior to entering into possession of the Premises, deliver to
Landlord a certified copy of a resolution of the Board of Directors of the
corporation or certificate of the Secretary of the corporation, authorizing,
ratifying or confirming the execution of this Lease. If Tenant is a
partnership, Tenant shall, if requested by Landlord, within thirty (30) days
after the execution of this Lease and prior to entering into possession of
the Premises, deliver to Landlord a certified copy of its partnership
agreement authorizing such execution.
-19-
<PAGE>
21.20. GUARANTY. As a condition to the execution of this Lease by
Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor listed in Item 14 of
the Basic Lease Provisions, if any, on a form of guarantee provided by
Landlord.
21.21. EXHIBITS; REFERENCES. All exhibits, amendments, riders and
addenda attached to this Lease are hereby incorporated into and made a part
of this Lease. In the event of variation or discrepancy, the duplicate
original hereof (including exhibits, amendments, riders and addenda, if any,
specified above) held by Landlord shall control. All references in this
Lease to Articles, Sections, Exhibits, Riders and clauses are made,
respectively, to Articles, Sections, Exhibits, Riders and clauses of this
Lease, unless otherwise specified.
21.22. BASIC LEASE PROVISIONS. The Basic Lease Provisions at the
beginning of this Lease are intended to provide general information only. In
the event of any inconsistency between the Basic Lease Provisions and the
specific provisions of this Lease, the specific provisions of this Lease
shall prevail.
21.23. NO MERGER. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, or a termination by Landlord, shall
not work a merger, and shall, at the option of Landlord, terminate all or any
existing subtenancies or may, at the option of Landlord, operate as an
assignment to Landlord of any or all such subtenancies.
21.24. JOINT AND SEVERAL OBLIGATIONS. If more than one person or entity
is Tenant, the obligations imposed on each such parson or entity shall be
joint and several.
21.25. NO LIGHT OR AIR EASEMENT. Any diminution or shutting off of
light or air by any structure which may be erected on lands adjacent to the
Building shall in no way affect this Lease, abate Rent or otherwise impose
any liability on Landlord. This Lease does not confer any right with regard
to the subsurface below the ground level of the Building.
21.26. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall
have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Project. Tenant assumes all
responsibility for the protection of Tenant, Tenant's Agents and the property
of Tenant and of Tenant's Agents from acts of third parties. Nothing herein
contained shall prevent Landlord, at Landlord's sole option, from providing
security protection for the Project or any part thereof, in which event the
cost thereof shall be included within the definition of Project Costs and
paid by Tenant in the manner set forth in Section 7.1.
THIS LEASE is effective as of the date the last signatory necessary
to execute this Lease shall have executed this Lease.
"LANDLORD"
[See Attachment No. 1 for
Landlord's signature block]
ADDRESS FOR NOTICES PRIOR TO "TENANT"
COMMENCEMENT DATE:
IMGIS, a California corporation
---------------------------------
10101 N. De Anza Blvd., Ste.
- ------------------------------------- ---------------------------------
210, Cupertino, CA 95014
- ------------------------------------- ---------------------------------
Attn: Nadine Franczyk By: /s/ [ILLEGIBLE]
----------------------------
Name: /s/ [ILLEGIBLE]
----------------------------
Title: /s/ [ILLEGIBLE]
----------------------------
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
-20-
<PAGE>
ATTACHMENT NO. 1
"LANDLORD"
DE ANZA PLAZA II, LLC, a Delaware
limited liability company
By: BINGHAM PARTNERS, LP, a
Delaware limited partnership
Its: Sole Member
By: ICIG BINGHAM, LLC, a Dela-
ware limited liability company
Its: Managing Limited Partner
By: INSIGNIA/ESG, INC., a
Delaware corporation
Its: Managing Member
By:
-----------------------------
Title:
--------------------------
<PAGE>
Exhibit 10.8
EXHIBIT A
DESCRIPTION OF PREMISES
This Exhibit is attached to and made a part of that certain Standard
Form Office Lease dated May 29, 1998, by and between DE ANZA PLAZA II, LLC
("Landlord"), and IMGIS ("Tenant"), for the Premises known as 10101 North
De Anza Boulevard, Suite 230, Cupertino, California.
SECOND FLOOR
10101 N. DE ANZA BLVD.
[Floor Plan showing shaded space described as Lease Space (West Side),
3,531 USF, 4,025 USF, and other spaces described as Lease Space, 1,792 USF,
2,043 RSF (North Side); Lease Space (South Side), 3,461 USF, 3,946 RSF; and
Lease Space (East Side) 2,286 USF, 2,606 RSF.]
<PAGE>
Exhibit 10.8
EXHIBIT B
PROJECT SITE PLAN
This Exhibit is attached to and made a part of that certain Standard
Form Office Lease dated May 29, 1998, by and between DE ANZA PLAZA II, LLC
("Landlord"), and IMGIS ("Tenant"), for the Premises known as 10101 North
De Anza Boulevard, Suite 230, Cupertino, California.
[MAP of the PROJECT SITE PLAN showing the 10101 De Anza Boulevard Site
surrounded by Stevens Creek Boulevard, Brandley Drive and Alves Drive on the
other three sides. Details of the site show a grassy area and
concrete/planter boxes on either side of the entrance to underground parking
and the stairway entrance to garage and garage exhaust fan house on the other
side of the building at 10101 De Anza Boulevard.]
<PAGE>
EXHIBIT D
COMMENCEMENT DATE MEMORANDUM
("AS-IS")
DATE:_______________________, 199__
RE: Standard Form Lease dated ______________________________, by and between
________________________________________________________________________
________________________________, as "Landlord", and ___________________
________________________________________________________________________
as "Tenant", for the Premises known as _________________________________
_______________________________________________, California.
AGREEMENT
The undersigned hereby agree as follows:
1. The Commencement Date, as defined in and determined in accordance
with the Lease, is hereby stipulated for all purposes to be __________________
__________________________.
2. In accordance with the Lease, Monthly Rent (as defined in the
Lease) in the amount of $_______________, subject to adjustment in accordance
with the terms of the Lease, commences to accrue on _______________ and is due
and payable in advance on the first day of each end every month during the Term
(as defined in the Lease). Unless and until notified by Landlord to the
contrary, Tenant shall make its Rent checks payable to ________________________,
c/o 2201 Dupont Drive, Suite 100, Irvine, California 92715.
"Landlord"
----------------------------------------
----------------------------------------
By:
----------------------------------
Its:
-----------------------------
By:
----------------------------------
Its:
-----------------------------
"Tenant"
----------------------------------------
----------------------------------------
By:
----------------------------------
Its:
-----------------------------
By:
----------------------------------
Its:
-----------------------------
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<PAGE>
EXHIBIT G
RULES AND REGULATIONS
(Office)
This Exhibit is attached to and made a part of that certain Standard
Form Lease dated May 29, 1998, by and between De Anza Plaza II, LLC as
"Landlord", and IMGIS, as "Tenant", for the Premises known as 10101 North De
Anza Boulevard, Suite 230, Cupertino, California.
This Exhibit sets forth the rules and regulations governing Tenant's use
of the Common Area and the Premises leased to Tenant pursuant to the terms,
covenants and conditions of the Lease to which this Exhibit is attached and
therein made part thereof. Unless otherwise defined, capitalized terms used
herein shall have the same meanings as set forth in the Lease. In the event
of any conflict or inconsistency between this Exhibit and the lease, the
Lease shall control.
1. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door, Partition or wall which may appear unsightly
from outside the Premises.
2. The walls, walkways, sidewalks, entrance passages, courts and
vestibules shall not be obstructed or used for any purpose other than
ingress and egress of pedestrian travel to and from the Premises, and shall
not be used for loitering or gathering, or to display, store or place any
merchandise, equipment or devices, or for any other purpose. The walkways,
entrance passageways, courts, vestibules and roof are not for the use of
the general public and Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence in the
judgment of the Landlord shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that
nothing herein contained shall be construed to prevent such access to
persons with whom Tenant normally deals in the ordinary course of Tenant's
business unless such persons are engaged in illegal activities. No tenant
or employee or invitee of any tenant shall be permitted upon the roof of the
Building.
3. No awnings or other projection shall be attached to the outside
walls of the Building. No security bars or gates, curtains, blinds, shades or
screens shall be attached to or hung in, or used in connection with, any
window or door of the Premises without the prior written consent of Landlord.
Neither the interior nor exterior of any windows shall be coated or
otherwise sunscreened without the express written consent of Landlord.
4. Tenant shall not in anyway deface any part of the Premises or the
Building. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in
any manner except as approved by Landlord in writing. The expense of
repairing any damage resulting from a violation of this rule or removal of
any floor covering shall be borne by Tenant.
5. The toilet room, urinals, wash bowls and other plumbing apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by Tenant.
6. Landlord shall direct electricians as to the manner and location of
any future telephone wiring. No boring or cutting for wires will be allowed
without the prior written consent of Landlord. The locations of the
telephone, call boxes and other office equipment affixed to the Premises
shall be subject to the prior written approval of Landlord.
7. The Premises shall not be used for manufacturing, retail sales, or
the storage of merchandise. No exterior storage shall be allowed at any
time without the prior written approval of Landlord. The Premises shall not
be used for a beauty parlor, manicuring, any medical use or washing of
clothes without the prior written consent of Landlord, or for lodging or
sleeping or for any immoral or illegal purposes. No Vending machines shall be
installed by or on behalf of Tenant within the Premises or the Project.
8. Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or
neighboring buildings or premises or those having business with them, whether
by the use of any musical instrument, radio, phonograph, machinery, or
otherwise. Tenant shall not use, keep or permit to be used, or kept, any foul
or obnoxious gas or substance in the Premises or permit or suffer the
Premises to be used or occupied in any manner offensive or objectionable to
Landlord or other occupants of this or neighboring buildings or premises by
reason of any odors, fumes or gases.
9. Neither Tenant nor any of Tenant's Agents shall at any time bring
or keep upon the Premises any toxic, hazardous, inflammable, combustible or
explosive fluid, chemical or substance without the prior written consent of
Landlord. Smoking or carrying cigars or cigarettes in the common Area may be
regulated from time to time as determined by Landlord, and Tenant and
Tenant's Agents shall strictly comply with any such regulations.
10. No animals shall be permitted at any time within the Premises.
11. Tenant shall not use the name of the Building or the Project in
connection with or in promoting or advertising the business of Tenant, except
as Tenant's address, without the prior written consent of Landlord. Landlord
shall have the right to prohibit any advertising by Tenant which, in
Landlord's reasonable opinion, tends to impair the reputation of the Project
or its desirability for Its intended uses, and upon written notice from
Landlord Tenant shall refrain from or discontinue such advertising.
12. Canvassing, soliciting, peddling, parading, picketing,
demonstrating or otherwise engaging in any conduct that unreasonably impairs
the value or use of the Premises or the Project are prohibited and Tenant
shall cooperate to prevent the same.
13. All equipment of any electrical or mechanical nature shall be
placed by Tenant on the Premises, in settings approval by Landlord in
writing, in such a way as to best minimize, absorb and prevent any
G-1
<PAGE>
vibration, noise or annoyance. No cooking shall be done or permitted upon
the Premises except pursuant to normal use of a microwave oven, toaster oven
and coffee maker for the sole benefit of Tenant and Tenant's Agents.
14. No safes, computers or other objects larger or heavier than the
freight elevators of the Building are limited to carry shall be brought into
or installed in the Premises. Landlord shall have the right to prescribe and
approve of the weight and position of safes, computers or other large or
heavy objects which shall, if deemed necessary by Landlord, be placed on some
type of applicable platform prescribed by Landlord to distribute the weight.
The moving of safes, computers or other large or heavy objects shall occur
only between those hours as may be designated by, and only upon previous
written notice to, Landlord, and the persons employed to move those objects
in or out of the Building must be reasonably acceptable to Landlord. No
freight, furniture or bulky matter of any description shall be received into
or moved out of the lobby of the Building or carried into the elevators
during normal business hours (i.e., Monday through Friday, 8:00 a.m. to 6:00
p.m.) unless approved in writing by Landlord.
15. No air conditioning unit or other similar apparatus shall be
installed or used by Tenant without the prior written consent of Landlord.
Tenant shall not install equipment, such as but not limited to electronic
tabulating or computer equipment, requiring electrical or air conditioning
service in excess of that to be provided by Landlord under the Lease.
16. No aerial antenna shall be erected on the roof or exterior walls
of the Premises, or on the grounds, without in each instance the prior
written consent of Landlord. Any aerial or antenna so installed by or on
behalf of Tenant without such written consent shall be subject to removal by
Landlord at any time without prior notice at the expense of Tenant, and
Tenant shall upon Landlord's demand pay a removal fee to Landlord of not less
than $200.00.
17. Landlord shall clean the Premises as provided in the Lease, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord will be permitted to enter the Building for that
purpose. Tenant shall not cause unnecessary labor by reason of Tenant's
carelessness and indifference in the preservation of good order and
cleanliness. All cardboard boxes must be "broken down", and all styrofoam
chips must be bagged or otherwise contained so as not to constitute a
nuisance.
18. Tenant shall see that the windows, transoms and doors of the
Premises are closed end securely locked before leaving the Building and
shall observe strict care not to leave windows open, if applicable, when it
rains. Tenant shall exercise extraordinary care and caution that all water
faucets or water apparatus are entirely shut off before Tenant or Tenant's
employees leave the Building, and that all electricity, gas or air shall
likewise be carefully shut off, so as to prevent waste or damage, and for
any default or carelessness Tenant shall make good all injuries sustained by
other tenants or occupants of the Building or Landlord.
19. All keys for the Premises shall be provided to Tenant by Landlord
and Tenant shall return to Landlord any of such keys so provided upon the
termination of the Lease. Tenant shall not change locks or install other
locks on doors of the Premises, without the prior written consent of
Landlord. In the event of loss of any keys furnished by Landlord for Tenant,
Tenant shall pay to Landlord the costs thereof. Upon termination of its
tenancy, Tenant shall deliver to Landlord all keys and access cards to the
Premises, the Building and Common Area.
20. No person shall enter or remain within the Project while
intoxicated or under the influence of liquor or drugs. Landlord shall have
the right to exclude or expel from the Project any person who, in the
absolute discretion of Landlord, is under the influence of liquor or drugs.
21. Tenant shall furnish and utilize masonite or plastic floor mats
so as to minimize carpet damage resulting from the use of rollers on chairs.
Tenant agrees to comply with all such Rules and Regulations. Should
Tenant not abide by these Rules and Regulations, Landlord or any "Operator,"
"Association" or "Declarant" under any Restrictions may serve a three (3) day
notice to correct the deficiencies. If Tenant has not corrected the
deficiencies by the end of the notice period, Tenant will be in default of
the Lease, and Landlord and/or its designee shall have the right, without
further notice, to cure the violation at Tenant's expense.
Landlord reserves the right to amend or supplement the foregoing Rules
and Regulations and to adopt and promulgate additional rules and
regulations applicable to the Premises. Notice of such rules and regulations
and amendments and supplements thereto, if any, shall be given to the Tenant.
Neither Landlord nor Landlord's Agents or any other person or entity
shall be responsible to Tenant or to any other person for the ignorance or
violation of these Rules and Regulations by any other tenant or other
person. Tenant shall be deemed to have read these Rules and Regulations and
to have agreed to abide by them as a condition precedent, waivable only by
Landlord, to Tenant's occupancy of the Premises.
G-2
<PAGE>
EXHIBIT L
CALCULATION OF TENANT'S SHARE
This Exhibit is attached to and made a part of that certain Standard Form
Lease dated May 29, 1998, by and between De Anza Plaza II, LLC as "Landlord",
and IMGIS, as "Tenant", for the Premises known as 10101 North De Anza
Boulevard, Suite 230, Cupertino, California.
The capitalized terms used and not otherwise defined herein shall have
the same definitions as set forth in the Lease. The provisions of this
Exhibit shall supersede any inconsistent or conflicting provisions of the
Lease.
BUILDING AND PROJECT:
Tenant understands that the Premises are a part of a multi-tenant
Building, and that the Building is part of a multi-building Project containing
as of the date of the Lease approximately 74,589 square feet of space.
CALCULATION OF TENANT'S SHARE:
Tenant's Share of various Operating Expenses under the Lease shall
be determined as a function of Project square footage. Tenant acknowledges
that the total square footage of the Project may change from time to time,
and that Tenant's Share may vary accordingly, effective on the first day of
the month after each such change occurs.
Set forth below is the initial Tenant's Share (i.e. calculated as of
the date of the Lease) with respect to Operating Expenses to be charged as a
function of the Project, as of the date of the Lease.
Tenant's Share of the Project: 5.4%
-1-
<PAGE>
ADDENDUM TO LEASE
This Addendum to Lease ("Addendum") is attached to and made a part of
that certain Standard Form Office Lease dated May 28, 1998, by and between DE
ANZA PLAZA II, LLC, a Delaware limited liability company, as "Landlord", and
IMGIS, a California corporation, as "Tenant", for the Premises known as 10101
North De Anza Boulevard, Suite 230, Cupertino, California. The capitalized
terms used and not otherwise defined herein shall have the same definitions
as set forth in the Lease. The provisions of this Addendum shall supersede
any inconsistent or conflicting provisions of the Lease.
1. PROJECT; BUILDING; PREMISES. The Premises are part of that certain
multi-building Project located in Cupertino, California, which Project is
commonly known as De Anza Plaza, and contains as of the date of the Lease
approximately 74,589 square feet of space. The Premises consist of a portion
of a building located within the Project, which portion is commonly known as
10101 North De Anza Boulevard, Suite 230 and consists of approximately 4,025
square feet. The Premises is shown as cross-hatched on EXHIBIT A attached to
the Lease. The term "Building" as used in the Lease (including this
Addendum) shall mean the building within which the Premises are located.
2. ADJUSTMENTS TO MONTHLY RENT. The Monthly Rent payable by Tenant
under the Lease during the Term shall be as follows:
<TABLE>
<CAPTION>
Months Monthly Rent
------ ------------
<S> <C>
01 - 12 $12,880.00 per month
13 - 24 $13,395.20 per month
25 - 36 $13,931.00 per month
37 - 48 $14,488.25 per month
49 - 60 $15,067.77 per month
</TABLE>
3. NOTICES TO LANDLORD. The address of Landlord shall be c/o
Insignia/ESG of California, Inc., 160 W. Santa Clara Street, Suite 1350, San
Jose, California 95113, Attn: Mr. Mark Schmidt, or such other place as
Landlord may designate in writing to Tenant from time to time. Copies of all
notices and communications from Tenant to Landlord shall be sent by Tenant to
Insignia/ESG of California, Inc., One Technology Drive, Building G, Irvine,
California 92618-2339, Attn: Mr. John Combs.
4. CONSTRUCTION MANAGEMENT FEE. With respect to any Alterations made
by or on behalf of Tenant during the Term, Tenant shall pay to Landlord, upon
demand, a construction management fee equal to five percent (5%) of the total
cost of the Alterations in question.
5. ADJUSTMENTS IN SECURITY DEPOSIT.
5.1 FIRST ADJUSTMENT. Provided that no Event of Default occurs
during the first twelve (12) months of the Term, Landlord shall apply
$13,395.20 of the Security Deposit toward the Monthly Rent payable by Tenant
for the thirtieth (13th) month of the Term. Upon such application, the
Security Deposit shall be deemed to be reduced to $43,519.25. Upon the
occurrence of any Event of Default during the first twelve (12) months of the
Term, this Section 5 shall automatically become null and void and be without
further force or effect, and the Security Deposit shall remain $56,914.45
for the balance of the Term, without further adjustments.
5.2 SECOND ADJUSTMENT. Provided that no Event of Default occurs
during the first twenty-four (24) months of the Term, Landlord shall apply
$13,931.00 of the Security Deposit (as reduced pursuant to Section 5.1 above)
toward the Monthly Rent
1
<PAGE>
payable by Tenant for the twenty-fifth (25th) month of the Term. Upon such
application, the Security Deposit shall be deemed to be further reduced to
$29,588.25. Upon the occurrence of any Event of Default during the period
from the thirteenth (13th) month of the Term and continuing until the end of
the twenty-fourth (24th) month of the Term, this Section 5.2 and Section 5.3
below shall automatically become null and void and be without further force
or effect, and the Security Deposit shall remain $43,519.25 for the balance
of the Term.
5.3 THIRD ADJUSTMENT. Provided that no Event of Default occurs
during the first thirty-six (36) months of the Term, Landlord shall apply
$14,488.25 of the Security Deposit (as reduced pursuant to Sections 5.1 and
5.2 above) toward the Monthly Rent payable by Tenant for the thirty-seventh
(37th) month of the Term. Upon such application, the Security Deposit shall
be deemed to be further reduced to $15,100.00. Upon the occurrence of any
Event of Default during the period from the twenty-fifth (25th) month of the
Term and continuing until the end of the thirty-sixth (36th) month of the
Term, this Section 5.3 shall automatically become null and void and be
without further force or effect, and the Security Deposit shall remain
$29,588.25 for the balance of the Term.
6. HAZARDOUS MATERIALS. The following is hereby added to the Lease as
Section 6.6:
6.6 Notwithstanding anything to the contrary contained in this
Article VI, Tenant shall only be liable with respect to Hazardous
Materials brought onto the Premises by Tenant, Tenant's Agents or persons
acting under the direction or control of Tenant or Tenant's Agents (e.g.,
a delivery person making a delivery to the Premises).
7. ASSIGNMENT AND SUBLETTING. The following is hereby added to the Lease
as Section 14.9:
14.9 TRANSFERS NOT REQUIRING LANDLORD'S CONSENT. Notwithstanding
the foregoing provisions of this Article XIV, Tenant may assign this
Lease or sublet the Premises or any portion of the Premises without the
necessity of Landlord's consent, to any corporation which controls, is
controlled by, or is under common control with Tenant, to any
corporation resulting from a merger or consolidation with Tenant, or to
any person or entity that acquires all of the assets of Tenant as a
going concern, if, and only if (i) Tenant provides Landlord with prior
written notice of such assignment or subletting and promptly
furnishes Landlord with the documents and information described in
Section 14.3 above, (ii) any such assignment or subletting is not a
subterfuge by Tenant to avoid its obligations under this Lease, and
(iii) in the case of a merger or consolidation or the acquisition of all
of the assets of Tenant as a going concern, the resulting entity or
transferee has a net worth at least equal to Tenant's net worth existing
as of Tenant's execution of this Lease, and such net worth of such
resulting entity or transferee does not decrease as a result of such
merger, consolidation or acquisition. All terms and conditions of this
Article XIV shall apply to any assignment or subletting permitted to be
made pursuant to this Section 14.9 without Landlord's consent
(including, without limitation, the terms and conditions of Section
14.2 above, but expressly excluding the terms of Sections 14.4(c) and
14.5 above), and, for purposes of such application, Tenant shall be
deemed to have requested Landlord's consent to, and Landlord shall be
deemed to
2
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have consented to, the assignment or subletting in question.
3
<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
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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)
LANDLORD'S TENANT'S
INITIALS INITIALS
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H.T.S.
<PAGE>
TABLE OF CONTENTS
- -----------------
<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>
(iii)
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H.T.S.
<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>
(iv)
LANDLORD'S TENANT'S
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H.T.S.
<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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<PAGE>
(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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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" Exhibit 10.9
FLOOR PLAN(S) OF PREMISES
[Rectangular Floor Plan with shaded area representing the rented premises.]
PRELIMINARY FLOOR 4
PLEASE REVIEW LOCATION
OF DEMISING WALLS
SQUARE FOOTAGES HAVE Comerica Bank Tower
NOT BEEN FINALIZED 511 Anton Blvd.
Costa Mesa, CA
- ------------------------------------------------------------------------------
Suite #: 4xx Tenant: IMGIS Corporation Suite Usable: 8,731 STEVEN ??
10#: 4-12 Corridor Ext: 0 SYSTEMS
Usable: 8,731
Date: 12/17/96 Rentable: 10,219
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EXHIBIT "A-2" Exhibit 10.9
PLOT PLAN OF BUILDING
[Plot Plan Graphic showing L-shaped Parking Structure for 2,200 cars in
Southeast corner, TGI Friday's in the Northeast corner, Bank of America (5
story) in the Northwest corner, Edwards Cinema 4-plex in the Southwest corner
and Great Western S&L (15 story) and Restaurant in the center, all with Anton
Boulevard running on the North.]
TWO TOWN CENTER COMPLEX
South Coast Plaza Town Center Costa Mesa, California
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EXHIBIT "A-3" Exhibit 10.9
PLOT PLAN OF PROJECT
[Plot Plan Graphic showing L-shaped Parking Structure for 2,200 cars in
Southeast corner, TGI Friday's in the Northeast corner, Bank of America (5
story) in the Northwest corner, Edwards Cinema 4-plex in the Southwest corner
and Great Western S&L (15 story) and Restaurant in the center, all with Anton
Boulevard running on the North.]
TWO TOWN CENTER COMPLEX
South Coast Plaza Town Center Costa Mesa, California
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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
2
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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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<PAGE>
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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2
<PAGE>
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.
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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>
Exhibit 10.10
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (the "Amendment") is made and entered into
as of the 18th day of February, 1998 by and between TWO TOWN CENTER
ASSOCIATES, a joint venture of Anton Street Associates, a California
partnership, and The Prudential Insurance Company of America, a New Jersey
corporation ("Landlord"), and IMGIS CORPORATION, a California corporation
("Tenant"), with respect to the following:
RECITALS
A. Landlord and Tenant have entered into a certain written lease dated
December 20, 1996 (the "Lease"). The Lease covers certain premises commonly
known as Suite 400 (the "Premises"), 611 Anton Boulevard (the "Building"),
Costa Mesa, California.
B. Pursuant to the terms hereof, Landlord and Tenant desire to expand the
Premises to include Suite 475 (the "Additional Premises"), which Additional
Premises consists of 2,638 square feet of Rentable Area. The Additional
Premises shall be approximately as depicted on Exhibit "A" attached to this
Amendment. The parties also desire to extend the term of the Lease for the
Premises and the Additional Premises as provided below.
D. Landlord and Tenant desire to enter into this Amendment to set forth
the terms upon which the Additional Premises shall be added to the Premises. In
addition, Landlord and Tenant desire to set forth certain changes in the terms
of the Lease upon which Tenant shall hold and occupy the Premises and the
Additional Premises.
AGREEMENT
IN CONSIDERATION OF the foregoing recitals and the mutual promises and
covenants contained herein, Landlord and Tenant agree as follows:
1. EXPANSION OF PREMISES/TERM.
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Additional Premises, subject to all of the terms and conditions
of this Amendment and of the Lease. The term of the Lease with respect to
the Additional Premises shall commence on March 1, 1998 (the "Effective
Date") and shall thereafter be coterminous with the Lease term, as the term
is modified in subparagraph (b) hereof.
(b) The term of the Lease as to the Premises and Additional Premises
shall expire on February 28, 2004. There shall be no option to further extend
the term of the Lease.
2. RENT. Rent shall be as follows:
(a) From the Effective Date until and through February 28, 1999,
Basic Annual Rent for the Additional Premises shall be at the rate of $23.00 per
square foot of Rentable Area (approximately $1.92 per square foot per month).
Therefore, Basic Annual Rent for the Additional Premises during such period
shall be $60,674.00 ($5,056.17 per month).
-1-
<PAGE>
(b) Commencing on March 1, 1999 and continuing until the expiration
of the Lease term, Basic Annual Rent per Rentable Square Foot of the Premises
and Additional Premises shall be as follows:
<TABLE>
<S> <C>
Years 1-2: $25.00 ($321,425.00 per year) ($26,785.42 per month)
Year 3: $26.00 ($334,282.00 per year) ($27,856.83 per month)
Year 4: $27.00 ($347,139.00 per year) ($28,928.25 per month)
Year 5: $28.00 ($359,996.00 per year) ($29,999.67 per month)
</TABLE>
(c) Concurrently with execution of this Amendment, Tenant shall pay
to Landlord the following: (i) $25,758.79 as a security deposit which shall be
subject to the provisions of Paragraph 4 of the Lease; and (ii) $7,032.47 as the
first month's installment of Basic Annual Rent and Additional Rent for the
Additional Premises.
(d) In addition, Tenant shall continue to pay all Additional Rent
provided for in the Lease. To and until the Effective Date, Additional Rent
shall be based upon the Rentable Area of Premises, or 10,219 square feet and
utilizing the Building Expense Percentage of 3.7949% and Project Expense
Percentage of 1.5658%. From the Effective Date until the expiration of the term,
Additional Rent shall be based upon the Rentable Area of the Premises and
Additional Premises, or 12,857 square feet and utilizing the Building Expense
Percentage of 4.7746% and the Project Expense Percentage of 1.9700%.
3. IMPROVEMENTS TO ADDITIONAL PREMISES. Prior to delivery of the
Additional Space to Tenant, Landlord shall perform certain work of remodeling,
renovation or repair in the Premises and Additional Premises. Such work
("Landlord's Work") shall be performed and paid for in accordance with the
following:
(a) Landlord shall perform the following work at no cost to Tenant:
(i) Creation of an opening between the Premises and Additional
Premises as depicted on the Space Plan attached hereto as Exhibit "B," as well
as necessary adjustments to electrical, heating, ventilating and air
conditioning installations in the Premises and Additional Space required by the
above work.
(ii) Paint the wall in which the opening is created between the
Premises and Additional Premises.
(b) Landlord shall cause Landlord's contractor to commence Landlord's
Work and to diligently prosecute the same to completion. Landlord shall cause
Landlord's Work to be completed as promptly as practicable; however, nothing
herein shall require Landlord to utilize any overtime or special rate labor
unless Tenant pays the cost thereof.
(c) On the Effective Date, Landlord shall deliver the Additional
Premises to Tenant with the Landlord's Work substantially complete. The
Additional Premises shall be "broom clean" and with a heating, ventilating and
air conditioning system in working order as of the Effective Date. If Landlord
is unable to deliver possession of the Additional Premises on the Effective
Date, this Amendment shall not be void or voidable, nor shall Landlord be liable
for any loss or damage resulting therefrom, except to the extent caused by
Landlord's gross negligence or willful misconduct. Tenant's sole remedy shall be
that Basic Annual Rent and Additional Rent for the Additional Premises shall not
commence until delivery of the Additional Premises.
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<PAGE>
(d) Tenant may undertake such additional improvements as Tenant may
desire at Tenant's sole expense subject to the terms and limitations of the
Lease.
4. TERMS AND CONDITIONS FOR THE ADDITIONAL PREMISES. From and after the
Effective Date, Tenant shall hold and occupy the Additional Premises upon all of
the terms and conditions of the Lease as amended by this Amendment and, in the
event of any inconsistency between the Lease and this Amendment, the provisions
of this Amendment shall control.
5. PARKING. Any new parking contracts for spaces in the Project Parking
Structure purchased by Tenant after the date of this Amendment and any contracts
purchased on or after March 1, 1999 shall be at the monthly rental rate
established from time to time by the Project Parking Structure operator. As of
the date of this Amendment, such monthly rental rates are $125.00 for reserved
parking contracts and $60.00 for unreserved parking contracts.
6. FINANCIAL STATEMENTS. Prior to or concurrently with delivery of
executed copies of this Amendment to Landlord, Tenant shall deliver to Landlord
copies of current audited financial statements of Tenant and such other
financial information concerning Tenant as may be requested by Landlord.
7. CONFIDENTIALITY. The parties hereto agree that the terms of this
Amendment are confidential and constitute proprietary information of the parties
hereto. Disclosure of the terms hereof could adversely affect the ability of
Landlord to negotiate with other tenants. Each of the parties hereto agrees
that it and its respective partners, officers, directors, employees and
attorneys shall not disclose the terms and conditions of this Amendment to any
other person without the prior written consent of the other party hereto except
pursuant to an order of a court of competent jurisdiction; provided, however,
that Landlord may disclose the terms hereof to any lender now or hereafter
having a lien on Landlord's interest in the Building, or any portion thereof,
and either party may disclose the terms hereof to its independent accountants
who review its financial statements or prepare its tax returns, to its counsel,
bankers, investment bankers, governmental agencies or other persons to whom
disclosure is required as a matter of law or a requirement of diligent inquiry
imposed by law and in any action which is brought to prevent the breach or
continued breach of the Lease or to seek damages or any other available remedy
for any breach or alleged breach.
8. BROKERS. Each of Landlord and Tenant represents and warrants to the
other that it has employed no broker, finder or real estate agent in connection
with this Amendment and the transactions provided for herein, and that there is
no broker, finder or real estate agent who is entitled to a fee or commission
from or through such indemnifying party in connection with this Amendment or the
transactions provided for herein. Each of Landlord and Tenant agrees to
indemnify, defend and hold the other harmless from and against all claims for a
fee or commission by any broker, finder or agent claiming through such
indemnifying party with respect to this Amendment or the transactions provided
for herein. Payment shall not be a condition precedent to recovery upon the
foregoing indemnification provision. The foregoing indemnification provision
shall be deemed to include a covenant by each indemnifying party to defend the
indemnified party against claims covered by such indemnification with legal
counsel reasonably satisfactory to the indemnified party.
9. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. DEFINED TERMS. All terms used in this Amendment with initial capital
letters and not defined herein shall have the meanings given to such terms in
the Lease.
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<PAGE>
11. LEASE IN EFFECT. Landlord and Tenant acknowledge and agree that
the Lease, as amended by this Amendment, is in full force and effect in
accordance with its terms.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Amendment to Lease as of the day of actual receipt by Landlord.
TWO TOWN CENTER ASSOCIATES, IMGIS CORPORATION,
a joint venture a California corporation
By: ANTON STREET ASSOCIATES By: /s/ [ILLEGIBLE]
-------------------------------
By: South Coast Plaza Title: Chairman & Chief Executive
Officer
---------------------------
By: /s/ Jeanette E. Segerstrom By: /s/ John A. Tanner
---------------------------- -------------------------------
Title: Managing Partner Title: Chief Financial Officer
------------------------- ---------------------------
By: /s/ [ILLEGIBLE]
----------------------------
Title: Managing Partner
-------------------------
"TENANT"
By: THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ [ILLEGIBLE]
----------------------------
Title: V.P.
-------------------------
"LANDLORD"
Approved as to Form
Pillsbury Madison & Sutro LLP
By: /s/ [ILLEGIBLE]
----------------------------
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<PAGE>
EXHIBIT "A"
Floor Plan of Additional Premises
[Rectangular Floor Plan with elevator banks, stairs and lavoratories
in the center and a shaded space in the lower right hand corner
described as "STE 475."]
475 Vacant
Floor 4
Comerica Bank Tower
611 Anton Blvd.
Costa Mesa, CA
Stevenson
Systems Inc.
BKWST
COMPOSITE DRAWING
<PAGE>
EXHIBIT B
[Rectangular Floor Plan with a shaded area in the lower right hand corner
marked "STE 475." Handwritten note pointing to a hall states "Existing
corridor extension (no change)" and another states "Open access corridor
(Landlord's responsibility)."]
<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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<PAGE>
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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<PAGE>
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.
-3-
<PAGE>
(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.
-4-
<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
[Rectangular Floor Plan with elevator banks, stairs and lavoratories
in the center and space described as "STE 550" in upper right hand
side.]
FLOOR 5
Comerica Bank Tower
811 Anton Blvd.
Costa Mesa, CA
[Rectangular floor plan with elevator banks, stairs and lavoratories
in the center and shaded space described as "STE 450" in upper side.]
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>
Exhibit 10.17
IMGIS, INC.
10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
July 22, 1998
Mr. Rex Jackson
60 MacKenzie Place
Danville, CA 94526
Dear Rex:
IMGIS, Inc. (the "Company") is pleased to offer employment to you an the
following terms and conditions:
1. POSITION. You will serve in a full-time capacity In the position
of Vice President and General Counsel. Your primary duties will be to
perform duties typical and standard of a general counsel and report to Mr.
John A. Tanner, Chief Financial Officer and Vice President of Finance.
2. COMPENSATION. You will be paid an annual salary of $150,000.00
payable in accordance with the Company's standard payroll practices for
salaried employees. This salary will be subject to adjustment pursuant to
the Company employee compensation policies in effect from time to time.
3. BENEFITS. As an employee of the Company, you will be entitled to
participate in the Company's health Insurance, vacation, and employee benefit
plans. A copy of the IMGIS benefit program is attached hereto as ATTACHMENT 1.
4. OPTIONS. Subject to the approval of the Company's Board of
Directors, you will be granted an option to purchase 180,000 shares of the
Company's Common Stock at a price per share equal to the fair market value
per share on the date the option is granted (not greater than $2.00 per
share). The option will be subject to the usual terms and conditions
applicable to options granted under an option plan of the Company. The
option will be immediately exercisable and the purchasable shares will be
subject to repurchase by the Company at the exercise price. The Company's
repurchase right will lapse and you will vest in 25% of the option shares
after one year of service and the balance will vest monthly over the next
thirty-six months, as set forth in the applicable agreement. Options vested
start date is effective on employee's date of hire.
5. PROPRIETARY INFORMATION AND INVENTIONS-AGREEMENT. As with all
Company employees. you will be required, as a condition to your employment
with the Company, to sign the Company's standard Proprietary Information and
INVENTIONS Agreement, a copy of which Is attached hereto as ATTACHMENT 2.
1
<PAGE>
6. PERIOD OF EMPLOYMENT- Your effective hire date will be July 23,
1998 or before, with a probationary period of 90 days. Your employment with
the Company will be "at will", meaning that either you or the Company will be
entitled to terminate your employment at any time for any reason, with or
without cause. Any contrary representations which may have been made to you
are superseded by this offer. This Is the full and complete agreement
between you and the Company on this term. Although your job duties, title,
compensation-saton and benefits, as well as the Company's personnel policies
and procedures, may change from time to time, the "at will" nature of your
employment may only be changed in an express writing signed by you and
approved by the Company's Board of Directors.
7. OUTSIDE ACTIVITIES. During the period that you render services to
the Company, you will not engage in any employment, business or activity
that is In any way competitive with the business or proposed business of the
Company. or any other gainful employment, business or activity, without the
written consent of the Company. You also will not assist any person or
organization in competing with the Company or in preparing to engage In
competition with the business or proposed business of the Company.
8. ENTIRE AGREEMENT. This letter and all of the exhibits attached hereto
contain all the terms of your employment with the Company and supersede any
prior representations or agreements, whether oral or written, between you and
the Company.
9. LAPSE OF REPURCHASE RIGHT. In the event the Company Is acquired
wherein the Company is not the surviving entity, then the Company's right to
repurchase any shares will be modified in a fashion similar to that described
by the offer letter to the current C.E.O. and C.F.O.
We hope that you find the foregoing terms acceptable. You may indicate
your agreement with these terms and accept this offer by signing and dating
both the enclosed duplicate original of this letter and the enclosed
Proprietary Information and Intentions Agreement and returning them to me.
Very truly yours,
IMGIS, INC.
By: /s/ John A. Tanner
-----------------------------
Tanner
Vice President of Finance and
Chief Financial Officer
I Have Read And Accepted This Employment Offer:
/s/ Rex Jackson
- --------------------------------------
Rex Jackson
Date: [illegible], 1998
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<PAGE>
ATTACHMENT 1
COMPANY BENEFITS OVERVIEW
<TABLE>
<CAPTION>
MEDICAL
<S> <C>
Health Insurance: Provided by Great West & Kaiser
Plan of Coverage: HMO/PPO/POS (out of state)/Kaiser
Deductible: $0 for HMO/$250 for PPO
Employer Contribution: Employee: 100% of HMO & POS/$172 towards PPO
Dependents: 25%
Employee Contribution: HMO: $0, $130.77, $257.63
(employee/employee +1, PPO: $76.21, $279.00, $499.24
family) Kaiser: Effective 1/1/99 ($0/$112/$228)
DENTAL
Dental Insurance: Provided by Phoenix Dental
Plan of Coverage: Indemnity or PPO
Annual Maximum: $1,000/$3,000
100% Preventive/100% Preventive
80% Basic/90% Basic
50% Major/60% Major
Deductible: $50/$150 (not including Preventive)
Employer Contribution: Employee: 100%
Dependents: 25%
VISION
Vision Insurance: Provided by Great West (except if electing Kaiser)
Examination: Once each 12 months
$45 maximum
Singles Lenses & Frames or Contact Once each 12 months
Lenses: $100 maximum
Bifocal Lenses & Frames: Once each 12 months
$115 maximum
Trifocal Lenses and Frames: Once each 12 months
$125 maximum
Contacts: Medical Necessary
$300 maximum
Lenticular Lenses & Frames: Once each 12 months
$160 maximum
Employer Contribution: Employee: 100%
Dependents: 25%
Deductible: $10
</TABLE>
- - Coverage begins the first day of the month following date of hire.
<PAGE>
ATTACHMENT 1 (CON'T)
COMPANY BENEFITS OVERVIEW
<TABLE>
<S> <C>
LIFE & AD&D
Life and AD&D Insurance: Provided by Phoenix Life
Life Schedule: 100% of Basic Annual Earnings
Maximum Benefit $200,000/$165,000 (non-medical w/no evidence of insur.)
Minimum Benefit $1,000 per week
Reductions: Decrease at age 65 by 35%
Decrease at age 70 by 35%
Decrease at age 75 by 35%
Employer Contribution: Employee Coverage Only: 100%
SHORT TERM DISABILITY (WEEKLY INDEMNITY)
STD Insurance: Provided by Phoenix Life
Benefit Schedule: 60% of Basic Weekly Earnings
Maximum Benefit: $2,000 per week
Minimum Benefit: $10 per week
Day Benefits Begin: 30th day
Maximum Duration: 9 weeks
Employer Contribution Employee Coverage Only
100%
Pre-Existing Condition: 3 mos/12 mos
LONG TERM DISABILITY
LTD Insurance: Provided by Phoenix Life
Benefit Schedule: 60% of Basic Weekly Earnings (excluding Commissions/Overtime, Bonuses)
Maximum Benefit: $8,500 per month
Minimum Benefit $100 per month
Day Benefits Begin 91st day
Maximum Duration: 2 years/ADEA I
Pre-Existing Condition: 3 mos/12 mos
Definition of Disability: 2 year Own Occupation/Any Occupation
Employer Contribution: Employee Coverage Only: 100%
Integration: Primary + Family Social Security
- - Coverage begins the first day of the month following date of hire
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VACATION
<S> <C>
Vacation Accrual Rate: 5.00 per semi-monthly payroll period
Weeks for Year: 3 weeks per year + 10 holidays for 1999
Accrual Cap: 160 hours
VACATION DAYS: 1999 10
New Years Day 1/1
Martin Luther King 1/18
Presidents Day 2/15
Memorial Day 5/31
Pre-Independence Day 7/2
Labor Day 9/6
Thanksgiving Day 11/25
Day After Thanksgiving 11/26
Christmas Eve 12/24
New Years Eve 12/31
SUMMARY FOR 1999
Chiropractic for HMO $10.00 co/payment, up to 30 visits
Domestic Partner Added to Kaiser/GW & Phoenix, post-tax premium
Mail in-Drug Program $10.00 for 3 months-mail in
Kaiser HMO w/Vision & Chiropractic
Flex Benefit Increased Medical Out-of-Pocket to 5k
Dependent Care stays at 5K
FTO Program 15 days vacation/sick combined per year/5.00 hour accrual
</TABLE>
<PAGE>
ATTACHMENT 2
IMGIS, INC.
EMPLOYEE
PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
The following confirms an agreement between me and IMGIS, Inc., a
California corporation (the "Company") entered into as of the date of my
employment with the Company (DATE OF HIRE), which has been and remains (both as
the date of this letter and hereafter) a material part of the consideration for
my employment by the Company:
1. I understand that the Company possesses and will possess Proprietary
Information which is important to its business. For purposes of this Agreement,
"Proprietary Information" is information that was or will be developed, created,
or discovered by or on behalf of the Company, or which became or will become
known by, or was or is conveyed to the Company, which has commercial value in
the Company's business. "Proprietary Information" includes, but is not limited
to, information about circuits, layouts, algorithms, trade secrets, computer
programs, designs technology, ideas, know-how, processes, formulas,
compositions, data, techniques, improvements, inventions (whether patentable or
not), works of authorship, business and product development plans, the salaries
and terms of compensation of other employees, customers and other information
concerning the Company's actual or demonstrably anticipated business, research
or development, or which is received in confidence by or for the Company from
any other person. I understand that my employment creates a relationship of
confidence and trust between me and the Company with respect to Proprietary
Information.
2. I understand that the Company possesses or will possess "Company
Materials" which are important to its business. For purposes of this Agreement,
"Company Materials" are documents or other media or tangible items that contain
or embody Proprietary Information or any other information concerning the
business, operations or plans of the Company, whether such documents have been
prepared by me or others. "Company Materials" include, but are not limited to,
blueprints, drawings, photographs, charts, graphs, notebooks, customer lists,
computer disks, tapes or printouts, sound recordings and other printed,
typewritten or handwritten documents, as well as samples, prototypes, models,
products and the like.
3. In consideration of my employment by the Company and the
compensation received by me from the Company from time to time, I hereby agree
as follows:
a. All Proprietary Information and all title, patents, patent
rights, copyrights, mask work rights, trade secret rights, and other
intellectual property and rights anywhere in the world (collectively "Rights")
in connection with Proprietary Information shall be the sole property of the
Company. I hereby assign to the Company
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<PAGE>
any Rights I may have or acquire in such Proprietary Information. At all
times, both during the employment by the Company and after its termination, I
will keep in confidence and trust and will not use or disclose any
Proprietary Information or anything relating to it without the prior written
consent of an officer of the Company.
b. All Company Materials shall be the sole property of the Company.
I agree that during my employment by the Company, I will not remove any Company
Materials from the business premises of the Company or deliver any Company
Materials to any person or entity outside the Company, except as I am required
to do in connection with performing the duties of my employment. I further agree
that, immediately upon the termination of my employment by me or by the Company
for any reason, or during my employment if so requested by the Company, I will
return all Company Materials, apparatus, equipment, and other physical property,
or any reproduction of such property, except only my personal copies of (i)
records relating to my compensation; (ii) any materials previously distributed
generally to stockholders of the Company; (iii) this Agreement; (iv) performance
reviews; (v) letters of commendation, recognition of reward; (vi) notifications
of performance or attendance problems; (vii) documents regarding benefits such
as medical continuation, retirement, 401(K) investments and the like; (viii)
copies of expense reports filed by me for reimbursement by the Company; and (ix)
any other document contained in my personal file that was signed by me.
c. I will promptly disclose in writing to my immediate supervisor or
to any persons designated by the Company, all "Inventions", (which term includes
improvements, inventions, works of authorship, trade secrets, technology, mask
works, circuits, layouts, algorithms, computer programs, formula, compositions,
ideas, designs, processes, techniques, know-how and data, whether or not
patentable) that are both (i) made or conceived or reduced to practice or
developed by me, either alone or jointly with others, during the term of my
employment and (ii) specified to be owned by the Company in Section 3.d below. I
will not disclose Inventions covered by Section 3.d to any person outside the
Company unless I am requested to do so by management personnel of the Company.
d. I agree that all inventions which I make, conceive, reduce to
practice or develop (in whole or in part, either alone or jointly with others)
during my employment shall be the sole property of the Company to the maximum
extent permitted by Section 2870 of the California Labor Code, a copy of which
is attached and I hereby assign such Inventions and all Rights therein to the
Company. No assignment in this Agreement shall extend to inventions, the
assignment of which is prohibited by Labor Code section 2870. The Company shall
be the sole owner of all Rights in connection therewith.
e. I agree to perform, during and after my employment, all acts
deemed necessary or desirable by the Company to permit and assist it, at the
Company's expense, in evidencing, perfecting, obtaining, maintaining, defending
and enforcing Rights and/or my assignment with respect to such Inventions in any
and all countries, provided that I shall not be obligated to spend more than a
reasonable amount of time. Such acts may include, but are not limited to,
execution of documents and assistance or cooperation in legal proceedings. I
hereby irrevocably designate and
2
<PAGE>
appoint the Company and its duly authorized officers and agents, as my agents
and attorneys-in-fact to act for and in my behalf and instead of me, to
execute and file any documents and to do all other lawfully permitted acts to
further the above purposes with the same legal force and effects as if
executed by me.
f. Any assignment of copyright hereunder includes all rights of
paternity, integrity, disclosure and withdrawal and any other rights that may be
known as or referred to as "moral rights" (collectively "Moral Rights"). To the
extent such Moral Rights cannot be assigned under applicable and to the extent
the following is allowed by the laws in the various countries where Moral Rights
exist, I hereby wave such Moral Rights and consent to any action of the Company
that would violate such Moral Rights in the absence of such consent. I will
confirm any such waivers and consents from time to time as requested by the
Company.
g. I have attached hereto a complete list of all existing Inventions
to which I claim ownership as of the date of this Agreement and that I desire to
specifically clarify are not subject to this Agreement and I certify that since
the date of my employment with the Company I have made no Inventions that are
not subject to this Agreement.
h. During the term of my employment and for one (1) year
thereafter, I will not solicit any employee or consultant of the Company to
leave the Company for any reason. However, this obligation shall not affect
any responsibility I may have as an employee of the Company with the respect
to the bona fide hiring and firing of Company personnel.
i. I agree that during my employment with the Company I will not
engage in any employment, business, or activity that is in any way competitive
with the business or proposed business of the Company, and I will not assist any
other person or organization in competing with the Company or in preparing to
engage in competition with the business or demonstrably anticipated business of
the Company. The provisions of this paragraph shall apply both during normal
working hours and at all other times including, but not limited to, nights,
weekends and vacation time, while I am employed at the Company.
j. I represent that my performance of all the terms of this
Agreement will not breach any agreement to keep in confidence proprietary
information acquired by me in confidence or in trust prior to my employment by
the Company. I have not entered into, and I agree that I will not enter into,
any agreement either written or oral in conflict herewith or in conflict with my
employment with the Company.
4. I agree that this Agreement is not an employment contract and I have
the right to resign and the Company has the right to terminate my employment at
any time, for any reason, with or without cause.
5. I agree that this Agreement does not purport to set forth all of the
terms and conditions of my employment, and that as an employee of the Company I
have obligations to the Company which are not set forth in this Agreement.
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<PAGE>
6. I agree that my obligations under paragraph 3(a) through 3(f) and
paragraph 3(h) of this Agreement shall continue in effect after termination of
my employment, regardless of the reason or reasons for termination, and whether
such termination is voluntary or involuntary on my part, and that the Company is
entitled to communicate my obligations under this Agreement to any future
employer or potential employer of mine.
7. I agree that any dispute in the meaning, effect or validity of this
Agreement shall be resolved in accordance with the laws of the State of
California without regard to the conflict of laws provisions thereof. I further
agree that if one or more provisions of this Agreement are held to be illegal or
unenforceable under applicable California law, such illegal or unenforceable
portion(s) shall be limited or excluded from this Agreement to the minimum
extent required so that this Agreement shall otherwise remain in full force and
effect and enforceable in accordance with its terms.
8. This Agreement shall be effective as of the date of my employment
with the company and Sections 3(a) through 3(f) shall be binding upon me, my
heirs, executors, assigns, and administrators and shall inure to the benefit of
the Company, its subsidiaries, successors and assigns.
9. The Agreement can only be modified by a subsequent written
agreement executed by the President of the Company.
10. This Agreement supersedes all proposals and agreements, oral or
written, all negotiations, conversations and discussions between or among the
parties relating to the subject matter of this agreement and all past dealing or
industry custom, at any time before the date of this letter.
I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS
WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. NO PROMISES OR REPRESENTATIONS
HAVE BEEN MADE TO ME TO INDUCE ME TO SIGN THIS AGREEMENT. I SIGN THIS AGREEMENT
VOLUNTARY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING THAT ONE COUNTERPART
WILL BE RETAINED BY THE COMPANY AND THE OTHER COUNTERPART WILL BE RETAINED BY
ME.
___________________________________ Date:___________
(NAME OF EMPLOYEE)
Accepted And Agreed to:
IMGIS, INC.
By: ___________________________________ Date:___________
John A. Tanner
Vice President of Finance and
Chief Financial Officer
4
<PAGE>
ATTACHMENT A
(NAME OF EMPLOYEE)
To Whom it May Concern:
1. The following is a list of Inventions relevant to the subject
matter of my employment by IMGIS, Inc. (the "Company") that have been made or
conceived or first reduced to practice by me alone or jointly with others
that I desire to clarify are not subject to the Company's Proprietary
Information and Inventions Agreement.
___ No Inventions
___ See below:
___ Additional sheets attached
2. I propose to bring to my employment the following materials and
documents of a former employer:
___ No Materials or documents
___ See below:
___________________________________ Date: ____________
(NAME OF EMPLOYEE)
5
<PAGE>
ATTACHMENT B
Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE SHALL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.
(a) Any provision in an employment agreement which provides
that an employee will assign, or offer to assign any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's
business, or actual or demonstrably anticipated
research or development of the employer; or
(2) Result from any work performed by the employee for
his employer.
(b) To the extent a provision in an employment agreement
purports to require an employee to assign an invention otherwise excluded from
being required to be assigned under subdivision (a), the provision is against
the public policy of this state and is unenforceable.
6
<PAGE>
Exhibit 10.19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of March 26, 1997
between
IMGIS, INC.
as Borrower,
and
VENTURE LENDING & LEASING, INC.,
as Lender
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS...........................................................................................1
ARTICLE 2 - THE COMMITMENT AND LOANS..............................................................................4
2.1 THE COMMITMENT.......................................................................................4
2.2 LIMITATION ON LOANS..................................................................................5
2.3 NOTES EVIDENCING LOANS; REPAYMENT....................................................................5
2.4 PROCEDURES FOR BORROWING.............................................................................5
2.5 INTEREST.............................................................................................6
2.6 TERMINAL PAYMENT.....................................................................................6
2.7 INTEREST RATE CALCULATION............................................................................6
2.8 DEFAULT INTEREST.....................................................................................6
2.9 LENDER'S RECORDS.....................................................................................6
2.10 SECURITY............................................................................................6
2.11 ISSUANCE OF WARRANT TO LENDER.......................................................................6
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES........................................................................7
3.1 DUE ORGANIZATION.....................................................................................7
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY...........................................................7
3.3 COMPLIANCE WITH APPLICABLE LAWS......................................................................7
3.4 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES.........................................................7
3.5 NO CONFLICT..........................................................................................7
3.6 NO LITIGATION, CLAIMS OR PROCEEDINGS.................................................................8
3.7 CORRECTNESS OF FINANCIAL STATEMENTS..................................................................8
3.8 NO SUBSIDIARIES......................................................................................8
3.9 NO EVENT OF DEFAULT..................................................................................8
3.10 FULL DISCLOSURE.....................................................................................8
ARTICLE 4 - CONDITIONS PRECEDENT..................................................................................8
4.1 CONDITIONS TO FIRST LOAN.............................................................................8
4.2 CONDITIONS TO ALL LOANS..............................................................................9
ARTICLE 5 - AFFIRMATIVE COVENANTS.................................................................................9
5.1 NOTICE TO LENDER.....................................................................................9
5.2 FINANCIAL STATEMENTS................................................................................10
5.3 MANAGERIAL ASSISTANCE FROM LENDER...................................................................11
5.4 EXISTENCE...........................................................................................11
5.5 INSURANCE...........................................................................................11
5.6 ACCOUNTING RECORDS..................................................................................11
5.7 COMPLIANCE WITH LAWS................................................................................11
5.8 TAXES AND OTHER LIABILITIES.........................................................................12
5.9 USE OF PROCEEDS.....................................................................................12
ARTICLE 6 - NEGATIVE COVENANTS...................................................................................12
6.1 INDEBTEDNESS........................................................................................12
6.2 LIENS...............................................................................................12
6.3 DIVIDENDS...........................................................................................12
6.4 CHANGES/MERGERS.....................................................................................12
6.5 SALES OF ASSETS.....................................................................................13
6.6 LOANS/INVESTMENTS...................................................................................13
6.7 TRANSACTIONS WITH RELATED PERSONS...................................................................13
ARTICLE 7 - EVENTS OF DEFAULT....................................................................................13
7.1 EVENTS OF DEFAULT...................................................................................13
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE 8 - GENERAL PROVISIONS...................................................................................14
8.1 NOTICES.............................................................................................14
8.2 BINDING EFFECT......................................................................................15
8.3 NO WAIVER...........................................................................................15
8.4 RIGHTS CUMULATIVE...................................................................................15
8.5 UNENFORCEABLE PROVISIONS............................................................................15
8.6 ACCOUNTING TERMS....................................................................................15
8.7 INDEMNIFICATION; EXCULPATION........................................................................15
8.8 REIMBURSEMENT.......................................................................................16
8.9 EXECUTION IN COUNTERPARTS...........................................................................16
8.10 ENTIRE AGREEMENT...................................................................................16
8.11 GOVERNING LAW AND JURISDICTION.....................................................................16
8.12 WAIVER OF JURY TRIAL...............................................................................17
</TABLE>
LIST OF EXHIBITS
Exhibit "A" Form of Note
Exhibit "B" Form of Borrowing Request
Exhibit "C" Security Agreement
Exhibit "D" Form of Warrant
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<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT is entered into as of March 26, 1997,
between IMGIS, INC., a California corporation ("Borrower"), and VENTURE LENDING
& LEASING, INC., a Maryland corporation ("VLLI" or "Lender").
WHEREAS, Lender has agreed to make available to Borrower a
term loan facility upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
The definitions appearing in this Agreement or any supplement
or addendum to this Agreement, shall be applicable to both the singular and
plural forms of the defined terms:
"AFFILIATE" means any Person which directly or indirectly
controls, is controlled by, or is under common control with Borrower. "Control,"
"controlled by" and "under common control with" mean direct or indirect
possession of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided, that control shall be conclusively presumed when any
Person or affiliated group directly or indirectly owns ten percent (10%) or more
of the securities having ordinary voting power for the election of directors of
a corporation.
"AGREEMENT" means this Loan Agreement as it may be amended or
supplemented from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. ss.101, eT Seq.), as amended.
"BASIC INTEREST" means the fixed rate of interest payable on
the outstanding balance of each Loan at the applicable Designated Rate.
"BORROWING DATE" means the Business Day on which the proceeds
of a Loan are disbursed by Lender.
"BORROWING REQUEST" means a written request from Borrower in
substantially the form of EXHIBIT "B" hereto, requesting the funding of one or
more Loans on a particular Borrowing Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco are
authorized or required by law to close.
"CLOSING DATE" means the date of this Agreement.
"COLLATERAL" has the meaning ascribed thereto in the Security
Agreement.
"COMMITMENT" means the obligation of Lender to make Loans to
Borrower in an aggregate, original principal amount not exceeding Two Million
Dollars ($2,000,000). The Commitment shall be divided into two parts. The
Initial Availability (the "Initial Availability") shall be for the original
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principal amount of a loan or loans not exceeding $1,000,000. The Remaining
("Remaining Availability") amount shall be for an additional principal amount of
$1,000,000 and shall automatically become available, subject to section 4.2 of
this Agreement, upon the closing of additional venture capital equity financing
of at least $1,000,000.
"DEFAULT" means an event which with the giving of notice,
passage of time, or both would constitute an Event of Default.
"DEFAULT RATE" is defined in SECTION 2.8.
"DESIGNATED RATE" means a fixed rate of interest per annum of
nine and 75/100 percent (9.75%) applicable to a Loan.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any governmental
authorities, in each case relating to environmental, health, or safety matters.
"EVENT OF DEFAULT" means any event described in Article 7.
"GAAP" means generally accepted accounting principles and
practices consistent with those principles and practices promulgated or adopted
by the Financial Accounting Standards Board and the Board of the American
Institute of Certified Public Accountants, their respective predecessors and
successors. Each accounting term used but not otherwise expressly defined herein
shall have the meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without
duplication and without regard to whether matured or unmatured, absolute or
contingent: (i) all obligations of such Person for borrowed money; (ii) all
obligations of such Person evidenced by bonds, debentures, notes, or other
similar instruments; (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business; (iv) all obligations of such Person as lessee
under capital leases; (v) all obligations of such Person to reimburse or prepay
any bank or other Person in respect of amounts paid under a letter of credit,
banker's acceptance, or similar instrument, whether drawn or undrawn; (vi) all
obligations of such Person to purchase securities which arise out of or in
connection with the sale of the same or substantially similar securities; (vii)
all obligations of such Person to purchase, redeem, exchange, convert or
otherwise acquire for value any capital stock of such Person or any warrants,
rights or options to acquire such capital stock, now or hereafter outstanding,
except to the extent that such obligations remain performable solely at the
option of such Person; (viii) all obligations to repurchase assets previously
sold (including any obligation to repurchase any accounts or chattel paper under
any factoring, receivables purchase, or similar arrangement); (ix) obligations
of such Person under interest rate swap, cap, collar or similar hedging
arrangements; and (x) all obligations of others of any type described in CLAUSE
(I) through CLAUSE (IX) above guaranteed by such Person.
"INSOLVENCY PROCEEDING" means (a) any case, action or
proceeding before any court or other governmental authority relating to
bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the benefit
of creditors, composition, marshalling of assets for creditors, or other,
similar
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arrangement in respect of its creditors generally or any substantial portion of
its creditors, undertaken under U.S. Federal, state or foreign law, including
the Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest,
mortgage, pledge, claim, charge, encumbrance, title retention agreement, or
third party interest, covering all or any part of the property of Borrower or
any other Person.
"LOAN" means an extension of credit by Lender under SECTION 2
of this Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this
Agreement, each Note, the Security Agreement and any other security or pledge
agreement(s), and all other contracts, instruments, addenda and documents
executed in connection with this Agreement or the extensions of credit which are
the subject of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means
(a) a material adverse change in, or a material adverse effect upon, the
operations, business, properties, or condition (financial or otherwise) of
Borrower; (b) a material impairment of the ability of Borrower to perform under
any Loan Document; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against Borrower of any Loan Document.
"MATURITY DATE" means, with regard to a Loan, the earlier of
(i) its maturity by reason of acceleration, or (ii) its stated maturity date,
which is the first day of the 42nd full month after the Borrowing Date of such
Loan; and is the date on which payment of all outstanding principal, accrued
interest, and the Terminal Payment with respect to such Loan is due.
"NOTE" means a promissory note substantially in the form of
EXHIBIT "A" hereto, executed by Borrower evidencing each Loan.
"OBLIGATIONS" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document, owing by
Borrower to Lender, whether direct or indirect (including those acquired by
assignment), absolute or contingent, liquidated or unliquidated, due or to
become due, now existing or hereafter arising.
"PERMITTED LIEN" means
(A) Involuntary Liens which, in the aggregate, would
not have a Material Adverse Effect and which in any event would not
exceed One-Hundred Thousand Dollars ($100,000);
(B) Liens for current taxes or other governmental or
regulatory assessments which are not delinquent, or which are contested
in good faith by the appropriate procedures and for which appropriate
reserves are maintained;
(C) Purchase money security interests on any property
held or acquired by Borrower in the ordinary course of business
securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property; PROVIDED, that
such Lien attaches solely to the property acquired with such
Indebtedness and that the principal amount of such Indebtedness does
not exceed one hundred percent (100%) of the cost of such property; and
FURTHER PROVIDED, that
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such property is not equipment with respect to which a Loan has been
made hereunder.
(D) Liens in favor of Lender;
(E) bankers' liens, rights of setoff and similar
Liens incurred on deposits made in the ordinary course of business;
(F) materialmen's, mechanics', repairmen's,
employees' or other like Liens arising in the ordinary course of
business and which are not delinquent for more than 45 days or are
being contested in good faith by appropriate proceedings;
(G) any judgment, attachment or similar Lien, unless
the judgment it secures has not been discharged or execution thereof
effectively stayed and bonded against pending appeal within 30 days of
the entry thereof;
(H) licenses or sublicenses of Patents, Patent
Licenses, Trademarks or Trademark Licenses permitted under the
Trademark Collateral Assignment or the Patent Collateral Assignment
(all as defined in the Security Agreement); and.
(I) Liens which have been approved by Lender prior to
the Closing Date and disclosed on SCHEDULE 6.2 to this Agreement.
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly
underwritten public offering of Borrower's common stock with aggregate proceeds
of not less than $12,500,000 (prior to underwriting expenses and commissions).
"RELATED PERSON" means any Affiliate of Borrower, or any
officer, employee, director or equity security holder of Borrower or any
Affiliate.
"SECURITY AGREEMENT" means the Security Agreement
substantially in the form of EXHIBIT "C" hereto, executed by Borrower.
"TERMINAL PAYMENT" means, with respect to each Loan, an amount
payable on the Maturity Date of such Loan in an amount equal to fifteen percent
(15%) of the original principal amount of such Loan.
"TERMINATION DATE" means the earlier of: (a) the date Lender
may terminate making loans or extending credit pursuant to the rights of Lender
under Article 7, or (b) December 31, 1997.
"UCC" means the Uniform Commercial Code as enacted in the
applicable jurisdiction, in effect on the Closing Date and as amended from time
to time.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of
this Agreement, Lender agrees to make term loans to Borrower from time to time
from the Closing Date and to, but not including, the Termination Date in an
aggregate principal amount not exceeding the Commitment. The Commitment is
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not a revolving credit commitment, and Borrower shall not have the right to
repay and reborrow hereunder.
2.2 LIMITATION ON LOANS.
(A) Each Loan shall be in an amount not to exceed one
hundred percent (100%) of the amount paid or payable by Borrower to a
non-affiliated manufacturer, vendor or dealer for an item of equipment
as shown on an invoice therefor (excluding any commissions and any
portion of the payment which relates to the servicing of the equipment
and sales taxes payable by Borrower upon acquisition, and delivery
charges).
(B) Lender shall not be obligated to make any Loan
under its Commitment if at the time of or after giving effect to the
proposed Loan Lender would no longer qualify as: (A) a "venture capital
operating company" under U.S. Department of Labor Regulations Section
2510.3-101(d), Title 29 of the Code of Federal Regulations, as amended;
and (B) a "business development company" under the provisions of
federal Investment Company Act of 1940, as amended; and (C) a
"regulated investment company" under the provisions of the Internal
Revenue Code of 1986, as amended. Each Loan requested by Borrower to be
made on a single Business Day shall be for a minimum principal amount
of Fifty Thousand Dollars ($50,000), except to the extent the remaining
Commitment is a lesser amount.
2.3 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be
evidenced by a separate Note payable to the order of Lender substantially in the
form of EXHIBIT "A" to this Agreement, in the total principal amount of the
Loan. Each Note shall be payable as follows: Principal and Basic Interest shall
be paid in forty two (42) equal and successive monthly payments, in advance,
beginning on the Borrowing Date and continuing on the first Business Day of each
month thereafter; provided, that the first and last such amortization
installment payments shall be paid in advance on the Borrowing Date. If the
Borrowing Date is not the first day of a month, then the 42-month amortization
period shall commence on the first day of the next month following the Borrowing
Date, and interest only shall accrue and be payable for the period from the
Borrowing Date to the first day of the next month. Borrower shall pay to Lender,
in advance, on the Borrowing Date a payment of Basic Interest on the amount of
any Loan that is not made on the first day of the month for interest that will
accrue on such Loan from the Borrowing Date through the last day of the same
month. The payment of amortization installments of principal of and interest on
a Loan in advance results in a higher effective rate of interest than the stated
Designated Rate applicable to such Loan. The full amount of the Terminal Payment
with respect to each Loan shall be due and payable on the Maturity Date of such
Loan.
2.4 PROCEDURES FOR BORROWING.
(A) Borrower shall give Lender, at least five (5)
Business Days' prior to a proposed Borrowing Date, written notice of
any request for borrowing hereunder (a "Borrowing Request"). Each
Borrowing Request shall be in substantially the form of EXHIBIT "B"
hereto, shall be executed by the chief financial or accounting officer
of Borrower, and shall state how much is requested, and shall be
accompanied by such information and documentation as Lender may deem
reasonably necessary to determine whether the proposed borrowing will
comply with the limitations in SECTION 2.2.
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(B) No later than 1:00 p.m. Pacific Standard Time on
the Borrowing Date, if Borrower has satisfied the conditions precedent
in Article 4, Lender shall make the Loan available to Borrower in
immediately available funds.
2.5 INTEREST. Basic Interest on the outstanding principal
balance of the each Loan shall accrue daily at the Designated Rate from the
Borrowing Date until the Maturity Date.
2.6 TERMINAL PAYMENT. Borrower shall pay the Terminal Payment
with respect to each Loan on the Maturity Date of such Loan.
2.7 INTEREST RATE CALCULATION. Basic Interest, along with
charges and fees under this Agreement and any Loan Document, shall be calculated
for actual days elapsed on the basis of a 360-day year, which results in higher
interest, charge or fee payments than if a 365-day year were used. In no event
shall Borrower be obligated to pay Lender interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to time in
effect.
2.8 DEFAULT INTEREST. Any unpaid payments of principal or
interest or the Terminal Payment with respect to any Loan shall bear interest
from their respective maturities, whether scheduled or accelerated, at the
Designated Rate for such Loan PLUS five percent (5.00%) per annum, until paid in
full, whether before or after judgment (the "Default Rate"). Borrower shall pay
such interest on demand.
2.9 LENDER'S RECORDS. Principal, Basic Interest, Terminal
Payments and all other sums owed under any Loan Document shall be evidenced by
entries in records maintained by Lender for such purpose. Each payment on and
any other credits with respect to principal, Basic Interest, Terminal Payments
and all other sums outstanding under any Loan Document shall be evidenced by
entries in such records. Absent manifest error, Lender's records shall be
conclusive evidence thereof.
2.10 SECURITY. As security for all Obligations to Lender,
Borrower shall grant concurrently to Lender, or ensure that Lender is
concurrently granted, perfected security interests in all Collateral pursuant to
the Security Agreement and such other Lien documentation satisfactory in form
and substance to Lender, subject only to Permitted Liens.
2.11 ISSUANCE OF WARRANTS TO LENDER. As additional
consideration for its Commitment and obligations under this Agreement, and as a
condition to funding the initial Loan, Lender and its broker (Robert A.
Kingsbook) shall be entitled to receive one or more warrants to purchase a
number of shares of preferred stock of Borrower ("Warrant Shares") with an
aggregate value equal to seven percent (7%) of the Commitment. The Warrant
Shares shall vest in two equal parts. The first 50% shall vest upon the closing
of this commitment at $2.51 per share. The remaining 50% shall vest upon the
borrowing of any portion of the Remaining Availability at a price determined by
1) if any part of the Remaining Availability is borrowed prior to the closing of
an additional round of venture capital or corporate partner equity financing of
at least $3,000,000 ("Round C"), $2.51 per share, 2) if none of the Remaining
Availability is borrowed prior to the closing of Round C, the per share price of
preferred stock issued in Round C. The warrant issued under this Agreement shall
be in substantially the form attached hereto as EXHIBIT "D"; shall be
transferable by Lender, subject to compliance with applicable securities laws;
shall expire on December 31, 2002 or earlier as described in the warrant; and
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shall include piggy-back registration rights, "net issuance" provisions, and
anti-dilution protections reasonably satisfactory to Lender and its counsel.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that as of the Closing Date
and each Borrowing Date, except as set forth on a Schedule of Exceptions
("Schedule of Exceptions") to be amended from time to time:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized
and validly existing in good standing under the laws of California, and is duly
qualified to conduct business and is in good standing in each other jurisdiction
in which its business is conducted or its properties are located, except where
the failure to be so qualified would not reasonably be expected to have a
Material Adverse Effect.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution,
delivery and performance of all Loan Documents executed by Borrower are within
Borrower's powers, have been duly authorized, and are not in conflict with
Borrower's articles of incorporation or by-laws, or the terms of any charter or
other organizational document of Borrower, as amended from time to time; and all
such Loan Documents constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights in general, and subject to general principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. To Borrower's knowledge,
Borrower has complied with all licensing, permit and fictitious name
requirements necessary to lawfully conduct the business in which it is engaged,
and to any sales, leases or the furnishing of services by Borrower, including
without limitation those requiring consumer or other disclosures, the
noncompliance with which would have a Material Adverse Effect.
3.4 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES.
(A) To Borrower's knowledge, Borrower owns or is
licensed or otherwise has the right to use all of the patents,
trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other similar rights that are reasonably
necessary for the operation of its business, without conflict with the
rights of any other Person.
(B) To Borrower's knowledge, no slogan or other
advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by Borrower
infringes upon any rights held by any other Person.
(C) To Borrower's knowledge, no claim or litigation
regarding any of the foregoing is pending or threatened, and no patent,
invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or proposed which, in either
case, could reasonably be expected to have a Material Adverse Effect.
3.5 NO CONFLICT. The execution, delivery, and performance by
Borrower of all Loan Documents are not in conflict with any law, rule,
regulation, order or directive, or any indenture, agreement, or undertaking to
which Borrower is a party or by which Borrower may be bound or affected.
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3.6 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no
litigation, tax claim or proceeding pending, or, to the knowledge of Borrower,
threatened against Borrower or its property.
3.7 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial
statements which have been delivered to Lender fairly and accurately reflect
Borrower's financial condition as of December 31, 1996; and, since that date
there has been no Material Adverse Change. All indebtedness to IBL Corporation,
Aurelius Ltd., and Washington Holdings, L.P. has been canceled either by payment
or exchange of debt for equity.
3.8 NO SUBSIDIARIES. Borrower is not a majority owner of or in
a control relationship with any other business entity.
3.9 NO EVENT OF DEFAULT. No Default or Event of Default has
occurred and is continuing.
3.10 FULL DISCLOSURE. None of the representations or
warranties made by Borrower in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of Borrower in connection with the Loan Documents (including
disclosure materials delivered by or on behalf of Borrower to Lender prior to
the Closing Date), when taken together, contains any untrue statement of a
material fact or omits any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they are made, not misleading as of the time when made or delivered.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make
its first Loan hereunder is, in addition to the conditions precedent specified
in SECTION 4.2, subject to the fulfillment of the following conditions and to
the receipt by Lender of the documents described below, duly executed and in
form and substance reasonably satisfactory to Lender and its counsel:
(A) RESOLUTIONS. A certified copy of the resolutions
of the Board of Directors of Borrower authorizing the execution,
delivery and performance by Borrower of the Loan Documents.
(B) INCUMBENCY AND SIGNATURES. A certificate of the
secretary of Borrower certifying the names of the officer or officers
of Borrower authorized to sign the Loan Documents, together with a
sample of the true signature of each such officer.
(C) OPINION OF COUNSEL. The opinion of Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel for
Borrower, together with any opinions, certificates and other matters on
which such opinion relies.
(D) ARTICLES AND BY-LAWS. Certified copies of the
Articles of Incorporation and By-Laws of Borrower, as amended through
the Closing Date.
(E) THIS AGREEMENT. A counterpart of this Agreement
with all schedules completed and attached thereto, and disclosing such
information as is acceptable to Lender.
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(F) SECURITY AGREEMENT; FINANCING STATEMENTS. A
Security Agreement executed by Borrower, substantially in the form of
EXHIBIT "C", together with filing copies (or other evidenced of filing
satisfactory to Lender and its counsel) of such Uniform Commercial Code
financing statements, collateral assignments and termination
statements, with respect to the Collateral as Lender shall request.
(G) LIEN SEARCHES. Uniform Commercial Code lien,
judgment, bankruptcy and tax lien searches of Borrower from the
California Secretary of State, and such other jurisdictions as Lender
may reasonably request, all as of a date reasonably satisfactory to
Lender and its counsel.
(H) GOOD STANDING CERTIFICATE. A Certificate of Good
Standing as of a date acceptable to Lender with respect to Borrower
from the California Secretary of State.
(I) WARRANT. A warrant issued by Borrower to Lender
exercisable for the Warrant Shares, as described in SECTION 2.11
hereof.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make
its initial Loan and each subsequent Loan is subject to the following further
conditions precedent that:
(A) NO DEFAULT. No Default or Event of Default has
occurred and is continuing or will result from the making of any such
Loan, and the representations and warranties of Borrower contained in
Article 3 of this Agreement are true and correct as of the Borrowing
Date of such Loan.
(B) NO MATERIAL ADVERSE CHANGE. No Material Adverse
Change shall have occurred since the date of the most recent financial
statements submitted to Lender.
(C) BORROWING REQUEST. Borrower shall have delivered
to Lender a Borrowing Request for such Loan.
(D) NOTE. Borrower shall have delivered an executed
Note evidencing such Loan, in form and substance satisfactory to
Lender.
(E) SUPPLEMENTAL LIEN FILINGS. Borrower shall have
executed and delivered such amendments or supplements to the Security
Agreement and financing statements as Lender may reasonably request in
connection with the proposed Loan, in order to create or perfect or to
maintain the perfection of Lender's Liens on the Collateral.
(F) VCOC LIMITATION. The making of the Loan will not
result in a violation of the condition applicable to Lender described
in SECTION 2.2(B).
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of
all obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to Lender
of:
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(A) Any litigation or administrative or regulatory
proceeding affecting Borrower where the amount claimed against Borrower
is Fifty Thousand Dollars ($50,000) or more, or where the granting of
the relief requested could reasonably have a Material Adverse Effect.
(B) The occurrence of any Default or any Event of
Default where the Borrower has knowledge of such Default or Event of
Default.
(C) Any change in the location of Borrower's
principal place of business or the Collateral at least thirty (30) days
in advance of such change.
(D) Any default by Borrower under any joint venture,
partnering, distribution, cross-licensing, strategic alliance,
collaborative research or manufacturing, license or similar agreement
which could reasonably be expected to have a Material Adverse Effect.
(E) Any other matter which has resulted or might
reasonably result in a Material Adverse Change, of which the Borrower
is aware.
5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to
be delivered to Lender, in form and detail satisfactory to Lender the following
financial information, which Borrower warrants shall be accurate and complete in
all material respects:
(A) QUARTERLY FINANCIAL STATEMENTS. As soon as
available but no later than thirty (45) days after the end of each
quarter, Borrower's balance sheet as of the end of such period, and
Borrower's income statement for such period and for that portion of
Borrower's financial reporting year ending with such period, prepared
and attested by a responsible financial officer of Borrower as being
complete and correct and fairly presenting Borrower's financial
condition and the results of Borrower's operations. After a Qualified
Public Offering, the foregoing interim financial statements shall be
delivered no later than 45 days after each fiscal quarter and for the
quarter-annual fiscal period then ended.
(B) YEAR-END FINANCIAL STATEMENTS. As soon as
available but no later than one hundred (100) days after and as of the
end of each financial reporting year, a complete copy of Borrower's
audit report, which shall include balance sheet, income statement,
statement of changes in equity and statement of cash flows for such
year, prepared and certified by an independent certified public
accountant selected by Borrower and reasonably satisfactory to Lender
(the "Accountant"). The Accountant's certification shall not be
qualified or limited due to a restricted or limited examination by the
Accountant of any material portion of Borrower's records or otherwise.
(D) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES.
Within thirty (30) days after sending, issuing, making available, or
filing, copies of all statements released by Borrower to any news media
for publication, all reports, proxy statements, and financial
statements that Borrower sends or makes available to its stockholders,
and, not later than thirty (30) days after actual filing, all
registration statements and reports that Borrower files or is required
to file with the Securities and Exchange Commission, or any other
governmental or regulatory authority.
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(E) OTHER INFORMATION. Such other statements, lists
of property and accounts, budgets, forecasts, reports, or other
information as Lender may from time to time reasonably request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a
"venture capital operating company" to participate in, and influence the conduct
of management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. ss. 2510.3-101(d), and:
(A) Permit Lender to make available to Borrower, at
no cost to Borrower, "significant managerial assistance", as defined in
Section 2(a)(47) of the Investment Company Act of 1940, as amended,
either in the form of: (i) consulting arrangements with Lender or any
of its officers, directors, employees or affiliates, (ii) Borrower's
allowing Lender to provide recommendations of prospective candidates
for election to Borrower's Board of Directors, or (iii) Lender, at
Borrower's request, seeking the services of third-party consultants to
aid Borrower with respect to its management and operations;
(B) Permit Lender to make available consulting and
advisory services to officers of Borrower regarding Borrower's
equipment acquisition and financing plans, and such other matters
affecting the business, financial condition and prospects of Borrower
as Lender shall reasonably deem relevant; and
(C) If Lender reasonably believes that financial or
other developments affecting Borrower have impaired or are likely to
impair Borrower's ability to perform its obligations under this
Agreement, permit Lender reasonable access to Borrower's management
and/or Board of Directors and opportunity to present Lender's views
with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's existence and
all rights and privileges necessary or desirable in the normal course of its
business; and keep all Borrower's property in good working order and condition,
ordinary wear and tear excepted.
5.5 INSURANCE. Obtain and keep in force insurance in such
amounts and types as is usual in the type of business conducted by Borrower,
with insurance carriers having a policyholder rating of not less than "A" and
financial category rating of Class VII in "Best's Insurance Guide," unless
otherwise approved by Lender. Such insurance policies must be in form and
substance satisfactory to Lender, and shall list Lender as an additional insured
or loss payee, as applicable, on endorsement(s) in form reasonably acceptable to
Lender. Borrower shall furnish to Lender such endorsements, and upon Lender's
request, copies of any or all such policies.
5.6 ACCOUNTING RECORDS. Maintain adequate books, accounts and
records, and prepare all financial statements in accordance with GAAP, and in
compliance with the regulations of any governmental or regulatory authority
having jurisdiction over Borrower or Borrower's business; and permit employees
or agents of Lender at such reasonable times as Lender may request, to inspect
Borrower's properties, and to examine, and make copies and memoranda of
Borrower's books, accounts and records. Such examination shall be at Lender's
expense, as long as Borrower is not in Default.
5.7 COMPLIANCE WITH LAWS. Comply with all laws (including
Environmental Laws), rules, regulations applicable to, and all orders and
directives of any governmental or regulatory authority having jurisdiction
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over, Borrower or Borrower's business, and with all material agreements to which
Borrower is a party, except where the failure to so comply would not have a
Material Adverse Effect.
5.8 TAXES AND OTHER LIABILITIES. Pay all Borrower's
obligations when due; pay all taxes and other governmental or regulatory
assessments before delinquency or before any penalty attaches thereto, except as
may be contested in good faith by the appropriate procedures and for which
Borrower shall maintain appropriate reserves; and timely file all required tax
returns.
5.9 USE OF PROCEEDS. Use the proceeds of Loans only as set
forth in Article 2 of this Agreement; and not directly or indirectly to purchase
or carry any margin stock, as defined from time to time by the Board of
Governors of the Federal Reserve System in Federal Regulation U.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of
all obligations to Lender, Borrower will not (without Lender's prior written
consent):
6.1 INDEBTEDNESS. Be indebted for borrowed money or the
deferred purchase price of property, or become liable as a surety, guarantor,
accommodation party or otherwise for or upon the obligation of any other Person,
except:
(A) Indebtedness incurred for the acquisition of
supplies or inventory on normal trade credit, including a working
capital credit line with a bank; and other indebtedness incurred
pursuant to one or more transactions permitted under SECTION 6.4;
(B) Indebtedness not to exceed Seven Hundred Fifty
Thousand Dollars ($750,000) in aggregate principal amount outstanding
at any time secured by purchase money security interests covered by
clause (c) of the definition of Permitted Lien;
(C) Indebtedness of Borrower under this Agreement;
and
(D) Any Indebtedness approved by Lender prior to the
Closing Date.
6.2 LIENS. Create, incur, assume or permit to exist any Lien,
or grant any other Person a negative pledge, on any of Borrower's property,
except Permitted Liens. Borrower and Lender agree that this covenant is not
intended to constitute a lien, deed of trust, equitable mortgage, or security
interest of any kind on any of Borrower's real property, and this Agreement
shall not be recorded or recordable.
6.3 DIVIDENDS. Except after a Qualified Public Offering, pay
any dividends or purchase, redeem or otherwise acquire or make any other
distribution with respect to any of Borrower's capital stock, except dividends
or other distributions solely of capital stock of Borrower or repurchases of
unvested shares, at the original purchase price, held by employees.
6.4 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination that
would constitute a Material Adverse Change.
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6.5 SALES OF ASSETS. Sell, transfer, lease or otherwise
dispose of any of Borrower's assets except for fair consideration or where such
sale, transfer, lease or other disposition of assets would not constitute a
Material Adverse Change.
6.6 LOANS/INVESTMENTS. Make or suffer to exist any loans,
guaranties, advances, or investments, except:
(A) Accounts receivable in the ordinary course of
Borrower's business;
(B) Investments in domestic certificates of deposit
issued by, and other domestic investments with, financial institutions
organized under the laws of the United States or a state thereof,
having One Hundred Million Dollars ($100,000,000) in capital and a
rating of at least "investment grade" or "A" by Moody's or any
successor rating agency;"
(C) Investments in marketable obligations of the
United States of America and in open market commercial paper given the
highest credit rating by a national credit agency and maturing not more
than one year from the creation thereof; and
(D) Temporary advances to cover incidental expenses
to be incurred in the ordinary course of business.
6.7 TRANSACTIONS WITH RELATED PERSONS. Directly or indirectly
enter into any transaction with or for the benefit of a Related Person on terms
more favorable to the Related Person than would have been obtainable in an
"arms' length" dealing. This Section 6.7 shall not apply to any equity financing
transactions with the Company's existing venture capital investors.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. Upon the occurrence and during the
continuation of any Default, the obligation of Lender to make any additional
Loan shall be suspended. The occurrence of any of the following shall terminate
any obligation of Lender to make any additional Loan; and shall, at the option
of Lender (1) make all sums of Basic Interest and principal, all Terminal
Payments, and any other amounts owing under any Loan Documents immediately due
and payable without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor or any other notices or demands, and
(2) give Lender the right to exercise any other right or remedy provided by
contract or applicable law:
(A) Borrower shall fail to pay any principal,
interest or Terminal Payment under this Agreement, or fail to pay any
fees or other charges when due under any Loan Document, and such
failure continues for five (5) Business Days or more after the same
first becomes due; or an Event of Default as defined in any other Loan
Document shall have occurred.
(B) Any representation or warranty made, or financial
statement, certificate or other document provided, by Borrower under
any Loan Document shall prove to have been false or misleading in any
material respect when made or deemed made herein.
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(C) Borrower shall fail to pay its debts generally as
they become due or shall commence any Insolvency Proceeding with
respect to itself; an involuntary Insolvency Proceeding shall be filed
against Borrower, or a custodian, receiver, trustee, assignee for the
benefit of creditors, or other similar official, shall be appointed to
take possession, custody or control of the properties of Borrower, and
such involuntary Insolvency Proceeding, petition or appointment is
acquiesced to by Borrower or is not dismissed within sixty (60) days;
or the dissolution or termination of the business of Borrower.
(D) Borrower shall be in default beyond any
applicable period of grace or cure under any other agreement involving
the borrowing of money, the purchase of property, the advance of credit
or any other monetary liability of any kind to Lender or to any Person
which results in the acceleration of payment of such obligation in an
amount in excess of Fifty Thousand Dollars ($50,000).
(E) Any governmental or regulatory authority shall
take any judicial or administrative action, that would have a Material
Adverse Effect, and which cannot be cured by Borrower within thirty
days of such action.
(F) Any sale, transfer or other disposition of all or
a substantial or material part of the assets of Borrower, including
without limitation to any trust or similar entity, shall occur where
such sale, transfer, lease or other disposition of assets would
constitute a Material Adverse Change.
(G) Any judgment(s) singly or in the aggregate in
excess of Fifty Thousand Dollars ($50,000) shall be entered against
Borrower which remain unsatisfied, unvacated or unstayed pending appeal
for thirty (30) or more days after entry thereof.
(H) Borrower shall fail to perform or observe any
covenant contained in this Agreement or any other Loan Document (other
than a covenant which is dealt with specifically elsewhere in this
Article 7) and the breach of such covenant is not cured within 30 days
after the sooner to occur of Borrower's receipt of notice of such
breach from Lender or the date on which such breach first becomes known
to any officer of Borrower; PROVIDED, HOWEVER that if such breach is
not capable of being cured within such 30-day period and Borrower
timely notifies Lender of such fact and Borrower diligently pursues
such cure, then the cure period shall be extended to the date requested
in Borrower's notice but in no event more than 90 days from the initial
breach; PROVIDED, FURTHER, that such additional 60-day opportunity to
cure shall not apply in the case of any failure to perform or observe
any covenant which has been the subject of a prior failure within the
preceding 180 days or which is a willful and knowing breach by
Borrower.
ARTICLE 8 - GENERAL PROVISIONS
8.1 NOTICES. Any notice given by any party under any Loan
Document shall be in writing and personally delivered, sent by overnight
courier, or United States mail, postage prepaid, or sent by facsimile, to be
promptly confirmed in writing, or other authenticated message, charges prepaid,
to the other party's or parties' addresses shown on the signature pages hereto.
Each party may change the address or facsimile number to which notices, requests
and other communications are to be sent by giving written
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notice of such change to each other party. Notice given by hand delivery shall
be deemed received on the date delivered; if sent by overnight courier, on the
next business day after delivery to the courier service; if by first class mail,
on the third business day after deposit in the U.S. Mail; and if by telecopy, on
the date of transmission.
8.2 BINDING EFFECT. The Loan Documents shall be binding upon
and inure to the benefit of Borrower and Lender and their respective successors
and assigns; provided, however, that Borrower may not assign or transfer
Borrower's rights or obligations under any Loan Document without Lender's prior
written consent except in connection with a consolidation, merger or other
transaction in compliance with Section 6.4 of this Agreement. Lender reserves
the right to sell, assign, transfer, negotiate or grant participations in all or
any part of, or any interest in, Lender's rights and obligations under the Loan
Documents. In connection with any of the foregoing, Lender may disclose all
documents and information which Lender now or hereafter may have relating to the
Loans, Borrower, or its business; provided that any person who receives such
information shall have agreed in writing in advance to maintain the
confidentiality of such information on terms reasonably acceptable to Borrower.
8.3 NO WAIVER. Any waiver, consent or approval by Lender of
any Event of Default or breach of any provision, condition, or covenant of any
Loan Document must be in writing and shall be effective only to the extent set
forth in writing. No waiver of any breach or default shall be deemed a waiver of
any later breach or default of the same or any other provision of any Loan
Document. No failure or delay on the part of Lender in exercising any power,
right, or privilege under any Loan Document shall operate as a waiver thereof,
and no single or partial exercise of any such power, right, or privilege shall
preclude any further exercise thereof or the exercise of any other power, right
or privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the Maturity Date unless Lender agrees otherwise in writing.
8.4 RIGHTS CUMULATIVE. All rights and remedies existing under
the Loan Documents are cumulative to, and not exclusive of, any other rights or
remedies available under contract or applicable law.
8.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan
Document executed by Borrower which is prohibited or unenforceable in any
jurisdiction, shall be so only as to such jurisdiction and only to the extent of
such prohibition or unenforceability, but all the remaining provisions of any
such Loan Document shall remain valid and enforceable.
8.6 ACCOUNTING TERMS. Except as otherwise provided in this
Agreement, accounting terms and financial covenants and information shall be
determined and prepared in accordance with GAAP.
8.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and
protect, defend and indemnify Lender and Lender's employees, officers,
directors, shareholders, affiliates, correspondents, agents and representatives
(other than Lender, collectively "Agents") against, and hold Lender and each
such Agent harmless from, all claims, actions, proceedings, liabilities,
damages, losses, expenses (including, without limitation, attorneys' fees and
costs) and other amounts incurred by Lender and each such Agent, arising from
(i) the matters contemplated by this Agreement or any other Loan Documents, (ii)
financing statement of record outstanding at the time of this Agreement, or
(iii) any contention that Borrower has failed to
15
<PAGE>
comply with any law, rule, regulation, order or directive applicable to
Borrower's business; PROVIDED, HOWEVER, that this indemnification shall not
apply to any of the foregoing incurred solely as the result of Lender's or any
Agent's gross negligence or willful misconduct. This indemnification shall
survive the payment and satisfaction of all of Borrower's Obligations to Lender.
8.8 REIMBURSEMENT. Borrower shall reimburse Lender for all
costs and expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference, legal action or otherwise in connection with (a) the
preparation and negotiation of the Loan Documents, $1,000, (b) the amendment,
interpretation and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to Lender's rights, remedies and obligations under
the Loan Documents, (c) collecting any sum which becomes due Lender under any
Loan Document, (d) any proceeding for declaratory relief, any counterclaim to
any proceeding, or any appeal, or (e) the protection, preservation or
enforcement of any rights of Lender. For the purposes of this section,
attorneys' fees shall include, without limitation, fees incurred in connection
with the following: (1) contempt proceedings; (2) discovery; (3) any motion,
proceeding or other activity of any kind in connection with an Insolvency
Proceeding; (4) garnishment, levy, and debtor and third party examinations; and
(5) postjudgment motions and proceedings of any kind, including without
limitation any activity taken to collect or enforce any judgment. All of the
foregoing costs and expenses shall be payable upon demand by Lender, and if not
paid within forty-five (45) days of presentation of invoices shall bear interest
at the highest applicable Default Rate.
8.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts which, when taken together, shall constitute but
one agreement.
8.10 ENTIRE AGREEMENT. The Loan Documents are intended by the
parties as the final expression of their agreement and therefore contain the
entire agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.
8.11 GOVERNING LAW AND JURISDICTION.
(A) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS
OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN,
CENTRAL OR SOUTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF BORROWER AND LENDER IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED
HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW.
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8.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement as of the date set forth in the preamble.
ADDRESSES FOR NOTICES: IMGIS, INC.
IMGIS, Inc.
611 Anton Boulevard, Suite 400 By: /s/ Chad Steelberg
Costa Mesa, CA 92626 -----------------------------
Attn: CFO Name: Chad Steelberg
Fax No. 714-755-3677 Its: President
Venture Lending & Leasing, Inc. VENTURE LENDING & LEASING, INC.
2010 North First Street, Suite 310
San Jose, CA 95131
Attn: Salvador O. Gutierrez By: /s/ Ronald W. Swenson
Chief Financial Officer -----------------------------
Fax No. 408-435-8625 Name: Ronald W. Swenson
Its: Chief Executive Officer
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SCHEDULE OF EXCEPTIONS
To Loan Agreement Dated March 26, 1997, by and between
Imgis, Inc. (the "Company") and Venture Lending and Leasing, Inc.
1. Article 3, Section 3.6. The Company is currently in negotiations with Anne
Doremus dba Catalyst Communications ("Catalyst") regarding a Project
Consultancy Agreement dated June 12, 1996 (the "Consultancy Agreement");
pursuant to which Catalyst has filed a complaint in the Superior Court, State
of California, Orange County for various relief including damages for
$17,277.65 plus interest from the date of the Consultancy Agreement.
2. Article 3, Section 3.6. The Company has received correspondence from a
former employee, Jason Goldstein, requesting payment of $60,000.00 under an
agreement dated May 22, 1996 for compensation due for services performed to
the Company. Although no litigation or proceeding regarding this matter is
pending, the Company may elect to dispute such claim through settlement
negotiations, arbitration, litigation proceedings, or otherwise.
<PAGE>
EXHIBIT "A"
[Note No. X-XXX]
FORM OF PROMISSORY NOTE
$______________________ ___________________, 199___
San Jose, California
The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING, INC., a Maryland corporation ("Lender") at its office at
2010 North First Street, Suite 310, San Jose, California 95131, or at such
other place as Lender may designate in writing, in lawful money of the United
States of America, the principal sum of ___________________________ Dollars
($_________), with Basic Interest thereon from the date hereof until
maturity, whether scheduled or accelerated, at a fixed rate per annum of nine
and 75/100 percent (9.75%), and a Terminal Payment in the sum of _________
[15% OF FACE AMOUNT] Dollars ($ ) payable on the Maturity Date.
This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan Agreement dated March 26, 1997, between Borrower and
Lender. Each capitalized term not otherwise defined herein shall have the
meaning set forth in the Loan Agreement. The Loan Agreement contains
provisions for the acceleration of the maturity of this Note upon the
happening of certain stated events.
Principal of and interest on this Note shall be payable as follows:
On the Borrowing Date, Borrower shall pay (i) Basic Interest, in
advance, on the outstanding principal balance of this Note at the Designated
Rate for the period from the Borrowing Date through [THE LAST DAY OF THE SAME
MONTH]; and (ii) a first (1st) amortization installment of principal and
Basic Interest in the amount of , in advance for the month of
[FIRST FULL MONTH AFTER BORROWING DATE] [ and (iii) a 42nd [last]
amortization installment of principal and Basic Interest in the amount of $
__________________ , in advance for the month of [date of last regular
amortization payment]].
Commencing on the first day of the second full month after the Borrowing
Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest shall be payable, in advance, in forty (40) equal
consecutive installments of ________________________________________ Dollars
($ ) each; The Terminal Payment amount shall be payable on __[ONE MONTH
LATER] , 200___.
Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated,
at a rate per annum equal to the Default Rate. Borrower shall pay such
interest on demand.
Interest, charges and fees shall be calculated for actual days elapsed
on the basis of a 360-day year, which results in higher interest, charge or
fee payments than if a 365-day year were used. In no event shall Borrower be
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obligated to pay interest, charges or fees at a rate in excess of the
highest rate permitted by applicable law from time to time in effect.
This Note shall be governed by, and construed in accordance with, the
laws of the State of California.
IMGIS, INC.
By:________________________________
Name:______________________________
Its:_______________________________
<PAGE>
EXHIBIT B
BORROWER REQUEST
____________________, 1997
Venture Lending & Leasing, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131
Re: _______________________________________________
Gentlemen:
Reference is made to the Loan Agreement dated as of March 25, 1997 (as
it has been and may be amended from time to time, the "Loan Agreement", the
capitalized terms used herein as defined therein), between Venture Lending &
Leasing, Inc. and IMGIS, Inc. (the "Company").
The undersigned is the Chief Financial Officer of the Company, and
hereby requests a Loan under the Loan Agreement, and in that connection
certifies as follows:
1. The amount of the proposed Loan is $ _______________. The Business
Day of the proposed Loan is ______________________ 1997.
2. As of this date, no Default or Event of Default has occurred and is
continuing, or will result from the making of the proposed Loan, and to the
Company's knowledge, the representations and warranties of the Company
contained in Article 3 of the Loan Agreement are true and correct.
3. To the Company's knowledge no Material Adverse Change has occurred
since the date of the most recent financial statements submitted to you by
the Company.
The Company agrees to notify you promptly before the funding of the Loan
if any of the matters to which I have certified above shall not to the
Company's knowledge be true and correct on the Borrowing Date.
Very Truly Yours,
_________________________
Chief Financial Officer
<PAGE>
EXHIBIT C
SECURITY AGREEMENT
(EQUIPMENT)
This Agreement is made as of March 26, 1997, by IMGIS, INC., a
California corporation ("Debtor") in favor of VENTURE LENDING & LEASING,
INC., a Maryland corporation ("Secured Party").
ARTICLE I - DEFINITIONS
The following definitions shall be applicable to both the singular
and plural forms of the defined terms:
"AGREEMENT" means this Security Agreement, as it may be amended
from time to time.
"COLLATERAL" means all Debtor's Equipment and Fixtures now owned or
hereafter acquired, wherever located, and whether held by Debtor or any third
party, and all proceeds and products thereof, including all insurance and
condemnation proceeds ("Proceeds"), and all monies now or at any time
hereafter in the possession or under the control of Secured Party or a bailee
or affiliate of Secured Party, including any cash collateral in any cash
collateral or other account, and all Records relating or useful to, or used
in connection with any of the foregoing.
"EQUIPMENT" means all of Debtor's specific equipment identified and
described on SCHEDULE 1 attached to this Agreement and incorporated herein by
reference (as such Schedule may be amended or supplemented from time to
time), all replacements, parts, accessions and additions thereto, and all
proceeds thereof arising from the sale, lease, rental or other use or
disposition thereof, including all rights to payment with respect to
insurance or condemnation, returned premiums, or any cause of action relating
to any of the foregoing.
"EVENT OF DEFAULT" means an event described in Article 6.
"FIXTURES" means all items of Equipment that are so related to the
real property upon which they are located that an interest in them arises
under real property law, and all proceeds thereof arising from the sale,
lease, rental or other use or disposition thereof.
"INDEBTEDNESS" means all debts, obligations and liabilities of
Debtor to Secured Party currently existing or now or hereafter made, incurred
or created, whether pursuant to the Loan Documents, whether voluntary or
involuntary and however arising or evidenced, whether direct or acquired by
Secured Party by assignment or succession, whether due or not due, absolute
or
<PAGE>
contingent, liquidated or unliquidated, determined or undetermined, and
whether Debtor may be liable individually or jointly, or whether recovery
upon such debt may be or become barred by any statute of limitations or
otherwise unenforceable and all renewals, extensions and modifications
thereof, and all attorneys' fees and costs incurred by Secured Party in
connection with the collection and enforcement thereof.
"LIEN" means any voluntary or involuntary security interest,
mortgage, pledge, claim, charge, encumbrance, title retention agreement, or
third party interest covering all or any part of the property of Debtor or
any other Person.
"LOAN AGREEMENT" means that certain Loan Agreement between Debtor
and Secured Party of even date herewith, as amended from time to time.
"PERSON" means any individual or entity, including without
limitation Secured Party where the context so permits and in Secured Party's
sole discretion.
"PERMITTED LIEN" means
a) Involuntary Liens which, in the aggregate, would not have a
Material Adverse Effect and which in any event would not exceed One-Hundred
Thousand Dollars ($100,000);
b) Liens for current taxes or other governmental or regulatory
assessments which are not delinquent, or which are contested in good faith by
the appropriate procedures and for which appropriate reserves are maintained;
c) Purchase money security interests on any property held or
acquired by Borrower in the ordinary course of business securing Indebtedness
incurred or assumed for the purpose of financing all or any part of the cost
of acquiring such property; PROVIDED, that such Lien attaches solely to the
property acquired with such Indebtedness and that the principal amount of
such Indebtedness does not exceed one hundred percent (100%) of the cost of
such property; and FURTHER PROVIDED, that such property is not equipment with
respect to which a Loan has been made hereunder.
d) Liens in favor of Lender;
e) bankers' liens, rights of setoff and similar Liens incurred
on deposits made in the ordinary course of business;
f) materialmen's, mechanics', repairmen's, employees' or other
like Liens arising in the ordinary course of business and which are not
delinquent for more than 45 days or are being contested in good faith by
appropriate proceedings;
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g) any judgment, attachment or similar Lien, unless the judgment
it secures has not been discharged or execution thereof effectively stayed
and bonded against pending appeal within 30 days of the entry thereof;
h) licenses or sublicenses of Patents, Patent Licenses,
Trademarks or Trademark Licenses permitted under the Trademark Collateral
Assignment or the Patent Collateral Assignment (all as defined in the
Security Agreement); and
i) Liens which have been approved by Lender prior to the Closing
Date and disclosed on SCHEDULE 6.2 to this Agreement.
"RECORDS" means all Debtor's computer programs, software, hardware,
source codes and data processing information, all written documents, books,
invoices, ledger sheets, financial information and statements, and all other
writings concerning Debtor's business.
"UNIFORM COMMERCIAL CODE" means the California Uniform Commercial
Code, as amended from time to time.
Terms not specifically defined in this Agreement have the meanings
prescribed in the Loan Agreement, and if not defined therein then the
meanings prescribed in the Uniform Commercial Code.
ARTICLE 2 - GRANT OF SECURITY INTEREST
To secure the timely payment of the Indebtedness and performance of
all obligations of Debtor to Secured Party, Debtor grants to Secured Party a
security interest in the Collateral.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants that, at all times during the term
of this Agreement:
3.1 GOVERNMENTAL ACTIONS. Debtor has obtained all consents and
actions of, and has performed all filings with, any governmental or
regulatory authority required to authorize the execution, delivery or
performance of this Agreement. Debtor has, at the time Lender makes a Loan
with respect to an item of equipment in accordance with Section 2.2 of the
Loan Agreement, and at all times thereafter while such Loan is outstanding,
obtained all consents and actions of, and has performed all filings with, any
governmental or regulatory authority required to grant and perfect Secured
Party's security interest in such item of equipment which is part of the
Collateral.
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3.2 TITLE. Debtor is and will be the unconditional legal and
beneficial owner of the Collateral. The Collateral is subject to no Liens,
rights or defenses of others, except Permitted Liens.
3.3 CHIEF EXECUTIVE OFFICE. Debtor's chief executive office is
located at:
611 Anton Boulevard, Suite 400
Costa Mesa, CA 92626
3.4 RECORDS LOCATION. Other than as set forth in Section 3.3,
Records are maintained at:
None
3.5 EQUIPMENT OR FIXTURES LOCATION. Other than as set forth in
Section 3.3, Equipment or Fixtures are located at:
None
3.6 OTHER PLACES OF BUSINESS. In addition to the locations set
forth in Sections 3.3 through 3.5, Debtor maintains the following place(s) of
business:
None
3.7 BUSINESS NAMES. Debtor has conducted business in the following
names other than as stated in the preamble to this Agreement:
None
ARTICLE 4 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until payment of all the
Indebtedness and performance of all obligations to Secured Party, Debtor
will, unless Secured Party otherwise consents in writing:
4.1 DELIVERY OF CERTAIN ITEMS. Deliver to Secured Party promptly
(a) after an Event of Default, all Proceeds; (b) such specific
acknowledgments, assignments or other agreements as Secured Party may
reasonably request relating to the Collateral; and (c) copies of such Records
and other reports in such form and detail and at such times as Secured Party
may reasonably require relating to the Collateral.
4.2 MAINTENANCE OF COLLATERAL; INSPECTION. Do all things necessary
to maintain, preserve, protect and keep all Collateral in good working order
and saleable condition, dealing with the Collateral in all ways as are
considered good practice by owners of like property, and use the Collateral
lawfully and only as
4
<PAGE>
permitted by Debtor's insurance policies. Debtor hereby authorizes Secured
Party's officers, employees, representatives and agents, upon reasonable
notice, at reasonable times and with reasonable frequency, to inspect the
Collateral and to discuss the Collateral and the Records relating thereto
with Debtor's officers.
4.3 MAINTENANCE OF RECORDS; INSPECTION. Maintain, or cause to be
maintained, complete and accurate Records relating to the Collateral. Secured
Party, its officers, employees, agents and representatives, upon reasonable
notice, shall have the right, from time to time, to examine the Records
relating to the Collateral and to make copies or extracts therefrom. Such
examination shall be at Lender's expense, as long as Borrower is not in
Default.
4.4 DEBTOR'S DUTY TO GIVE NOTICE. Give prompt notice to Secured
Party of: (a) any decrease in the value of any Collateral and the amount of
such decrease (other than depreciation calculated in the ordinary course of
business under applicable tax laws and regulations and in accordance with
generally accepted accounting principles); (b) any threatened or asserted
dispute or claim with respect to the Collateral; (c) any litigation or
administrative or regulatory proceeding which is reasonably likely to have a
Material Adverse Effect on Debtor or its business; (d) any change in
ownership of Debtor's principal place of business; (e) the relocation of or
intent to relocate any Collateral to a location not listed in Sections 3.3
through 3.6 hereof; and (f) the occurrence of any Event of Default or of any
other development, financial or otherwise, which is reasonably likely to
materially adversely affect the Collateral or Debtor's ability to pay the
Indebtedness or perform its obligations to Secured Party.
4.5 FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to
Secured Party, and file or record at Debtor's expense all financing
statements, notices and other documents from time to time requested by
Secured Party to maintain a perfected security interest in the Collateral in
favor of Secured Party, all in form and substance satisfactory to Secured
Party, perform such other acts and execute and deliver to Secured Party such
additional conveyances, assignments, agreements and instruments, as Secured
Party may at any time reasonably request in connection with the
administration and enforcement of this Agreement or Secured Party's rights,
powers and remedies hereunder.
4.6 DECALS, MARKINGS. At the request of Secured Party, firmly affix
a decal, stencil or other marking to designated items of Collateral,
indicating thereon the security interest of Secured Party.
4.7 AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. At the request of
Secured Party, use Debtor's best efforts to obtain and
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maintain such acknowledgments, consents, waivers and agreements from the
owner, lienholder, mortgagee and landlord with respect to any real property
on which Collateral is located as Secured Party may require, all in form and
substance reasonably satisfactory to Secured Party.
ARTICLE 5 - NEGATIVE COVENANTS
During the term of this Agreement and until payment of all the
Indebtedness and performance of all obligations to Secured Party, Debtor will
not, without Secured Party's prior written consent:
5.1 LIENS. Create, incur, assume or permit to exist any Lien on any
Collateral, except Permitted Liens.
5.2 DOCUMENTS OF TITLE. Sign or authorize the signing of any
financing statement or other document naming Debtor as debtor or obligor,
except those which do not relate to the Collateral or which, with respect to
the Collateral are permitted under the Loan Agreement, or acquiesce or
cooperate in the issuance of any warehouse receipt or other document of title
with respect to any Collateral, except those negotiated to Secured Party or
those naming Secured Party as secured party.
5.3 DISPOSITION OF COLLATERAL. Sell, transfer, lease or otherwise
dispose of any Collateral for less than fair value. If any collateral is
disposed of, Debtor shall grant to Secured Party a perfected security
interest in replacement collateral, acceptable to Secured Party, of equal or
greater value.
5.4 CHANGE IN LOCATION, NAME, LEGAL STRUCTURE. If and to the extent
the same would in any manner impair the creation, perfection or priority of
Secured Party's security interest in the Collateral, (a) maintain items of
Collateral, Records, its chief executive office or residence, or a place of
business at a location other than as specified in Article 3; or (b) change
its name, mailing address, or its legal structure.
ARTICLE 6 - EVENTS OF DEFAULT
6.1 EVENTS OF DEFAULT. The occurrence of any "Event of Default" as
defined in the Loan Agreement shall constitute an Event of Default hereunder.
(a) Any failure by Debtor to perform any of its duties or
obligations under this Agreement, or breach by Debtor of any of its
representations herein, where such failure or breach by debtor is not cured
within 30 days from the sooner of 1) Debtor's receipt of notice of such
breech or the date on which such breech becomes known to any officer of the
Debtor; provided, HOWEVER
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that if such breach is not capable of being cured within such 30-day period
and Borrower timely notifies Lender of such fact and Borrower diligently
pursues such cure, then the cure period shall be extended to the date
requested in Borrower's notice but in no event more than 90 days from the
initial breach; PROVIDED, FURTHER, that such additional 60-day opportunity to
cure shall not apply in the case of any failure to perform or observe any
covenant which has been the subject of a prior failure within the preceding
180 days or which is a willful and knowing breach by Borrower.
6.2 ACCELERATION AND REMEDIES. Upon the occurrence and during the
continuance of any Event of Default, Secured Party shall be entitled to, at
Secured Party's option, (a) declare all or any part of the Indebtedness
immediately due and payable; (b) exercise any or all of the rights and
remedies available to a secured party under the Uniform Commercial Code or
any other applicable law; and (c) exercise any or all of Secured Party's
rights and remedies provided for in this Agreement and in any other Loan
Document. The obligations of Debtor under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any Indebtedness is rescinded or must otherwise be returned by Secured Party
upon, on account of, or in connection with, the insolvency, bankruptcy or
reorganization of Debtor, or otherwise, all as though such payment had not
been made.
6.3 SALE OF COLLATERAL. After the occurrence and during the
continuance of an Event of Default, Secured Party may sell all or any part of
the Collateral, at public or private sales, to itself, a wholesaler, retailer
or investor, for cash, upon credit or for future delivery, and at such price
or prices as Secured Party may deem commercially reasonable. To the extent
permitted by law, Debtor hereby specifically waives all rights of redemption
and any rights of stay or appraisal which it has or may have under any
applicable law in effect from time to time. Any such public or private sales
shall be held at such times and at such place(s) as Secured Party may
determine. In case of the sale of all or any part of the Collateral on credit
or for future delivery, the Collateral so sold may be retained by Secured
Party until the selling price is paid by the purchaser, but Secured Party
shall not incur any liability in case of the failure of such purchaser to pay
for the Collateral and, in case of any such failure, such Collateral may be
resold. Secured Party may, instead of exercising its power of sale, proceed
to enforce its security interest in the Collateral by seeking a judgment or
decree of a court of competent jurisdiction.
6.4 DEBTOR'S OBLIGATION UPON DEFAULT. Upon the request of Secured
Party after the occurrence of an Event of Default Debtor will:
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(a) Assemble and make available to Secured Party the Collateral
at such place(s) as Secured Party shall designate, segregating all Collateral
so that each item is capable of identification; and
(b) Subject to rights of any previous lessor, permit Secured
Party, by Secured Party's officers, employees, agents and representatives, to
enter any premises where any Collateral is located, to take possession of the
Collateral and to remove the Collateral or to conduct any public or private
sale of the Collateral, all without any liability of Secured Party for rent
or other compensation for the use of Debtor's premises.
ARTICLE 7 - SPECIAL COLLATERAL PROVISIONS
7.1 PERFORMANCE OF DEBTOR'S OBLIGATIONS. Without having any
obligation to do so, upon reasonable prior notice to Debtor, Secured Party
may perform or pay any obligation which Debtor has agreed to perform or pay
under this Agreement, including, without limitation, the payment or discharge
of taxes or Liens levied or placed on or threatened against the Collateral.
In so performing or paying, Secured Party shall determine the action to be
taken and the amount necessary to discharge such obligations. Debtor shall
reimburse Secured Party on demand for any amounts paid by Secured Party
pursuant to this Section, which amounts shall constitute Indebtedness secured
by the Collateral and shall bear interest from the date of demand at the rate
applicable to overdue payments under the Loan Agreement.
7.2 POWER OF ATTORNEY. For the purpose of protecting, preserving
and enforcing the Collateral and Secured Party's rights under this Agreement,
Debtor hereby irrevocably appoints Secured Party, with full power of
substitution, as its attorney-in-fact with full power and authority to do any
act which Debtor is obligated to do, or Secured Party has the right to do,
hereunder; to exercise such rights with respect to the Collateral as Debtor
might exercise; to use such Equipment, Fixtures or other property as Debtor
might use; to enter Debtor's premises; to give notice of Secured Party's
security interest in and to collect the Collateral and the Proceeds; and to
execute and file in Debtor's name any financing statements, amendments and
continuation statements necessary or desirable to perfect or continue the
perfection of Secured Party's security interests in the Collateral. Debtor
hereby ratifies all that Secured Party shall lawfully do or cause to be done
by virtue of this appointment.
7.3 AUTHORIZATION FOR SECURED PARTY TO TAKE CERTAIN ACTION. The
power of attorney created in Section 7.2 is a power coupled with an interest
and shall be irrevocable. The powers conferred on Secured Party hereunder are
solely to protect its interests in the Collateral and shall not impose any
duty upon Secured Party
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to exercise such powers. Secured Party shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and in
no event shall Secured Party or any of its directors, officers, employees,
agents or representatives be responsible to Debtor for any act or failure to
act, except for gross negligence or willful misconduct. Secured Party may
exercise this power of attorney without notice to or assent of Debtor, in the
name of Debtor, or in Secured Party's own name, from time to time in Secured
Party's sole discretion and at Debtor's expense. To further carry out the
terms of this Agreement, Secured Party may upon the occurrence and during the
continuance of an Event of Default:
(a) Execute any statements or documents to take possession of,
and endorse and collect and receive delivery or payment of, any checks,
drafts, notes, acceptances or other instruments and documents constituting
the payment of amounts due and to become due or any performance to be
rendered with respect to the Collateral.
(b) Sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts, certificates and
statements under any commercial or standby letter of credit, assignments,
leases, bills of sale, or any other documents relating to the Collateral,
including without limitation the Records.
(c) Use or operate Collateral or any other property of Debtor
for the purpose of preserving or liquidating Collateral.
(d) File any claim or take any other action or proceeding in
any court of law or equity or as otherwise deemed appropriate by Secured
Party for the purpose of collecting any and all monies due or securing any
performance to be rendered with respect to the Collateral.
(e) Commence, prosecute or defend any suits, actions or
proceedings or as otherwise deemed appropriate by Secured Party for the
purpose of protecting or collecting the Collateral. In furtherance of this
right, upon the occurrence and during the continuance of an Event of Default
Secured Party may apply for the appointment of a receiver or similar official
to operate Debtor's business.
(f) Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any
instrument in payment of loss or returned premiums or any other insurance
refund or return, and apply such amounts, at Secured Party's sole discretion,
toward repayment of the Indebtedness or replacement of the Collateral.
7.4 APPLICATION OF PROCEEDS. Any Proceeds and other monies or
property received by Secured Party pursuant to the terms of
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this Agreement or any Loan Document may be applied by Secured Party first to
the payment of expenses of collection, including without limitation to
reasonable attorneys' fees, and then to the payment of the Indebtedness in
such order of application as Secured Party may elect.
7.5 DEFICIENCY. If the proceeds of any sale of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all Indebtedness, plus all other sums required to be expended or
distributed by Secured Party, then Debtor shall be liable for any such
deficiency.
7.6 SECURED PARTY TRANSFER. Upon the transfer of all or any part of
the Indebtedness, Secured Party may transfer all or any part of its interest
in the Collateral and shall be fully discharged thereafter from all liability
and responsibility with respect to such interest in the Collateral so
transferred, and the transferee shall be vested with all the rights and
powers of Secured Party hereunder with respect to such interest in the
Collateral so transferred.
ARTICLE 8 - GENERAL PROVISIONS
8.1 NOTICES. Any notice given by any party under this Agreement
shall be given in the manner prescribed in the Loan Agreement.
8.2 BINDING EFFECT. This Agreement shall be binding upon Debtor,
its permitted successors, representatives and assigns, and shall inure to the
benefit of Secured Party and its successors, representatives and assigns.
8.3 RIGHTS CUMULATIVE. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any other rights or
remedies available under contract or applicable law.
8.4 UNENFORCEABLE PROVISIONS. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall be so only as to
such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of this Agreement shall
remain valid and enforceable.
8.5 GOVERNING LAW, WAIVER OF NOTICE. Except as may be otherwise
provided by the Uniform Commercial Code, this Agreement shall be governed by
and construed in accordance with the laws of the State of California.
8.6 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, is intended by Debtor and Secured Party as the final expression of
Debtor's obligations to Secured Party in
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connection with the Collateral and supersedes all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be
amended only by a writing signed by Debtor and accepted by Secured Party in
writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth in the preamble.
IMGIS, INC. VENTURE LENDING & LEASING, INC.
By:___________________________ By:____________________________
Chad Steelberg RONALD W. SWENSON
President Chief Executive Officer
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SCHEDULE 1 TO SECURITY AGREEMENT
DESCRIPTION OF EQUIPMENT
<TABLE>
<CAPTION>
QUANTITY ARTICLE MAKE Y. MFG. MODEL SERIAL OR MOTOR NO.
- -------- ------- ---- ------- ----- -------------------
<S> <C> <C> <C> <C> <C>
See attached continuation to Schedule 1
</TABLE>
together with all improvements, replacements, accessions and additions
thereto, wherever located, and all Proceeds thereof arising from the sale,
lease, rental or other use or disposition of any such property, including all
rights to payment with respect to insurance or condemnation, returned
premiums, or any cause of action relating to any of the foregoing.
IMGIS, INC.
By: _________________________________
VENTURE LENDING & LEASING, INC.
By: __________________________________
Ronald W. Swenson
CEO
<PAGE>
EXHIBIT D
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE
SHARES OF SERIES B1 PREFERRED STOCK OF
IMGIS, INC.
(Void after December 31, 2002)
This certifies that VENTURE LENDING & LEASING, INC., a Maryland
corporation, or assigns (the "Holder"), for value received, is entitled to
purchase from IMGIS, INC., a California corporation (the "Company"), A number
of fully paid and nonassessable shares of the Company's Series B1 Preferred
Stock ("Preferred Stock") with a value equal to six and 30/100 percent (6.3%)
of the Commitment at any time or from time to time up to and including 5: 00
p.m. (Pacific time) on December, 2002 or earlier as described in section l(d)
of this Warrant, upon surrender to the Company at its principal office at 611
Anton Boulevard, Suite 400 Costa Mesa, CA 92626 (or at such other location as
the Company may advise Holder in writing) of this Warrant properly endorsed
with the Form of Subscription attached hereto duly filled in and signed and
upon payment in cash or by check of the aggregate Stock Purchase Price for
the number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof.
The Warrant Shares shall vest in two equal parts. The first 50% shall vest
upon the closing of this commitment at a price of (the "Stock Purchase
Price") $2.51 per share. The remaining 50% shall vest upon the borrowing of
any portion of the Remaining Availability at a price determined by 1) if any
part of the Remaining Availability is borrowed prior to the closing of an
additional round of venture capital or corporate partner equity financing of
at least $3,000,000 (Round C), $2.51 per share, 2) if none of the Remaining
Availability is borrowed prior to the closing of Round C, the per share price
of preferred stock issued in Round C. The Stock Purchase Price and the number
of shares purchasable hereunder are subject to adjustment as provided in
Section 4 of this Warrant.
This Warrant is subject to the
following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT
FOR SHARES.
<PAGE>
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Preferred Stock (but not for a fraction of a
share) which may be purchased hereunder for the Stock Purchase Price
multiplied by the number of shares to be purchased. In the event, however,
that pursuant to the Company's Articles of Incorporation, as amended, an
event causing automatic conversion of the Company's Preferred Stock shall
have occurred prior to the exercise of this Warrant, in whole or in part,
then this Warrant shall be exercisable for the number of shares of Common
Stock of the Company into which the Preferred Stock not purchased upon any
prior exercise of the Warrant would have been so converted (and, where the
context requires, reference to "Preferred Stock" shall be deemed to include
such Common Stock). The Company agrees that the shares of Preferred Stock
purchased under this Warrant shall be and are deemed to be issued to the
holder hereof as the record owner of such shares as of the close of business
on the date on which this Warrant shall have been surrendered and payment
made for such shares. Subject to the provisions of Section 2, certificates
for the shares of Preferred Stock so purchased, together with any other
securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised. Except as provided in clause (b) of this
Section 1, in case of a purchase of less than all the shares which may be
purchased under this Warrant, the Company shall cancel this Warrant and
execute and deliver a new Warrant or Warrants of like tenor for the balance
of the shares purchasable under the Warrant surrendered upon such purchase to
the Holder hereof within a reasonable time. Each stockcertificate so
delivered shall be in such denominations of Preferred Stock as may be
requested by the Holder hereof and shall be registered in the name of such
Holder or such other name as shall be designated by such Holder, subject to
the limitations contained in Section 2.
(b) The Holder, in lieu of exercising this Warrant by the payment
of the Stock Purchase Price pursuant to clause (a) of this Section 1, may
elect, at any time on or before the Expiration Date, to receive that number
of shares of Preferred Stock equal to the quotient of: (i) the difference
between (A) the Per Share Price (as hereinafter defined) of the Preferred
Stock, less (B) the Stock Purchase Price then in effect, multiplied by the
number of shares of Preferred Stock the Holder would otherwise have been
entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or
such lesser number of shares as the Holder may designate in the case of a
partial exercise of this Warrant); over (ii) the Per Share Price.
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<PAGE>
(c) For purposes of clause (b) of this Section 1, "Per Share Price"
means the product of: (i) the greater of (A) the average of the closing bid
and asked prices of the Company's Common Stock as quoted by NASDAQ or listed
on any exchange, whichever is applicable, as published in the Western Edition
of The Wall Street Journal for the ten (10) trading days prior to the date of
the Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross
sales price of one share of the Company's Common Stock pursuant to a
registered public offering or that amount which shareholders of the Company
will receive for each share of Common Stock pursuant to a merger,
reorganization or sale of assets; and (ii) that number of shares of Common
Stock into which each share of Preferred Stock is convertible. If the
Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the
Per Share Price of the Preferred Stock (or the equivalent number of shares of
Common Stock into which such Preferred Stock is convertible) shall be the
price per share which the Company would obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares as such price
shall be agreed upon by the Holder and the Company or, if agreement cannot be
reached within ten (10) business days of the Holder's election hereunder, as
such price shall be determined by a panel of three (3) appraisers, one (1) to
be chosen by the Company, one (1) to be chosen by the Holder and the third to
be chosen by the first two (2) appraisers. If the appraisers cannot reach
agreement within 30 days of the Holder's election hereunder, then each
appraiser shall deliver its appraisal and the appraisal which is neither the
highest nor the lowest shall constitute the Per Share Price. In the event
either party fails to choose an appraiser within 30 days of the Holder's
election hereunder, then the appraisal of the sole appraiser shall constitute
the Per Share Price. Each pary shall bear the cost of the appraiser selected
by such party and the cost of the third appraiser shall be borne one-half by
each party. In the event either party fails to choose an appraiser, the cost
of the sole appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
holder of this Warrant or the Preferred Stock issuable hereunder will cause
any proposed transferee of the Warrant or Preferred Stock to agree to take
and hold such securities subject to the provisions and upon the conditions
specified in this Section 2.
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<PAGE>
(b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect of the Preferred Stock or Common Stock issued upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of this Section 2 or unless such securities have been
registered under the Securities Act or sold under Rule 144) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
(c) The Holder of this Warrant and each person to whom this Warrant
is subsequently transferred represents and warrants to the Company (by
acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in effect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act
(or any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is
available.
(d) This Warrant will be wholly void and of no effect after the date
(the "Expiration Date") which is the earlier of (i) 5:00 p.m. (Pacific time)
December 31, 2002, or (ii) the effective time of a merger or reorganization
following which stockholders of the Company immediately prior to such
transaction own less than fifty percent (50%) of the equity securities of the
surviving corporation (or its parent, if any), so long as the surviving
entity is publicly traded and all securities in the surviving entity held by
the Company's shareholders are free of trading restrictions within 30 days of
the effective time of such transaction, and if the last day on which this
Warrant may be exercised is a Sunday or a legal holiday or a day on which
banking institutions doing business in the City of San Francisco are
authorized by law to close, this Warrant may be exercised prior to 5:00 p.m.
(Pacific time) on the next succeeding full business day with the same force
and effect as if exercised on such last day specified herein.
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<PAGE>
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued
upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
and free from all preemptive rights of any shareholder and free of all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved, for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Preferred Stock, or other
securities and property, when and as required to provide for the exercise of
the rights represented by this Warrant. The Company will take all such action
as may be necessary to assure that such shares of Preferred Stock may be
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Preferred Stock may be listed. The Company will not take any action
which would result in any adjustment of the Stock Purchase Price (as defined
in Section 4 hereof) (i) if the total number of shares of Preferred Stock
issuable after such action upon exercise of all outstanding warrants,
together with all shares of Preferred Stock then outstanding and all shares
of Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Preferred Stock then authorized by the Company's
Articles of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all such shares of
Preferred Stock together with all shares of Common Stock then outstanding and
then issuable upon exercise of all options and upon the conversion of all
convertible securities hen outstanding would exceed the total number of
shares of Common Stock then authorized by the Company's Articles of
Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence
of certain events described in this Section 4. Upon each adjustment of the
Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled
to purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the
product thereof by the Stock Purchase Price resulting from such adjustment.
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<PAGE>
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at
any time subdivide or combine its outstanding shares of Preferred Stock the
Stock Purchase Price shall be adjusted as described in Article III(B) 3(d) of
the Company's articles of Incorporation for holders of Series B1 preferred
stock.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. Unless provided for in the articles of incorporation, if at
any time or from time to time the holders of Preferred Stock (or any shares
of stock or other securities at the time receivable upon the exercise of this
Warrant) shall have received or become entitled to receive, without payment
therefor,
(a) Preferred Stock, or any shares of stock or other securities
whether or not such securities are at any time directly or indirectly
convertible into or exchangeable for Preferred Stock, or any rights or
options to subscribe for, purchase or otherwise acquire any of the foregoing
by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash dividend, or
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale
of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Preferred Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Preferred Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and
6
<PAGE>
adequate provisions shall be made whereby the holder hereof shall thereafter
have the right to purchase and receive(in lieu of the shares of the Preferred
Stock of the Company immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby) such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Preferred Stock equal to
the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. Except after
the effective time of a merger or reorganization following which stockholders
of the Company immediately prior to such transaction own less than fifty
percent (50%) of the equity securities of the surviving corporation (or its
parent, if any), so long as the surviving entity is publicly traded and all
securities in the surviving entity held by the Company's shareholders are
free of trading restrictions within 30 days of the effective time of such
transaction the Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument, executed and
mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver
to such Holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such Holder may be entitled to purchase. In
any such case, appropriate provision shall be made with respect to the rights
and interests of the holder of this Warrant to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly
as may be possble, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a
consideration per share less than the Stock Purchase Price in effect
immediately prior to the time of such issue or sale, the Stock Purchase Price
then in effect and then applicable for any subsequent period or periods shall
be adjusted as described in Article III(B) 3(d) of the Company's articles of
Incorporation for holders of Series B1 preferred stock.
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant the Company shall give written notice
thereof, by
7
<PAGE>
first class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company.
The notice shall state the Stock Purchase Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its Preferred
Stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;
(d) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all of its assets to, another
corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first
class mail, postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company, (i) at least 20
day's prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action and (ii) in the case of any such
reorganization, reclassification, consol-idation, merger, sale, dissolution,
liquidation or winding-up, or other action, at least 20 day's written notice
of the date when the same shall take place. Any notice given in accordance
with the foregoing clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the holders
of Preferred Stock shall be entitled thereto. Any notice given
8
<PAGE>
in accordance with the foregoing clause (ii) shall also specify the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action as the case may be.
5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the then Holder of the Warrant
being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of
meetings of shareholders for the election of directors of the Company or any
other matters or any rights whatsoever as a shareholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised. No
provisions hereof, in the absence of affirmative action by the holder to
purchase shares of Preferred Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability
of such Holder for the Stock Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by its
creditors.
8. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to the same extent and on the same terms
and conditions as possessed by the Series B1 Investors/Purchasers. The
company shall take such action as may be reasonably necessary to assure that
the granting of such registration rights to the Holder does not violate the
provisions of such agreement or any of the. Company's charter documents or
rights of prior Grantees of registration rights.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT.
9
<PAGE>
The rights and obligations of the Company, of the Holder of this Warrant and
of the holder of shares of Preferred Stock issued upon exercise of this
Warrant, contained in Sections 6 and 8 shall survive the exercise of this
Warrant.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be deemed to have been given (i) upon receipt if delivered personally or by
courier (ii) upon confirmation of receipt if by telecopy or (iii) three
business days after deposit in the US mail, with postage prepaid and
certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in
the first paragraph of this Warrant.
12. BINDING EFFECT ON SUCCESSORS. All of the obligations of the Company
relating to the Preferred Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of
the exercise of this Warrant, in whole or in part, upon request of the Holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the Holder hereof in respect of any rights (including, without
limitation, any right to registration of the shares of Common Stock) to which
the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the Holder hereof in respect of such rights.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of
the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
14. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably
10
<PAGE>
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant or stock certificate, the Company
at its expense will make and deliver a new Warrant or stock certificate, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or
stock certificate.
15. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
16. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
16.1 EXPERIENCE. It is experienced in evaluating and investing in
companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services,
its officers and its personnel; the officers of the Company have made
available to Holder any and all written information it has requested; the
officers of the Company have answered to Holder's satisfaction all inquiries
made by it; in making this investment it has relied upon information made
available to it by the Company; and it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of investment in the Company and it is able to bear the economic
risk of that investment.
16.2 INVESTMENT. It is acquiring the Warrant for investment for
its own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered
under the Securities Act of 1933, as amended, nor qualified under applicable
state securities laws.
16.3 RULE 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions
of Rule 144 promulgated under the Securities Act.
16.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
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<PAGE>
17. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
17.1 CORPORATE POWER. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and
perform its obligations hereunder.
17.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken.
This Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
17.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Preferred Stock upon exercise
of the Warrant and the issuance of Common Stock upon conversion of the
Preferred Stock will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting
on its behalf will take any action hereafter that would cause the loss of
such exemptions.
17.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company
will use its best efforts to cause stock certificates representing the shares
of Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
17.5 ARTICLES AND BY-LAWS. The Company has provided Holder with
true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other
charter document setting, forth any rights, preferences and privileges of
Company's capital stock, each as amended and in effect on the date of
issuance of this Warrant.
17.6 CONVERSION OF PREFERRED STOCK. As of the date hereof, each
share of the Preferred Stock is convertible into one share of the Common
Stock.
17.7 FINANCIAL AND OTHER REPORTS. From time to time up to the
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 100 days after the close of each
fiscal year of
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<PAGE>
the Company an audited balance sheet and statement of changes in financial
position at and as of the end of such fiscal year, together with an audited
statement of income for such fiscal year; (ii) within 45 days after the close
of each fiscal quarter of the Company, an unaudited balance sheet and
statement of cash flows at and as of the end of such quarter, together with
an unaudited statement of income for such quarter; and (iii) promptly after
sending, making available, or filing, copies of all reports, proxy
statements, and financial statements that the Company sends or makes
available to its shareholders and all registration statements and reports
that the Company files with the SEC or any other governmental or regulatory
authority.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 26th day of March,
1997.
IMGIS, INC.
By:____________________________________
Title: ________________________________
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<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To:_______________________________________
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder,__________________________ (_______) (1)
shares of Preferred Stock of ____________________________________________
and herewith makes payment of _____________________________________
Dollars ($____________________) therefor, and requests that the certificates
for such shares be issued in the name of, and delivered to,
_____________________________________________, whose address is
_________________________________________________.
The undersigned represents that it is acquiring such Preferred
Stock for its own account for investment and not with a view to or for sale
in connection with any distribution thereof (subject, however, to any
requirement of law that the disposition
thereof shall at all times be within its control.
DATED:____________________________________________
__________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
(Address)
__________________________________________________
__________________________________________________
(1) Insert here the number of shares called for on the face of the
Warrant (or, in the case of a partial exercise, the portion thereof
as to which the Warrant is being exercised), in either case without
making any adjustment for additional Preferred Stock or any other
stock or other securities or property or cash which, pursuant to
the adjustment provisions of the Warrant, may be deliverable upon
exercise.
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within
Warrant, hereby sells, assigns and transfers all of the rights of the
undersigned under the within Warrant, with respect to the number of shares of
Preferred Stock covered thereby set forth hereinbelow, unto:
<TABLE>
<CAPTION>
Name of Assignee Address No. of Shares
- -----------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
Dated:_____________________________________
___________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
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<PAGE>
Exhibit 10.20
VENTURE LENDING & LEASING AGREEMENT
LOAN AND SECURITY AGREEMENT
(EQUIPMENT)
DATED AS OF DECEMBER 16, 1997
BETWEEN
IMGIS INC.,
A CALIFORNIA CORPORATION
AS "BORROWER",
AND
VENTURE LENDING & LEASING, INC.,
A MARYLAND CORPORATION
AS "LENDER"
<PAGE>
LOAN AND SECURITY AGREEMENT
(EQUIPMENT)
The Borrower and Lender identified on the cover page of this
document have entered or anticipate entering into one or more transactions
pursuant to which Lender agrees to make available to Borrower an equipment
loan facility governed by the terms and conditions set forth in this document
and one or more Supplements executed by Borrower and Lender which incorporate
this document by reference. Each Supplement constitutes a supplement to and
forms part of this document, and will be read and construed as one with this
document, so that this document and the Supplement constitute a single
agreement between the parties (collectively referred to as this "Agreement").
Accordingly, the parties agree as follows:
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS. The terms defined in Article 10 and in the Supplement
will have the meanings therein specified for purposes of this Agreement.
1.2 INCONSISTENCY. In the event of any inconsistency between the
provisions of any Supplement and this document, the provisions of the
Supplement will be controlling for the purpose of all relevant transactions.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of this
Agreement, Lender agrees to make term loans to Borrower from time to time
from the Closing Date and to, but not including, the Termination Date in an
aggregate principal amount not exceeding the Commitment. The Commitment is
not a revolving credit commitment, and Borrower does not have the right to
repay and reborrow hereunder. Each Loan requested by Borrower to be made on a
single Business Day shall be for a minimum principal amount set forth in the
Supplement except to the extent the remaining commitment is a lesser amount.
2.2 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be evidenced by a
separate Note payable to the order of Lender, in the total principal amount
of the Loan. Principal and interest of each Loan shall be payable at the
times and in the manner set forth in the Note.
2.3 PROCEDURES FOR BORROWING.
(a) Borrower shall give Lender, at least five (5) Business Days' prior
to a proposed Borrowing Date, written notice of any request for borrowing
hereunder (a "Borrowing Request"). Each Borrowing Request shall be in
substantially the form of EXHIBIT "B" hereto, shall be executed by the chief
financial officer or accounting officer of Borrower, and shall state how much
is requested, and shall be accompanied by such information and documentation
as Lender may deem reasonably necessary to determine whether the proposed
borrowing will comply with the limitations in the Supplement.
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing Date,
if Borrower has satisfied the conditions precedent in Article 4, Lender shall
make the Loan available to Borrower in immediately available funds.
2.4 INTEREST. Basic Interest on the outstanding principal balance of the
each Loan shall accrue daily at the Designated Rate from the Borrowing Date
until the Maturity Date.
2.5 TERMINAL PAYMENT. Borrower shall pay the Terminal Payment with
respect to each Loan on the Maturity Date of such Loan.
2.6 INTEREST RATE CALCULATION. Basic Interest, along with charges and
fees under this Agreement and any Loan Document, shall be calculated for
actual days elapsed on the basis of a 360-day year, which results in higher
interest, charge or fee payments than if a 365-day year were used. In no
event shall Borrower be obligated to pay Lender interest, charges or fees at
a rate in excess of the highest rate permitted by applicable law from time to
time in effect.
2.7 DEFAULT INTEREST. Any unpaid payments of principal or interest or
the Terminal Payment with respect to any Loan shall bear interest from their
respective maturities, whether scheduled or accelerated, at the Designated
Rate for such Loan PLUS
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<PAGE>
five percent (5.00%) per annum, until paid in full, whether before or after
judgment (the "Default Rate"). Borrower shall pay such interest on demand.
2.8 LATE CHARGES. If Borrower is late in making any payment of
principal or interest or Terminal Payment under this Agreement by more five
(5) days, Borrower agrees to pay a late charge of five percent (5%) of the
installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose
of defraying the expenses incidental to the handling of such delinquent
amounts. Borrower acknowledges that such late charge represents a reasonable
sum considering all of the circumstances existing on the date of this
Agreement and represents a fair and reasonable estimate of the costs that
will be sustained by Lender due to the failure of Borrower to make timely
payments. Borrower further agrees that proof of actual damages would be
costly and inconvenient. Such late charge shall be paid without prejudice to
the right of Lender to collect any other amounts provided to be paid or to
declare a default under this Agreement or any of the other Loan Documents or
from exercising any other rights and remedies of Lender.
2.9 LENDER'S RECORDS. Principal, Basic Interest, Terminal Payments
and all other sums owed under any Loan Document shall be evidenced by entries
in records maintained by Lender for such purpose. Each payment on and any
other credits with respect to principal, Basic Interest, Terminal Payments
and all other sums outstanding under any Loan Document shall be evidenced by
entries in such records. Absent manifest error, Lender's records shall be
conclusive evidence thereof.
2.10 GRANT OF SECURITY INTERESTS. To secure the timely payment and
performance of all of Borrower's Obligations to Lender, Borrower hereby
grants to Lender continuing security interests in all of the Collateral an
such other Lien documentation satisfactory in form and substance to Lender,
subject only to Permitted Liens.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that, except as set forth in the Supplement
or any schedule of exceptions executed by the parties, as of the Closing
Date and each Borrowing Date:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized and
validly existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good
standing in each other jurisdiction in which its business is conducted or its
properties are located, except where the failure to be so qualified would not
reasonably be expected to have a Material Adverse Effect.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution,
delivery and performance of all Loan Documents executed by Borrower are
within Borrower's powers, have been duly authorized, and are not in conflict
with Borrower's articles or certificate of incorporation or by-laws, or the
terms of any charter or other organizational document of Borrower, as amended
from time to time; and all such Loan Documents constitute valid and binding
obligations of Borrower, enforceable in accordance with their terms (except
as may be limited by bankruptcy, insolvency and similar laws affecting the
enforcement of creditors' rights in general, and subject to general
principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. To Borrower's knowledge, Borrower
has complied with all licensing, permit and fictitious name requirements
necessary to lawfully conduct the business in which it is engaged, and to any
sales, leases or the furnishing of services by Borrower, including without
limitation those requiring consumer or other disclosures, the noncompliance
with which would have a Material Adverse Effect.
3.4 NO CONFLICT. The execution, delivery, and performance by Borrower
of all Loan Documents are not in conflict with any law, rule, regulation,
order or directive, or any indenture, agreement, or undertaking to which
Borrower is a party or by which Borrower may be bound or affected.
3.5 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no litigation, tax
claim or proceeding pending or, to the knowledge of Borrower, threatened
against Borrower or its property.
3.6 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial
statements which have been delivered to Lender fairly and accurately reflect
2
<PAGE>
Borrower's financial condition as of the latest date of such financial
statements; and, since that date there has been no Material Adverse Change.
3.7 NO SUBSIDIARIES. Borrower is not a majority owner of or in a
control relationship with any other business entity.
3.8 NO EVENT OF DEFAULT. No Default or Event of Default has occurred
and is continuing.
3.9 FULL DISCLOSURE. None of the representations or warranties made
by Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in
any exhibit, report, statement or certificate furnished by or on behalf of
Borrower in connection with the Loan Documents (including disclosure
materials delivered by or on behalf of Borrower to Lender prior to the
Closing Date), when taken together contains any untrue statement of a
material fact or omits any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they are made, not misleading as of the time when made or
delivered.
3.10 SPECIFIC REPRESENTATIONS REGARDING COLLATERAL.
(a) TITLE. Except for the security interests created by this
Agreement and Permitted Liens, (i) Borrower is and will be the unconditional
legal and beneficial owner of the Collateral, and (ii) the Collateral is
genuine and subject to no Liens, rights or defenses of others.
(b) LOCATION OF COLLATERAL. Borrower's chief executive office,
Records, Equipment, and any other offices or places of business are located
at the address(es) shown on the Supplement.
(c) BUSINESS NAMES. Other than its full corporate name, Borrower has
not conducted business using any trade names or fictitious business names
except as shown on the Supplement.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make its
first Loan hereunder is, in addition to the conditions precedent specified in
SECTION 4.2, subject to the fulfillment of the following conditions and to the
receipt by Lender of the documents described below, duly executed and in form
and substance reasonably satisfactory to Lender and its counsel:
(a) RESOLUTIONS. A certified copy of the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.
(b) INCUMBENCY AND SIGNATURES. A certificate of the secretary of
Borrower certifying the names of the officer or officers of Borrower
authorized to sign the Loan Documents, together with a sample of the true
signature of each such officer.
(c) LEGAL OPINION. The opinion of legal counsel for Borrower as to
such matters as Lender may reasonably request, including the matters covered
by Sections 3.1, 3.2, 3.4 and 3.5 hereof.
(d) ARTICLES AND BY-LAWS. Certified copies of the Articles or
Certificate of Incorporation and By-Laws of Borrower, as amended through the
Closing Date.
(e) THIS AGREEMENT. A counterpart of this Agreement and an initial
Supplement, with all schedules completed and attached thereto, and disclosing
such information as is acceptable to Lender.
(f) FINANCING STATEMENTS. Filing copies (or other evidenced of filing
satisfactory to Lender and its counsel) of such Uniform Commercial Code
financing statements, collateral assignments and termination statements, with
respect to the Collateral as Lender shall request.
(g) LIEN SEARCHES. Uniform Commercial Code lien, judgment, bankruptcy
and tax lien searches of Borrower from such jurisdictions or offices as
Lender may reasonably request, all as of a date reasonably satisfactory to
Lender and its counsel.
(h) GOOD STANDING CERTIFICATE. A Certificate of status or good
standing of Borrower as of a date acceptable to Lender from the jurisdiction
of Borrower's organization and any foreign jurisdictions where Borrower is or
should be qualified to do business.
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<PAGE>
(i) WARRANT. A warrant issued by Borrower to Lender exercisable for
such number, type and class of shares of Borrower's capital stock, and for an
initial exercise price as is specified in the Supplement.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make its
initial Loan and each subsequent Loan is subject to the following further
conditions precedent that:
(a) NO DEFAULT. No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement and in any Supplement are true and correct as of the Borrowing Date
of such Loan.
(b) NO ADVERSE MATERIAL CHANGE. No Material Adverse Change shall have
occurred since the date of the most recent financial statements submitted to
Lender.
(c) BORROWING REQUEST. Borrower shall have delivered to Lender a
Borrowing Request for such Loan.
(d) NOTE. Borrower shall have delivered an executed Note evidencing
such Loan, in form and substance satisfactory to Lender.
(e) SUPPLEMENTAL LIEN FILINGS. Borrower shall have executed and
delivered such amendments or supplements to the this Agreement and such
financing statements as Lender may reasonably request in connection with the
proposed Loan, in order to create or perfect or to maintain the perfection of
Lender's Liens on the Collateral.
(f) VCOC LIMITATION. Lender shall not be obligated to make any Loan
under its Commitment if at the time of or after giving effect to the proposed
Loan Lender would no longer qualify as: (A) a "venture capital operating
company" under U.S. Department of Labor Regulations Section 2510.3-101(d),
Title 29 of the Code of Federal Regulations, as amended; and (B) a "business
development company" under the provisions of federal Investment Company Act
of 1940, as amended; and (C) a "regulated investment company" under the
provisions of the Internal Revenue Code of 1986, as amended.
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all
obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to Lender of:
(a) Any litigation or administrative or regulatory proceeding
affecting Borrower where the amount claimed against Borrower is at the
Threshold Amount or more, or where the granting of the relief requested could
have a Material Adverse Effect.
(b) The occurrence of any Default or any Event of Default where the
Borrower has knowledge of such Default or Event of Default.
(c) Any change in the location of any of Borrower's places of
business or Collateral at least thirty (30) days in advance of such change.
(d) Any default by Borrower under any joint venture, partnering,
distribution, cross-licensing, strategic alliance, collaborative research
or manufacturing, license or similar agreement which could reasonably be
expected to have a Material Adverse Effect.
(e) Any other matter which has resulted or might reasonably result in
a Material Adverse Change of which the Borrower is aware.
5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to be
delivered to Lender, in form and detail satisfactory to Lender the following
financial information, which Borrower warrants shall be accurate and complete
in all material respects:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available but no later
than forty five (45) days after the end of each quarter, Borrower's balance
sheet as of the end of such period, and Borrower's income statement for such
period and for that portion of Borrower's financial reporting year ending
with such period, prepared and attested by a responsible financial officer of
Borrower as being complete and correct and fairly presenting Borrower's
financial condition and the results of Borrower's operations. After a
Qualified Public Offering, the foregoing interim financial statements shall
be delivered no later than 45 days after
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each fiscal quarter and for the quarter-annual fiscal period then ended.
(b) YEAR-END FINANCIAL STATEMENTS. As soon as available but no later
than one hundred (100) days after and as of the end of each financial
reporting year, a complete copy of Borrower's audit report, which shall
include balance sheet, income statement, statement of changes in equity and
statement of cash flows for such year, prepared and certified by an
independent certified public accountant selected by Borrower and
satisfactory to Lender (the "Accountant"). The Accountant's certification
shall not be qualified or limited due to a restricted or limited examination
by the Accountant of any material portion of Borrower's records or otherwise.
(c) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES. Within thirty
(30) days after sending, issuing, making available, or filing, copies of all
statements released by Borrower to any news media for publication, all
reports, proxy statements, and financial statements that Borrower sends or
makes available to its stockholders, and, not later than thirty (30) days
after actual filing all registration statements and reports that Borrower
files or is required to file with the Securities and Exchange Commission, or
any other governmental or regulatory authority.
(d) OTHER INFORMATION. Such other statements, lists of property
and accounts, budgets, forecasts, reports, or other information as Lender may
from time to time reasonably request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a "venture
capital operating company" to participate in, and influence the conduct of
management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. SECTION 2510.3 -101(d), and:
(a) Permit Lender to make available to Borrower, at no cost to
Borrower, "significant managerial assistance", as defined in Section 2(a)(47)
of the Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors,
employees or affiliates, (ii) Borrower's allowing Lender to provide
recommendations of prospective candidates for election to Borrower's Board of
Directors, or (iii) Lender, at Borrower's request, seeking the services of
third-party consultants to aid Borrower with respect to its management and
operations;
(b) Permit Lender to make available consulting and advisory services
to officers of Borrower regarding Borrower's equipment acquisition and
financing plans, and such other matters affecting the business, financial
condition and prospects of Borrower as Lender shall reasonably deem relevant;
and
(c) If Lender reasonably believes that financial or other
developments affecting Borrower have impaired or are likely to impair
Borrower's ability to perform its obligations under this Agreement, permit
Lender reasonable access to Borrower's management and/or Board of Directors
and opportunity to present Lender's views with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's existence and all
rights and privileges necessary or desirable in the normal course of its
business; and keep all Borrower's property in good working order and
condition, ordinary wear and tear excepted.
5.5 INSURANCE. Obtain and keep in force insurance in such amounts
and types as is usual in the type of business conducted by Borrower, with
insurance carriers having a policyholder rating of not less than "A" and
financial category rating of Class VII in "Best's Insurance Guide," unless
otherwise approved by Lender. Such insurance policies must be in form and
substance satisfactory to Lender, and shall list Lender as an additional
insured or loss payee, as applicable, on endorsement(s) in form reasonably
acceptable to Lender. Borrower shall furnish to Lender such endorsements,
and upon Lender's request, copies of any or all such policies.
5.6 ACCOUNTING RECORDS. Maintain adequate books, accounts and
records, and prepare all financial statements in accordance with GAAP, and in
compliance with the regulations of any governmental or regulatory authority
having jurisdiction over Borrower or Borrower's business; and permit
employees or agents of Lender at such reasonable times as Lender may request,
to inspect Borrower's properties, and to examine, and make copies and
memoranda of Borrower's books, accounts and records. Such examination shall
be at Lender's expense, as long as Borrower is not in Default.
5.7 COMPLIANCE WITH LAWS. Comply with all laws (including
Environmental Laws), rules, regulations applicable to, and all orders and
directives of any governmental or regulatory authority having
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jurisdiction over, Borrower or Borrower's business, and with all material
agreements to which Borrower is a party, except where the failure to so
comply would not have a Material Adverse Effect.
5.8 TAXES AND OTHER LIABILITIES. Pay all Borrower's obligations when
due; pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be
contested in good faith by the appropriate procedures and for which Borrower
shall maintain appropriate reserves; and timely file all required tax returns.
5.9 SPECIAL COLLATERAL COVENANTS.
(a) MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good
working order and salable condition, ordinary wear and tear excepted, deal
with the Collateral in all ways as are considered good practice by owners of
like property, and use the Collateral lawfully and only as permitted by
Borrower's insurance policies. Borrower hereby authorizes Lender's
officers, employees, representatives and agents upon reasonable notice, at
reasonable times and with reasonable frequency to inspect the Collateral and
to discuss the Collateral and the Records relating thereto with Borrower's
officers and employees.
(b) FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to
Lender and file or record at Borrowers, expense all financing statements,
notices and other documents from time to time reasonably requested by any
Lender to maintain a first perfected security interest in the Collateral in
favor of Lender all in form and substance satisfactory to Lender; perform
such other acts, and execute and deliver to Lender such additional
conveyances, assignments, agreements and instruments, as Lender may at any
time reasonably request in connection with the administration and enforcement
of this Agreement or Lender's rights, powers and remedies hereunder.
(c) LIENS. Not create, incur, assume or permit to exist any Lien on
any Collateral, except Permitted Liens.
(d) DOCUMENTS OF TITLE. Not sign or authorize the signing of any
financing statement or other document naming Borrower as debtor or obligor,
except those which do not relate to the Collateral or which, with respect to
the Collateral are permitted under this Agreement, or acquiesce or cooperate
in the issuance of any warehouse receipt or other document of title with
respect to any Collateral, except those negotiated to Lender, or those naming
Lender as Lender.
(e) DISPOSITION OF COLLATERAL. Not sell, transfer, lease or otherwise
dispose of any Collateral.
(f) CHANGE IN LOCATION OR NAME. If and to the extent the same would
in any manner impair the creation, perfection or priority of Lender's
security interest in the Collateral, (a) maintain items of Collateral,
Records, its chief executive office or residence, or a place of business at a
location other than specified in the supplement; or (b) change its name,
mailing address, or its legal structure.
(g) DECALS, MARKINGS. At the request of Lender, firmly affix a decal,
stencil or other marking to designated items of Equipment, indicating thereon
the security interest of Lender.
(h) AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. Obtain and
maintain such acknowledgments, consents, waivers and agreements from the
owner, lienholder, mortgagee and landlord with respect to any real property
on which Equipment is located as Lender may require, all in form and
substance satisfactory to Lender.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all
obligations to Lender, Borrower will not (without Lender's prior written
consent):
6.1 INDEBTEDNESS. Be indebted for borrowed money or the deferred
purchase price of property, or become liable as a surety, guarantor,
accommodation party or otherwise for or upon the obligation of any other
Person, except:
(a) Indebtedness incurred for the acquisition of supplies or
inventory on normal trade credit, including a working capital credit line
with a bank; and other indebtedness incurred pursuant to one or more
transactions permitted under SECTION 6.4;
(b) Indebtedness not to exceed Seven Hundred Fifty Thousand Dollars
($750,000) in
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aggregate principal amount outstanding at any time secured by purchase money
security interests covered by clause (c) of the definition of Permitted Lien;
(c) Indebtedness of Borrower under this Agreement; and
(d) Any Indebtedness approved by Lender prior to the Closing Date.
6.2 LIENS. Create, incur, assume or permit to exist any Lien, or
grant any other Person a negative pledge, on any of Borrower's property,
except Permitted Liens. Borrower and Lender agree that this covenant is not
intended to constitute a lien, deed of trust, equitable mortgage, or security
interest of any kind on any of Borrower's real property, and this Agreement
shall not be recorded or recordable.
6.3 DIVIDENDS. Except after a Qualified Public Offering, pay any
dividends or purchase, redeem or otherwise acquire or make any other
distribution with respect to any of Borrower's capital stock, except
dividends or other distributions solely of capital stock of Borrower or
repurchases of unvested shares, at the original purchase price, held by
employees.
6.4 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination that
would constitute a Material Adverse Change.
6.5 SALES OF ASSETS. Sell, transfer, lease or otherwise dispose of
any of Borrower's assets except for fair consideration or where such sale,
transfer, lease or other disposition of assets would not constitute a
Material Adverse Change.
6.6 LOANS/INVESTMENTS. Make or suffer to exist any loans,
guaranties, advances, or investments, except:
(a) Accounts receivable in the ordinary course of Borrower's
business;
(b) Investments in domestic certificates of deposit issued by, and
other domestic investments with, financial institutions organized under the
laws of the United States or a state thereof, having One Hundred Million
Dollars ($100,000,000) in capital and a rating of at least "investment grade"
or "A" by Moody's or any successor rating agency;"
(c) Investments in marketable obligations of the United States of
America and in open market commercial paper given the highest credit rating
by a national credit agency and maturing not more than one year from the
creation thereof; and
(d) Temporary advances to cover incidental expenses to be incurred
in the ordinary course of business.
6.7 TRANSACTIONS WITH RELATED PERSONS. Directly or indirectly
enter into any transaction with or for the benefit of a Related Person on
terms more favorable to the Related Person than would have been obtainable in
an "arms' length" dealing. This Section 6.7 shall not apply to any equity
financing transactions with the Company's existing venture capital investors.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT; ACCELERATION. Upon the occurrence and during
the continuation of any Default, the obligation of Lender to make any
additional Loan shall be suspended. The occurrence of any of the following
shall terminate any obligation of Lender to make any additional Loan; and
shall, at the option of Lender (1) make all sums of Basic Interest and
principal, all Terminal Payments, and other amounts owing under any Loan
Documents immediately due and payable without notice of default, presentment
or demand for payment, protest or notice of nonpayment or dishonor or any
other notices or demands, and (2) give Lender the right to exercise any other
right or remedy provided by contract or applicable law:
(a) Borrower shall fail to pay any principal, interest or Terminal
Payment under this Agreement, or fail to pay any fees or other charges when
due under any Loan Document, and such failure continues for five (5) Business
Days or more after the same first becomes due; or an Event of Default as
defined in any other Loan Document shall have occurred.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower under any Loan Document
shall prove to have been false or misleading in any material respect when
made or deemed made herein.
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(c) Borrower shall fail to pay its debts generally as they become due
or shall commence any Insolvency Proceeding with respect to itself; an
involuntary Insolvency Proceeding shall be filed against Borrower, or a
custodian, receiver, trustee, assignee for the benefit of creditors, or other
similar official, shall be appointed to take possession, custody or control
of the properties of Borrower, and such involuntary Insolvency Proceeding,
petition or appointment is acquiesced to by Borrower or is not dismissed
within sixty (60) days; or the dissolution or termination of the business of
Borrower.
(d) Borrower shall be in default beyond any applicable period of
grace or cure under any other agreement involving the borrowing of money, the
purchase of property, the advance of credit or any other monetary liability
of any kind to Lender or to any Person which results in the acceleration of
payment of such obligation in an amount in excess of the Threshold Amount.
(e) Any governmental or regulatory authority shall take any judicial
or administrative action that would have a Material Adverse Effect and which
cannot be cured by Borrower within thirty days of such action.
(f) Any sale, transfer or other disposition of all or a substantial
or material part of the assets of Borrower, including without limitation to
any trust or similar entity, shall occur where such sale, transfer, lease or
other disposition of assets would constitute a Material Adverse Change.
(g) Any judgment(s) singly or in the aggregate in excess of the
Threshold Amount shall be entered against Borrower which remain unsatisfied,
unvacated or unstayed pending appeal for thirty (30) or more days after entry
thereof.
(h) Borrower shall fail to perform or observe any covenant contained
in this Agreement or any other Loan Document (other than a covenant which is
dealt with specifically elsewhere in this Article 7) and the breach of such
covenant is not cured within 30 days after the sooner to occur of Borrower's
receipt of notice of such breach from Lender or the date on which such breach
first becomes known to any officer of Borrower; PROVIDED, HOWEVER that if
such breach is not capable of being cured within such 30-day period and
Borrower timely notifies Lender of such fact and Borrower diligently pursues
such cure, then the cure period shall be extended to the date requested in
Borrower's notice but in no event more than 90 days from the initial breach;
PROVIDED, FURTHER, that such additional 60-day opportunity to cure shall not
apply in the case of any failure to perform or observe any covenant which has
been the subject of a prior failure within the preceding 180 days or which is
a willful and knowing breach by Borrower.
7.2 REMEDIES UPON DEFAULT. Upon the occurrence and during the
continuance of an Event of Default, Lender shall be entitled to, at its
option, exercise any or all of the rights and remedies available to a Lender
under the Uniform Commercial Code or any other applicable law, and exercise
any or all of its rights and remedies provided for in this Agreement and in
any other Loan Document. The obligations of Borrower under this Agreement
shall continue to be effective or be reinstated, as the case may be, if at
any time any payment of any Obligations is rescinded or must otherwise be
returned by Lender upon, on account of, or in connection with, the
insolvency, bankruptcy or reorganization of Borrower or otherwise, all as
though such payment had not been made.
7.3 SALE OF COLLATERAL. After the occurrence and during the
continuance of an Event of Default, Lender may sell all or any part of the
Collateral, at public or private sales, to itself, a wholesaler, retailer or
investor, for cash, upon credit or for future delivery, and at such price or
prices as Lender may deem commercially reasonable. To the extent permitted by
law, Borrower hereby specifically waives all rights of redemption and any
rights of stay or appraisal which it has or may have under any applicable law
in effect from time to time. Any such public or private sales shall be held
at such times and at such place(s) as Lender may determine. In case of the
sale of all or any part of the Collateral on credit or for future delivery,
the Collateral so sold may be retained by Lender until the selling price is
paid by the purchaser, but Lender shall not incur any liability in case of
the failure of such purchaser to pay for the Collateral and, in case of any
such failure, such Collateral may be resold. Lender may, instead of
exercising its power of sale, proceed to enforce its security interest in the
Collateral by seeking a judgment or decree of a court of competent
jurisdiction.
7.4 BORROWER'S OBLIGATIONS UPON DEFAULT. Upon the request of Lender
after the occurrence of an Event of Default, Borrower will:
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(a) Assemble and make available to Lender the Collateral at such
place(s) as Lender shall designate, segregating all Collateral so that each
item is capable of identification; and
(b) Subject to the rights of any previous lessor, permit Lender, by
Lender's officers, employees, agents and representatives, to enter any
premises where any Collateral is located, to take possession of the
Collateral and to remove the Collateral, or to conduct any public or private
sale of the Collateral, all without any liability of Lender for rent or other
compensation for the use of Borrower's premises.
ARTICLE 8 - SPECIAL COLLATERAL PROVISIONS
8.1 PERFORMANCE OF BORROWER'S OBLIGATIONS. Without having any
obligation to do so, upon reasonable prior notice to Borrower, Lender may
perform or pay any obligation which Borrower has agreed to perform or pay
under this Agreement, including, without limitation, the payment or discharge
of taxes or Liens levied or placed on or threatened against the Collateral.
In so performing or paying, Lender shall determine the action to be taken and
the amount necessary to discharge such obligations. Borrower shall reimburse
Lender on demand for any amounts paid by Lender pursuant to this Section,
which amounts shall constitute Indebtedness secured by the Collateral and
shall bear interest from the date of demand at the rate applicable to overdue
payments under this Loan Agreement.
8.2 POWER OF ATTORNEY. For the purpose of protecting, preserving and
enforcing the Collateral and Lender's rights under this Agreement, Borrower
hereby irrevocably appoints Lender, with full power of substitution, as its
attorney-in-fact with full power and authority to do any act which Borrower
is obligated to do or Lender has the right to do, hereunder; to exercise such
rights with respect to the Collateral as Borrower might exercise; to use such
Equipment, Fixtures or other property as Borrower might use; to enter
Borrower's premises; to give notice of Lender's security interest in, and to
collect the Collateral and the proceeds; and to execute and file in
Borrower's name any financing statements, amendments and continuation
statements necessary or desirable to perfect or continue the perfection of
Lender's security interests in the Collateral. Borrower hereby ratifies all
that Lender shall lawfully do or cause to be done by virtue of this
appointment.
8.3 AUTHORIZATION FOR LENDER TO TAKE CERTAIN ACTION. The power of
attorney created in Section 8.2 is a power coupled with an interest and shall
be irrevocable. The powers conferred on Lender hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon
Lender to exercise such powers. Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers and in
no event shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act,
except for gross negligence or willful misconduct. After the occurrence and
during the continuance of an Event of Default, Lender may exercise this power
of attorney without notice to or assent of Borrower, in the name of Borrower,
or in Lender's own name, from time to time in Lender's sole discretion and at
Borrower's expense. To further carry out the terms of this Agreement, Lender
may upon the occurrence and during the continuance of an Event of Default:
(a) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements
under any commercial or standby letter of credit relating to Collateral; or
any other documents relating to the Collateral, including without limitation
the Records.
(b) Use or operate Collateral or any other property of Borrower for
the purpose of preserving or liquidating Collateral.
(c) File any claim or take any other action or proceeding in any
court of law or equity or as otherwise deemed appropriate by Lender for the
purpose of collecting any and all monies due or securing any performance to
be rendered with respect to the Collateral.
(d) Commence, prosecute or defend any suits, actions or proceedings
or as otherwise deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral. In furtherance of this right, upon the occurrence
and during the continuance of an Event of Default, Lender may apply for the
appointment of a receiver or similar official to operate Borrower's business.
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(e) Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any
instrument in payment of loss or returned premiums or any other insurance
refund or return, and apply such amounts at Lender's sole discretion, toward
repayment of the Indebtedness or replacement of the Collateral.
8.4 APPLICATION OF PROCEEDS. Any Proceeds and other monies or
property received by Lender pursuant to the terms of this Agreement or any
Loan Document may be applied by Lender first to the payment of expenses of
collection, including without limitation reasonable attorneys' fees, and then
to the payment of the Indebtedness in such order of application as Lender may
elect.
8.5 DEFICIENCY. If the Proceeds of any sale of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Indebtedness, plus all other sums required to be expended or
distributed by Lender, then Borrower shall be liable for any such deficiency.
8.6 LENDER TRANSFER. Upon the transfer of all or any part of the
Indebtedness, Lender may transfer all or any part of its interest in the
Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such interest in the Collateral so
transferred, and the transferee shall be vested with all the rights and
powers of Lender hereunder with respect to such interest in the Collateral so
transferred.
8.7 LENDER'S DUTIES.
(a) Lender shall use reasonable care in the custody and preservation
of any Collateral in its possession. Without limitation on other conduct
which may be considered the exercise of reasonable care, Lender shall be
deemed to have exercised reasonable care in the custody and preservation of
such Collateral if such Collateral is accorded treatment substantially equal
to that which Lender accords its own property; or taking any necessary steps
to preserve any rights against any Person with respect to any Collateral.
Under no circumstances shall Lender be responsible for any injury or loss to
the Collateral, or any part thereof, arising from any cause beyond the
reasonable control of Lender.
(b) Neither Lender, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Lender
shall be liable for any claims, demands, losses or damages, of any kind
whatsoever, made, claimed, incurred or suffered by Borrower or any other
party through the ordinary negligence of Lender, or any of its directors,
officers, employees, agents, attorneys or any other person affiliated with or
representing Lender.
8.8 TERMINATION OF SECURITY INTERESTS. Upon the payment in full of
the Obligations and if Lender has no further obligations under its
Commitment, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Borrower. Upon any such termination,
the Lender shall, at Borrower's expense, execute and deliver to Borrower such
documents as Borrower shall reasonably request to evidence such termination.
ARTICLE 9 - GENERAL PROVISIONS
9.1 NOTICES. Any notice given by any party under any Loan Document
shall be in writing and personally delivered, sent by overnight courier, or
United States mail, postage prepaid, or sent by facsimile, to be promptly
confirmed in writing, or other authenticated message, charges prepaid, to the
other party's or parties' addresses shown on the Supplement. Each party may
change the address or facsimile number to which notices, requests and other
communications are to be sent by giving written notice of such change to each
other party. Notice given by hand delivery shall be deemed received on the
date delivered; if sent by overnight courier, on the next business day after
delivery to the courier service; if by first class mail, on the third
business day after deposit in the U.S. Mail; and if by telecopy, on the date
of transmission.
9.2 BINDING EFFECT. The Loan Documents shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors
and assigns; provided, however, that Borrower may not assign or transfer
Borrower's rights or obligations under any Loan Document without Lender's
prior written consent except in connection with a consolidation, merger or
other transaction in compliance with Section 6.4 of this Agreement. Lender
reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Lender's rights and
obligations under the Loan Documents. In connection with any of the
foregoing, Lender may disclose all documents and information which Lender now
or
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hereafter may have relating to the Loans, Borrower, or its business; provided
that any person who receives such information shall have agreed in writing in
advance to maintain the confidentiality of such information on terms
reasonably acceptable to Borrower.
9.3 NO WAIVER. Any waiver, consent or approval by Lender of any
Event of Default or breach of any provision, condition, or covenant of any
Loan Document must be in writing and shall be effective only to the extent
set forth in writing. No waiver of any breach or default shall be deemed a
waiver of any later breach or default of the same or any other provision of
any Loan Document. No failure or delay on the part of Lender in exercising
any power, right, or privilege under any Loan Document shall operate as a
waiver thereof, and no single or partial exercise of any such power, right,
or privilege shall preclude any further exercise thereof or the exercise of
any other power, right or privilege. Lender has the right at its sole option
to continue to accept interest and/or principal payments due under the Loan
Documents after default, and such acceptance shall not constitute a waiver of
said default or an extension of the Maturity Date unless Lender agrees
otherwise in writing.
9.4 RIGHTS CUMULATIVE. All rights and remedies existing under the
Loan Documents are cumulative to, and not exclusive of, any other rights or
remedies available under contract or applicable law.
9.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan Document
executed by Borrower which is prohibited or unenforceable in any
jurisdiction, shall be so only as to such jurisdiction and only to the extent
of such prohibition or unenforceability, but all the remaining provisions of
any such Loan Document shall remain valid and enforceable.
9.6 ACCOUNTING TERMS. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined
and prepared in accordance with GAAP.
9.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and protect,
defend and indemnify Lender and Lender's employees, officers, directors,
shareholders, affiliates, correspondents, agents and representatives (other
than Lender, collectively "Agents") against, and hold Lender and each such
Agent harmless from, all claims, actions, proceedings, liabilities, damages,
losses, expenses (including, without limitation, attorneys' fees and costs)
and other amounts incurred by Lender and each such Agent, arising from (i)
the matters contemplated by this Agreement or any other Loan Documents or
(ii) financing statement or record outstanding at the time of this Agreement,
or (iii) any contention that Borrower has failed to comply with any law,
rule, regulation, order or directive applicable to Borrower's business;
provided, however, that this indemnification shall not apply to any of the
foregoing incurred solely as the result of Lender's or any Agent's gross
negligence or willful misconduct. This indemnification shall survive the
payment and satisfaction of all of Borrower's Obligations to Lender.
9.8 REIMBURSEMENT. Borrower shall reimburse Lender for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference, legal action or otherwise in connection with (a) the
preparation and negotiation of the Loan Documents, (b) the amendment,
interpretation and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with
the rendering of legal advice as to Lender's rights, remedies and obligations
under the Loan Documents, (c) collecting any sum which becomes due Lender
under any Loan Document, (d) any proceeding for declaratory relief, any
counterclaim to any proceeding, or any appeal, or (e) the protection,
preservation or enforcement of any rights of Lender. For the purposes of this
section, attorneys' fees shall include, without limitation, fees incurred in
connection with the following: (1) contempt proceedings; (2) discovery; (3)
any motion, proceeding or other activity of any kind in connection with an
Insolvency Proceeding; (4) garnishment, levy, and debtor and third party
examinations; and (5) postjudgment motions and proceedings of any kind,
including without limitation any activity taken to collect or enforce any
judgment. All of the foregoing costs and expenses shall be payable upon
demand by Lender, and if not paid within forty-five (45) days of presentation
of invoices shall bear interest at the highest applicable Default Rate.
9.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts which, when taken together, shall constitute but
one agreement.
11
<PAGE>
9.10 ENTIRE AGREEMENT. The Loan Documents are intended by the
parties as the final expression of their agreement and therefore contain the
entire agreement between the parties and supersede all prior understandings
or agreements concerning the subject matter hereof. This Agreement may be
amended only in a writing signed by Borrower and Lender.
9.11 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA,
AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS.
EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION,
INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT
OR ANY DOCUMENT RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY CALIFORNIA LAW.
9.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH
AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
ARTICLE 10 - DEFINITIONS
The definitions appearing in this Agreement or any Supplement shall
be applicable to both the singular and plural forms of the defined terms:
"AFFILIATE" means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower. "Control,"
"controlled by" and "under common control with" mean direct or indirect
possession of the power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided, that control shall be conclusively presumed when any
Person or affiliated group directly or indirectly owns ten percent (10%) or
more of the securities having ordinary voting power for the election of
directors of a corporation.
"AGREEMENT" means this Loan and Security Agreement and each Supplement
thereto, as each may be amended or supplemented from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 101, ET SEQ.), as amended.
"BASIC INTEREST" means the fixed rate of interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.
12
<PAGE>
"BORROWING DATE" means the Business Day on which the proceeds of a Loan are
disbursed by Lender.
"BORROWING REQUEST" means a written request from Borrower in substantially
the form of Exhibit "B" to the Supplement, requesting the finding of one or
more Loans on a particular Borrowing Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City or San Francisco are authorized or
required by law to close.
"CLOSING DATE" means the date of this Agreement.
"COLLATERAL" means all Borrower's Equipment and Fixtures now owned or
hereafter acquired, wherever located, and whether held by Borrower or any
third party, and all proceeds and products thereof, including all insurance
and condemnation proceeds ("Proceeds"), and all monies now or at any time
hereafter in the possession or under the control of Lender or a bailee or
affiliate of Lender, including any cash collateral in any cash collateral or
other account, and all Records relating or useful to, or used in connection
with any of the foregoing.
"COMMITMENT" means the obligation of Lender to make Loans to Borrower up to
the aggregate principal amount set forth in the Supplement.
"DEFAULT" means an event which with the giving of notice, passage of time, or
both would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.7.
"DESIGNATED RATE" means the rate of interest per annum described in the
Supplement as being applicable to an outstanding Loan from time to time.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations
and permits of, and agreements with, any governmental authorities, in each
case relating to environmental, health, or safety matters.
"EQUIPMENT" means all of Borrower's specific equipment identified and
described on SCHEDULE 1 attached to this Agreement and incorporated herein by
this reference (as such Schedule may be amended or supplemented from time to
time), all replacements, parts, accessions and additions thereto, and all
proceeds thereof arising from the sale, lease, rental or other use or
disposition thereof, including all rights to payment with respect to
insurance or condemnation, returned premiums, or any cause of action relating
to any of the foregoing.
"EVENT OF DEFAULT" means any event described in Section 7.1.
"FIXTURES" means all items of Equipment that are so related to the real
property upon which they are located that an interest in them arises under
real property law, and all proceeds thereof arising from the sale, lease,
rental or other use or disposition thereof.
"GAAP" means generally accepted accounting principles and practices
consistent with those principles and practices promulgated or adopted by the
Financial Accounting Standards Board and the Board of the American Institute
of Certified Public Accountants, their respective predecessors and
successors. Each accounting term used but not otherwise expressly defined
herein shall have the meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without duplication and
without regard to whether matured or unmatured, absolute or contingent: (i)
all obligations of such Person for borrowed money; (ii) all obligations of
such Person evidenced by bonds, debentures, notes, or other similar
instruments; (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising
in the ordinary course of business; (iv) all obligations of such Person as
lessee under capital leases; (v) all obligations of such Person to reimburse
or prepay any bank or other Person in respect of amounts paid under a letter
of credit, banker's acceptance, or similar instrument, whether drawn or
undrawn; (vi) all obligations of such Person to purchase securities which
arise out of or in connection with the sale of the same or substantially
similar securities; (vii) all obligations of such Person to purchase, redeem,
exchange, convert or otherwise acquire for value any capital stock of such
Person or any warrants, rights or options to acquire such capital stock, now
or hereafter outstanding, except to the extent that such obligations remain
performable solely at the option of such Person; (viii) all obligations to
repurchase assets previously sold (including any obligation to repurchase any
accounts or chattel paper
13
<PAGE>
under any factoring, receivables purchase. or similar arrangement); (ix)
obligations of such Person under interest rate swap, cap, collar or similar
hedging arrangements; and (x) all obligations of others of any type described
in clause (i) through clause (ix) above guaranteed by such Person.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before any
court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshaling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion
of its creditors, undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest, mortgage,
pledge, claim, charge, encumbrance, title retention agreement, or third
party interest, covering all or any part of the property of Borrower or any
other Person.
"LOAN" means an extension of credit by Lender under Section 2 of this
Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this Loan and
Security Agreement, each Supplement, each Note, and any other security or
pledge agreement(s), any Warrants issued by Borrower to Lender in connection
with this Agreement, and all other contracts, instruments, addenda and
documents executed in connection with this Agreement or the extensions of
credit which are the subject of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means (a) a material
adverse change in, or a material adverse effect upon, the operations,
business, properties, or condition (financial or otherwise) of Borrower; (b)
a material impairment of the ability of Borrower to perform under any Loan
Document; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against Borrower of any Loan Document.
"MATURITY DATE" means, with regard to a Loan, the earlier of (i) its maturity
by reason of acceleration, or (ii) its stated maturity date; and is the date
on which payment of all outstanding principal, accrued interest, and the
Terminal Payment with respect to such Loan is due.
"NOTE" means a promissory note substantially in the form attached to the
Supplement as EXHIBIT "A", executed by Borrower evidencing each Loan.
"OBLIGATIONS" means all advances, debts, liabilities, obligations, covenants
and duties arising under any Loan Document, owing by Borrower to Lender,
whether direct or indirect (including those acquired by assignment), absolute
or contingent, liquidated or unliquidated, due or to become due, now
existing or hereafter arising.
"PERMITTED LIEN" means
(a) Involuntary Liens which, in the aggregate, would not have a
Material Adverse Effect and which in any event would not exceed One-Hundred
Thousand Dollars ($100,000);
(b) Liens for current taxes or other governmental or regulatory
assessments which are not delinquent, or which are contested in good faith by
the appropriate procedures and for which appropriate reserves are maintained;
(c) Purchase Money security interests on any property held or
acquired by Borrower in the ordinary course of business securing Indebtedness
incurred or assumed for the purpose of financing all or any part of the cost
of acquiring such property; PROVIDED, that such Lien attaches solely to the
property acquired with such Indebtedness and that the principal amount of
such Indebtedness does not exceed one hundred percent (100%) of the cost of
such property; and FURTHER PROVIDED, that such property is not equipment with
respect to which a Loan has been made hereunder.
(d) Liens in favor of Lender;
(e) bankers' liens, rights of setoff and similar Liens incurred on
deposits made in the ordinary course of business;
(f) materialmen's, mechanics', repairmen's, employees' or other like
Liens arising in the ordinary course of business and which are not delinquent
for more than 45 days or are being contested in good faith by appropriate
proceedings;
14
<PAGE>
(g) any judgment, attachment or similar Lien, unless the judgment it
secures has not been discharged or execution thereof effectively stayed and
bonded against pending appeal within 30 days of the entry thereof:
(h) licenses or sublicenses of Patents, Patent Licenses, Trademarks
or Trademark Licenses permitted under the Trademark Collateral Assignment or
the Patent Collateral Assignment; and,
(i) Liens which have been approved by Lender in writing prior to the
Closing Date and disclosed in Schedule 6.2 of this Agreement.
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly underwritten public
offering of Borrower's common stock with aggregate proceeds of not less than
$12,500,000 (prior to underwriting expenses and commissions).
"RECORDS" means all Borrower's computer programs, software, hardware, source
codes and data processing information, all written documents, books,
invoices, ledger sheets, financial information and statements, and all other
writings concerning Borrower's Equipment.
"RELATED PERSON" means any Affiliate of Borrower, or any officer, employee,
director or equity security holder of Borrower or any Affiliate.
"TERMINAL PAYMENT" means, with respect to each Loan, an amount payable on the
Maturity Date of such Loan in an amount equal to that percentage of the
original principal amount of such Loan specified in the Supplement.
"TERMINATION DATE" has the meaning specified in the Supplement.
"THRESHOLD AMOUNT" has the meaning specified in the Supplement.
"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
15
<PAGE>
SUPPLEMENT
TO THE
LOAN AND SECURITY AGREEMENT (EQUIPMENT)
DATED AS OF DECEMBER 16, 1997
BETWEEN
IMGIS, INC. ("BORROWER")
AND
VENTURE LENDING & LEASING, INC. ("LENDER")
- -------------------------------------------------------------------------------
This is a Supplement identified in the document entitled Loan and
Security Agreement (Equipment) dated as of December 16, 1997 between Borrower
and Lender. All capitalized terms used in this Supplement and not otherwise
defined in this Supplement have the meanings ascribed to them in Section 10
of the Loan and Security Agreement, which is incorporated in its entirety
into this Supplement. In the event of any inconsistency between the
provisions of that document and this Supplement, this Supplement is
controlling. Execution of this Supplement by the Lender and Borrower shall
constitute execution of the Loan and Security Agreement.
In addition to the provisions of the Loan and Security Agreement, the
parties agree as follows:
1. - ADDITIONAL DEFINITIONS:
"COMMITMENT": Lender commits to make loans to Borrower up to the
aggregate, original principal amount of One Hundred Fifty Thousand Dollars
($150,000).
"DESIGNATED RATE": The Designated Rate is nine and 75/100 percent
(9.75%) per annum.
"TERMINAL PAYMENT": Each Terminal Payment shall be an amount equal to
fifteen percent (15%) of the original principal amount of the associated Loan.
"TERMINATION DATE": The Termination Date is the earlier of (a) the date
Lender may terminate making Loans or extending other credit pursuant to the
rights of Lender under Article 7 of the Agreement, or (b) December 31, 1997.
"THRESHOLD AMOUNT": Fifty Thousand Dollars ($50,000.00).
2. ADDITIONAL TERMS AND CONDITIONS:
ISSUANCE OF WARRANT TO LENDER. As additional consideration for the
making of the Loans under the Agreement, upon the making of, and as a
condition to, the initial Loan, Lender shall be entitled to receive a warrant
to purchase 2,220 shares of preferred stock of Borrower ("Warrant Shares")
with an aggregate initial exercise price of $10,500.60 determined on the
basis of a per share exercise price of $4.73. The warrant issued under this
Agreement shall be in substantially the form attached hereto as EXHIBIT "C";
shall be transferable by Lender, subject to compliance with applicable
securities laws; shall expire not earlier than December 31, 2002; and shall
include piggy-back registration rights, "net issuance" provisions, and
anti-dilution protections reasonably satisfactory to Lender and its counsel.
<PAGE>
LIMITATION ON REIMBURSEMENT OF DOCUMENTATION COSTS. Notwithstanding
anything to the contrary in Section 9.8 of the Loan and Security Agreement,
Borrower's obligation to reimburse Lender its attorneys' fees and costs of
documenting this transaction shall not exceed $150.00.
LIMITATION ON EQUIPMENT LOANS. Each Loan shall be in an amount not to
exceed one hundred percent (100%) of the amount paid or payable by Borrower
to a non-affiliated manufacturer, vendor or dealer for an item of equipment
as shown on an invoice therefor (excluding any commissions and any portion of
the payment which relates to the servicing of the equipment and sales taxes
payable by Borrower upon acquisition, and delivery charges). Lender has the
right to approve individual items of Equipment for funding. Each Loan
requested by Borrower to be made on a single Business Day shall be for a
minimum principal amount of Fifteen Thousand Dollars ($15,000) except to the
extent the remaining Commitment is a lesser amount.
3. -ADDITIONAL REPRESENTATIONS:
Borrower represents and warrants that as of the Closing Date:
<TABLE>
<S> <C>
Its chief executive office is located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
Its Equipment is located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
and
611 Anton Blvd., Suite 400
Costa Mesa, CA 92626
Its Records are located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
In addition to its chief executive office, Borrower maintains offices or operates its
business at the following locations:
None
Other than its full corporate name, Debtor has conducted business using the following
trade names or fictitious business names:
None
4. -ADDITIONAL LOAN DOCUMENTS:
Form of Note Exhibit "A"
Form of Borrowing Request Exhibit "B"
Form of Warrant Exhibit "C"
</TABLE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Supplement as of
the date first above written.
<TABLE>
<S> <C>
BORROWER: LENDER:
IMGIS, INC. VENTURE LENDING & LEASING, INC.
By: /s/ John A. Tanner By: /s/ R W Swenson
------------------- ---------------------
Name: John A. Tanner Name: R W Swenson
Title: Chief Financial Title: CEO
Officer
Address for Notices: Attn: Chief Financial Officer Attn: Chief Financial Officer
10101 North DeAnza Blvd. Ste 210 2010 North First Street, Suite 310
Cupertino, CA 95014 San Jose, CA, 95131
Fax # (408) 873-3693 Fax # (408)436-8625
</TABLE>
<PAGE>
SCHEDULE 1 TO THE LOAN AND SECURITY AGREEMENT
DESCRIPTION OF EQUIPMENT
<TABLE>
<CAPTION>
QUANTITY ARTICLE MAKE YEAR MFG. MODEL SERIAL OR MOTOR #
- -------- ------- ---- --------- ----- -----------------
<S> <C> <C> <C> <C> <C>
</TABLE>
See attached continuation to Schedule 1
together with all improvements, replacements, accessions and additions thereto,
wherever located, and all Proceeds thereof arising from the sale, lease, rental
or other use or disposition of any such property, including all rights to
payment with respect to insurance or condemnation, returned premiums, or any
cause of action relating to any of the foregoing.
IMGIS, INC.
By:________________________________
Name:
Its:
VENTURE LENDING & LEASING, INC.
By: ________________________________
RONALD W. SWENSON
Chief Executive Officer
<PAGE>
EXHIBIT "A"
[Note No. X-XXX]
FORM OF PROMISSORY NOTE
$_____________________ ____________________, 199____
San Jose, California
The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING, INC., a Maryland corporation ("Lender") at its office at 2010
North First Street, Suite 310, San Jose, California 95131, or at such other
place as Lender may designate in writing, in lawful money of the United States
of America, the principal sum of _______________________________ Dollars
($_________), with Basic Interest thereon from the date hereof until maturity,
whether scheduled or accelerated, at a fixed rate per annum of_______________
percent (_____________%), and a Terminal Payment in the sum of
[15% of face amount] Dollars ($_____________) payable on the Maturity Date.
This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan Agreement dated _________________, 199___ , between Borrower
and Lender. Each capitalized term not otherwise defined herein shall have the
meaning set forth in the Loan Agreement. The Loan Agreement contains
provisions for the acceleration of the maturity of this Note upon the happening
of certain stated events.
Principal of and interest on this Note shall be payable as follows:
On the Borrowing Date, Borrower shall pay (i) Basic Interest, in advance,
on the outstanding principal balance of this Note at the Designated Rate for the
period from the Borrowing Date through [the last day of the same month ];
and (ii) a first (lst) amortization installment of principal and Basic
Interest in the amount of _________________, in advance for the month of
[first full month after borrowing date] [and (iii) a 42nd (last) amortization
installment of principal and Basic Interest in the amount of $_______________,
in advance for the month of [date of last regular amortization payment].
Commencing on the first day of the second full month after the Borrowing
Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest shall be payable, in advance, in thirty-nine (39)
equal consecutive installments of ___________________________________________
Dollars ($___________________________________________) each, with a forieth
(40th)] installment equal to the entire unpaid principal balance and accrued
Basic Interest on _______________, 200___. The Terminal Payment amount shall be
payable on [one month later] , 200___.
Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate. Borrower shall pay such interest on
demand.
Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.
If Borrower is late in making any payment under this Note by more than five
(5) days, Borrower agrees to pay a "late charge" of five percent (5%) of the
installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose
of defraying the expenses
<PAGE>
incidental to the handling of such delinquent amounts. Borrower acknowledges
that such late charge represents a reasonable sum considering all of the
circumstances existing on the date of this Note and represents a fair and
reasonable estimate of the costs that will be sustained by Lender due to the
failure of Borrower to make timely payments. Borrower further agrees that proof
of actual damages would be costly and inconvenient. Such late charge shall be
paid without prejudice to the right of Lender to collect any other amounts
provided to be paid or to declare a default under this Note or any of the other
Loan Documents or from exercising any other rights and remedies of Lender.
This Note shall be governed by, and construed in accordance with, the laws
of the State of California.
IMGIS, INC.
By:____________________________
Name:__________________________
Its:_____________________________
<PAGE>
EXHIBIT B
BORROWING REQUEST
_____________, 1997
Venture Lending & Leasing, Inc.
Venture Lending & Leasing II, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131
Re: IMGIS, INC.
Gentlemen:
Reference is made to the two Loan and Security Agreements dated as of
December 16, 1997 (as the same have been and may be amended from time to time,
the "Loan Agreements", the capitalized terms used herein as defined therein),
between Venture Lending & Leasing, Inc. and Venture Lending & Leasing II, Inc.
on one hand and IMGIS, Inc. (the "Company") on the other.
The undersigned is an Officer of the Company, authorized to borrow under
The Loan Agreements, and hereby requests Loans under the Loan Agreements, and
in that connection certifies as follows:
1. The aggregate amount of the proposed Loans is $________________. The
Business Day of the proposed Loan is _______, 1997. We understand that each of
you will be separately funding a Loan, and that the aggregate amount of the two
Loans will be as set forth above.
2. As of this date, no Default or Event of Default has occurred and is
continuing, or will result from the making of the proposed Loans, and the
representations and warranties of the Company contained in the Loan Agreements
are true and correct.
3. No Material Adverse Change has occurred since the date of the most
recent financial statements submitted to you by the Company.
The Company agrees to notify you promptly before the funding of the Loans
if any of the matters to which I have certified above shall not be true and
correct on the Borrowing Date.
Very Truly Yours,
________________________________
Name
Title
<PAGE>
EXHIBIT C
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE
________ SHARES OF SERIES C PREFERRED STOCK OF
IMGIS, INC.
(Void after December 31, 2002)
This certifies that VENTURE LENDING & LEASING, INC., a Maryland corporation, or
assigns (the "Holder"), for value received, is entitled to purchase from IMGIS,
INC., a California corporation (the "Company"), ________________ fully paid and
nonassessable shares of the Company's Series C Preferred Stock ("Preferred
Stock") for cash at a price of $4.73 per share (the "Stock Purchase Price") at
any time or from time to time up to and including 5:00 p.m. (Pacific time) on
December 3l, 2002 (the "Expiration Date"), upon surrender to the Company at its
principal office at l 0101 North DeAnza Boulevard, Suite 210, Cupertino, CA
95014, (or at such other location as the Company may advise Holder in writing)
of this Warrant properly endorsed with the Form of Subscription attached hereto
duly filled in and signed and upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Preferred Stock (but not for a fraction of a
share) which may be purchased hereunder for the Stock Purchase Price
multiplied by the number of shares to be purchased. In the event, however,
that pursuant to the Company's Articles of Incorporation, as amended, an
event causing automatic conversion of the Company's Preferred Stock shall
have occurred prior to the exercise of this Warrant, in whole or in part,
then this Warrant shall be exercisable for the number of shares of Common
Stock of the Company into which the Preferred Stock not purchased upon any
prior exercise of the Warrant would have been so convened (and, where the
context requires, reference to "Preferred Stock" shall be deemed to include
such Common Stock). The Company agrees that the shares of Preferred Stock
purchased under this Warrant shall be and are deemed to be issued to the
holder hereof as the record owner of such shares as of the close of business
on the date on which this Warrant shall have been surrendered and payment
made for such shares. Subject to the provisions of Section 2, certificates
for the shares of Preferred Stock so purchased, together with any other
securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised. Except as provided in clause (b) of
this Section l, in case of a purchase of less than all the shares which may
be purchased under this Warrant, the Company shall cancel this Warrant and
execute and deliver a new Warrant or Warrants of like tenor for the balance
of the shares purchasable under the Warrant surrendered upon such purchase to
the Holder hereof within a reasonable time. Each stoc certificate so
delivered shall be in such denominations of Preferred Stock as may be
requested by the Holder hereof and shall be registered in the name of such
Holder or such other name as shall be designated by such Holder, subject to
the limitations contained in Section 2.
<PAGE>
(b) The Holder, in lieu of exercising this Warrant by the payment
of the Stock Purchase Price pursuant to clause (a) of this Section 1, may
elect, at any time on or before the Expiration Date, to receive that number
of shares of Preferred Stock equal to the quotient of: (i) the difference
between (A) the Per Share Price (as hereinafter defined) of the Preferred
Stock, less (B) the Stock Purchase Price then in effect, multiplied by the
number of shares of Preferred Stock the Holder would otherwise have been
entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or
such lesser number of shares as the Holder may designate in the case of a
partial exercise of this Warrant); over (ii) the Per Share Price. Election
to exercise under this section (b) may be made by delivering a signed form of
subscription to the Company via facsimile, to be followed by delivery of the
warrant.
(c) For purposes of clause (b) of this Section 1, "Per Share
Price" means the product of: (i) the greater of (A) the average of the
closing prices of the Company's Common Stock as quoted by NASDAQ or listed on
any exchange, whichever is applicable, as published in the Western Edition of
THE WALL STREET JOURNAL for the ten (10) trading days prior to the date of
the Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross
sales price of one share of the Company's Common Stock pursuant to a
registered public offering or that amount which shareholders of the Company
will receive for each share of Common Stock pursuant to a merger,
reorganization or sale of assets; and (ii) that number of shares of Common
Stock into which each share of Preferred Stock is convertible. If the
Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the
Per Share Price of the Preferred Stock (or the equivalent number of shares of
Common Stock into which such Preferred Stock is convertible) shall be the
price per share which the Company would obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares as such price
shall be agreed upon by the Holder and the Company or, if agreement cannot be
reached within ten (10) business days of the Holder's election hereunder, as
such price shall be determined by a panel of three (3) appraisers, one (1) to
be chosen by the Company, one (1) to be chosen by the Holder and the third to
be chosen by the first two (2) appraisers. If the appraisers cannot reach
agreement within 30 days of the Holder's election hereunder, then each
appraiser shall deliver its appraisal and the appraisal which is neither the
highest nor the lowest shall constitute the Per Share Price. In the event
either party fails to choose an appraiser within 30 days of the Holder's
election hereunder, then the appraisal of the sole appraiser shall constitute
the Per Share Price. Each party shall bear the cost of the appraiser selected
by such party and the cost of the third appraiser shall be borne one-half by
each party. In the event either party fails to choose an appraiser, the cost
of the sole appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act.
Each holder of this Warrant or the Preferred Stock issuable hereunder will
cause any proposed transferee of the Warrant or Preferred Stock to agree to
take and hold such securities subject to the provisions and upon the
conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect of the Preferred Stock or Common Stock issued, upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of this Section 2 or unless such securities have been
registered under the Securities Act or sold under Rule 144) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
2
<PAGE>
(c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company
(by acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in effect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act
(or any other role under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is
available.
(d) This Warrant will be wholly void and of no effect after the
date (the "Expiration Date") which is the earlier of (i) 5:00 p.m. (Pacific
time) December 31, 2002, or (ii) the effective time of a merger or
reorganization following which stockholders of the Company immediately prior
to such transaction own less than fifty percent (50%) of the equity
securities of the surviving corporation (or its parent, if any), so long as
the surviving entity is publicly traded and all securities in the surviving
entity held by the Company's shareholders are free of trading restrictions
within 30 days of the effective time of such transaction, and if the last day
on which this Warrant may be exercised is a Sunday or a legal holiday or a
day on which banking institutions doing business in the City of San Francisco
are authorized by law to close, this Warrant may be exercised prior to 5:00
p.m. (Pacific time) on the next succeeding full business day with the same
force and effect as if exercised on such last day specified herein.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued
upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
and free from all preemptive rights of any shareholder and free of all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved, for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Preferred Stock, or other
securities and property, when and as required to provide for the exercise of
the rights represented by this Warrant. The Company will take all such
action as may be necessary to assure that such shares of Preferred Stock may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Preferred Stock may be listed. The Company will not take any
action which would result in any adjustment of the Stock Purchase Price (as
defined in Section 4 hereof) (i) if the total number of shares of Preferred
Stock issuable after such action upon exercise of all outstanding warrants,
together with all shares of Preferred Stock then outstanding and all shares
of Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Preferred Stock then authorized by the Company's
Articles of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all such shares of
Preferred Stock together with all shares of Common Stock then outstanding and
then issuable upon exercise of all options and upon the conversion of all
convertible securites then outstanding would exceed the total number of
shares of Common Stock then authorized by the Company's Articles of
Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence
of certain events described in this Section 4. Upon each adjustment of the
Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled
to purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the
product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide or combine its outstanding shares of Preferred
Stock the Stock Purchase Price shall be adjusted as described in Article
III(B)3(d) of the Company's articles of Incorporation for holders of Series C
preferred stock.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. Unless provided for in the articles of incorporation, if
at any time or from time to time the holders of Preferred Stock (or any shares
3
<PAGE>
of stock or other securities at the time receivable upon the exercise of this
Warrant) shall have received or become entitled to receive, without payment
therefor,
(a) Preferred Stock, or any shares of stock or other
securities whether or not such securities are at any time directly or
indirectly convertible into or exchangeable for Preferred Stock, or any
rights or options to subscribe for, purchase or otherwise acquire any of the
foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of
this Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale
of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Preferred Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Preferred Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby the holder hereof shall thereafter have the
right to purchase and receive(in lieu of the shares of the Preferred Stock of
the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Preferred Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby. Except after the effective
time of a merger or reorganization following which stockholders of the
Company immediately prior to such transaction own less than fifty percent
(50%) of the equity securities of the surviving corporation (or its parent,
if any), so long as the surviving entity is publicly traded and all
securities in the surviving entity held by the Company's shareholders are
free of trading restrictions within 30 days of the effective time of such
transaction the Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument, executed and
mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver
to such Holder such shares of stock, securitie or assets as, in accordance
with the foregoing provisions, such Holder may be entitled to purchase. In
any such case, appropriate provision shall be made with respect to the rights
and interests of the holder of this Warrant to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly
as may be possible, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a
consideration per share less than the Stock Purchase Price in effect
immediately prior to the time of such issue or sale, the Stock Purchase Price
then in effect and then applicable for any subsequent period or periods shall
be adjusted as described in Article III(B)3(d) of the Company's articles of
Incorporation for holders of Series C Preferred Stock.
4
<PAGE>
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company. The notice shall state the Stock Purchase Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its Preferred
Stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;
(d) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all of its assets to, another
corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first
class mail, postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company, (i) at least 20
day's prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action, at least 20 day's written notice
of the date when the same shall take place. Any notice given in accordance
with the foregoing clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the holders
of Preferred Stock shall be entitled thereto. Any notice given in accordance
with the foregoing clause (ii) shall also specify the date on which the
holders of Preferred Stock shall be entitled to exchange their Preferred
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action as the case may be.
5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the then Holder of the Warrant
being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
5
<PAGE>
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of
meetings of shareholders for the election of directors of the Company or any
other matters or any rights whatsoever as a shareholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised. No
provisions hereof, in the absence of affirmative action by the holder to
purchase shares of Preferred Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability
of such Holder for the Stock Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by its
creditors.
8. INTENTIONALLY DELETED.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to registration rights to the same extent
and on the same terms and conditions as possessed by the Series C
Investors/Purchasers. The company shall take such action as may be
reasonably necessary to assure that the granting of such registration rights
to the Holder does not violate the provisions of such agreement or any of the
Company's charter documents or rights of prior Grantees of registration
rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights
and obligations of the Company, of the Holder of this Warrant and of the
holder of shares of Preferred Stock issued upon exercise of this Warrant,
contained in Sections 6 and 8 shall survive the exercise of this Warrant.
11. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be deemed to have been given (i) upon receipt if delivered personally or by
courier (ii) upon confirmation of receipt if by telecopy or (iii) three
business days after deposit in the US mail, with postage prepaid and
certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in
the first paragraph of this Warrant.
13. BINDING EFFECT ON SUCCESSORS. All of the obligations of the
Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of
the exercise of this Warrant, in whole or in part, upon request of the Holder
hereof but at the Company's expense, acknowledge in writing its Continuing
obligation to the Holder hereof in respect of any rights (including, without
limitation, any right to registration of the shares of Common Stock) to which
the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the Holder hereof in respect of such rights.
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
6
<PAGE>
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company at its expense
will make and deliver a new Warrant or stock certificate, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and investing in
companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services,
its officers and its personnel; the officers of the Company have made
available to Holder any and all written information it has requested; the
officers of the Company have answered to Holder's satisfaction all inquiries
made by it; in making this investment it has relied upon information made
available to it by the Company; and it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of investment in the Company and it is able to bear the economic
risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment for
its own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered
under the Securities Act of 1933, as amended, nor qualified under applicable
state securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions
of Rule 144 promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and
perform its obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken.
This Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Preferred Stock upon exercise
of the Warrant and the issuance of Common Stock upon conversion of the
Preferred Stock will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting
on its behalf will take any action hereafter that would cause the loss of
such exemptions.
7
<PAGE>
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company
will use its best efforts to cause stock certificates representing the shares
of Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder with
true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other
charter document setting, forth any rights, preferences and privileges of
Company's capital stock, each as amended and in effect on the date of
issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof, each
share of the Preferred Stock is convertible into one share of the Common
Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 100 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes
in financial position at and as of the end of such fiscal year, together with
an audited statement of income for such fiscal year; (ii) within 45 days
after the close of each fiscal quarter of the Company, an unaudited balance
sheet and statement of cash flows at and as of the end of such quarter,
together with an unaudited statement of income for such quarter; and (iii)
promptly after sending, making available, or filing, copies of all reports,
proxy statements, and financial statements that the Company sends or makes
available to its shareholders and all registration statements and reports
that the Company files with the SEC or any other governmental or regulatory
authority.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its officers, thereunto duly authorized this ____ day of December, 1997.
IMGIS, INC.
By: ________________________________
Title: ________________________________
8
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ______________________________
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, ____________________________________________ (___________) shares of
Preferred Stock of ____________________________ and herewith makes payment of
_________________________ Dollars ($________) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
_______________________, whose address is ___________________________________.
The undersigned represents that it is acquiring such Preferred Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within its control.
DATED: _______________________
________________________________
(Signature must conform to name of Holder as
specified on the face of the Warrant or as
specified in an Assignment)
(Address)
_______________________________
_______________________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Preferred Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
9
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Preferred Stock covered
thereby set forth hereinbelow, unto:
<TABLE>
<CAPTION>
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ----------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
Dated: _______________________
_________________________________
(Signature must conform to name of Holder
as specified on the face of the Warrant or
as specified in an Assignment)
10
<PAGE>
EXHIBIT "A"
This Exhibit is incorporated by reference into that certain Warrant
dated ___________________, 199___, issued by ________________________, a
_________________ corporation (the "Company"), to VENTURE LENDING & LEASING,
INC., a Maryland corporation (the "Holder").
This certifies that the Holder is entitled to purchase from the Company
______________________________________
(________________________) fully paid and nonassessable shares of the Company's
___________ Stock at price of Dollars ($_______) per share (the "Stock Purchase
Price"). The Stock Purchase Price and the number of shares purchasable under
the Warrant remain subject to adjustment as provided in Section 4 of the
Warrant.
IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this _______day of ____________,199____.
[ISSUER]
By: ________________________________
Name: ______________________________
Title: _____________________________
VENTURE LENDING & LEASING, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
11
<PAGE>
VENTURE LENDING & LEASING II AGREEMENT
EXHIBIT 10.21
LOAN AND SECURITY AGREEMENT
(EQUIPMENT)
DATED AS OF DECEMBER 16, 1997
BETWEEN
IMGIS, INC.,
A CALIFORNIA CORPORATION
AS "BORROWER",
AND
VENTURE LENDING & LEASING II, INC.,
A MARYLAND CORPORATION
AS "LENDER"
<PAGE>
LOAN AND SECURITY AGREEMENT
(EQUIPMENT)
The Borrower and Lender identified on the cover page of this document
have entered or anticipate entering into one or more transactions pursuant to
which Lender agrees to make available to Borrower an equipment loan facility
governed by the terms and conditions set forth in this document and one or more
Supplements executed by Borrower and Lender which incorporate this document by
reference. Each Supplement constitutes a supplement to and forms part of this
document, and will be read and construed as one with this document, so that this
document and the Supplement constitute a single agreement between the parties
(collectively referred to as this "Agreement").
Accordingly, the parties agree as follows:
ARTICLE 1 - INTERPRETATION
1.1 DEFINITIONS. The terms defined in Article 10 and in the Supplement
will have the meanings therein specified for purposes of this Agreement.
1.2 INCONSISTENCY. In the event of any inconsistency between the
provisions of any Supplement and this document, the provisions of the Supplement
will be controlling for the purpose of all relevant transactions.
ARTICLE 2 - THE COMMITMENT AND LOANS
2.1 THE COMMITMENT. Subject to the terms and conditions of this Agreement,
Lender agrees to make term loans to Borrower from time to time from the Closing
Date and to, but not including, the Termination Date in an aggregate principal
amount not exceeding the Commitment. The Commitment is not a revolving credit
commitment, and Borrower does not have the right to repay and reborrow
hereunder. Each Loan requested by Borrower to be made on a single Business Day
shall be for a minimum principal amount set forth in the Supplement except to
the extent the remaining commitment is a lesser amount.
2.2 NOTES EVIDENCING LOANS; REPAYMENT. Each Loan shall be evidenced by
a separate Note payable to the order of Lender, in the total principal amount of
the Loan. Principal and interest of each Loan shall be payable at the times and
in the manner set forth in the Note.
2.3 PROCEDURES FOR BORROWING.
(a) Borrower shall give Lender, at least five (5) Business Days' prior to
a proposed Borrowing Date, written notice of any request for borrowing hereunder
(a "Borrowing Request"). Each Borrowing Request shall be in substantially the
form of EXHIBIT "B" hereto, shall be executed by the chief financial officer or
accounting officer of Borrower, and shall state how much is requested, and shall
be accompanied by such information and documentation as Lender may deem
reasonably necessary to determine whether the proposed borrowing will comply
with the limitations in the Supplement.
(b) No later than 1:00 p.m. Pacific Standard Time on the Borrowing Date,
if Borrower has satisfied the conditions precedent in Article 4, Lender shall
make the Loan available to Borrower in immediately available funds.
2.4 INTEREST. Basic Interest on the outstanding principal balance of the
each Loan shall accrue daily at the Designated Rate from the Borrowing Date
until the Maturity Date.
2.5 TERMINAL PAYMENT. Borrower shall pay the Terminal Payment with respect
to each Loan on the Maturity Date of such Loan.
2.6 INTEREST RATE CALCULATION. Basic Interest, along with charges and fees
under this Agreement and any Loan Document, shall be calculated for actual days
elapsed on the basis of a 360-day year, which results in higher interest, charge
or fee payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay Lender interest, charges or fees at a rate in excess of the
highest rate permitted by applicable law from time to time in effect,
2.7 DEFAULT INTEREST. Any unpaid payments of principal or interest or the
Terminal Payment with respect to any Loan shall bear interest from their
respective maturities, whether scheduled or accelerated, at the Designated
Rate for such Loan PLUS
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five percent (5.00%) per annum, until paid in full, whether before or after
judgment (the "Default Rate"). Borrower shall pay such interest on demand.
2.8 LATE CHARGES. If Borrower is late in making any payment of principal
or interest or Terminal Payment under this Agreement by more five (5) days,
Borrower agrees to pay a late charge of five percent (5%) of the installment
due, but not less than fifty dollars ($50.00) for any one such delinquent
payment. This late charge may be charged by Lender for the purpose of defraying
the expenses incidental to the handling of such delinquent amounts. Borrower
acknowledges that such late charge represents a reasonable sum considering all
of the circumstances existing on the date of this Agreement and represents a
fair and reasonable estimate of the costs that will be sustained by Lender due
to the failure of Borrower to make timely payments. Borrower further agrees
that proof of actual damages would be costly and inconvenient. Such late charge
shall be paid without prejudice to the right of Lender to collect any other
amounts provided to be paid or to declare a default under this Agreement or any
of the other Loan Documents or from exercising any other rights and remedies of
Lender.
2.9 LENDER'S RECORDS. Principal, Basic Interest, Terminal Payments and all
other sums owed under any Loan Document shall be evidenced by entries in records
maintained by Lender for such purpose. Each payment on and any other credits
with respect to principal, Basic Interest, Terminal Payments and all other sums
outstanding under any Loan Document shall be evidenced by entries in such
records. Absent manifest error, Lender's records shall be conclusive evidence
thereof.
2.10 GRANT OF SECURITY INTERESTS. To secure the timely payment and
performance of all of Borrower's Obligations to Lender, Borrower hereby grants
to Lender continuing security interests in all of the Collateral an such other
Lien documentation satisfactory in form and substance to Lender, subject only to
Permitted Liens.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that, except as set forth in the
Supplement or any schedule of exceptions executed by the parties, as of the
Closing Date and each Borrowing Date:
3.1 DUE ORGANIZATION. Borrower is a corporation duly organized and validly
existing in good standing under the laws of the jurisdiction of its
incorporation, and is duly qualified to conduct business and is in good standing
in each other jurisdiction in which its business is conducted or its properties
are located, except where the failure to be so qualified would not reasonably be
expected to have a Material Adverse Effect.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. The execution, delivery and
performance of all Loan Documents executed by Borrower are within Borrower's
powers, have been duly authorized, and are not in conflict with Borrower's
articles or certificate of incorporation or by-laws, or the terms of any charter
or other organizational document of Borrower, as amended from time to time; and
all such Loan Documents constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms (except as may be limited by
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights in general, and subject to general principles of equity).
3.3 COMPLIANCE WITH APPLICABLE LAWS. To Borrower's knowledge, Borrower has
complied with all licensing, permit and fictitious name requirements necessary
to lawfully conduct the business in which it is engaged, and to any sales,
leases or the furnishing of services by Borrower, including without limitation
those requiring consumer or other disclosures, the noncompliance with which
would have a Material Adverse Effect.
3.4 NO CONFLICT. The execution, delivery, and performance by Borrower of
all Loan Documents are not in conflict with any law, rule, regulation, order or
directive, or any indenture, agreement, or undertaking to which Borrower is a
party or by which Borrower may be bound or affected.
3.5 NO LITIGATION, CLAIMS OR PROCEEDINGS. There is no litigation, tax
claim or proceeding pending or, to the knowledge of Borrower, threatened against
Borrower or its property.
3.6 CORRECTNESS OF FINANCIAL STATEMENTS. Borrower's financial statements
which have been delivered to Lender fairly and accurately reflect
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Borrower's financial condition as of the latest date of such financial
statements; and, since that date there has been no Material Adverse Change.
3.7 NO SUBSIDIARIES. Borrower is not a majority owner of or in a control
relationship with any other business entity.
3.8 NO EVENT OF DEFAULT. No Default or Event of Default has occurred and
is continuing.
3.9 FULL DISCLOSURE. None of the representations or warranties made by
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of Borrower
in connection with the Loan Documents (including disclosure materials delivered
by or on behalf of Borrower to Lender prior to the Closing Date), when taken
together contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.
3.10 SPECIFIC REPRESENTATIONS REGARDING COLLATERAL.
(a) TITLE. Except for the security interests created by this Agreement
and Permitted Liens, (i) Borrower is and will be the unconditional legal and
beneficial owner of the Collateral, and (ii) the Collateral is genuine and
subject to no Liens, rights or defenses of others.
(b) LOCATION OF COLLATERAL. Borrower's chief executive office, Records,
Equipment, and any other offices or places of business are located at the
address(es) shown on the Supplement.
(c) BUSINESS NAMES. Other than its full corporate name, Borrower has not
conducted business using any trade names or fictitious business names except as
shown on the Supplement.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 CONDITIONS TO FIRST LOAN. The obligation of Lender to make its first
Loan hereunder is, in addition to the conditions precedent specified in SECTION
4.2, subject to the fulfillment of the following conditions and to the receipt
by Lender of the documents described below, duly executed and in form and
substance reasonably satisfactory to Lender and its counsel:
(a) RESOLUTIONS. A certified copy of the resolutions of the Board of
Directors of Borrower authorizing the execution, delivery and performance by
Borrower of the Loan Documents.
(b) INCUMBENCY AND SIGNATURES. A certificate of the secretary of Borrower
certifying the names of the officer or officers of Borrower authorized to sign
the Loan Documents, together with a sample of the true signature of each such
officer.
(c) LEGAL OPINION. The opinion of legal counsel for Borrower as to such
matters as Lender may reasonably request, including the matters covered by
Sections 3.1, 3.2, 3.4 and 3.5 hereof.
(d) ARTICLES AND BY-LAWS. Certified copies of the Articles or Certificate
of Incorporation and By-Laws of Borrower, as amended through the Closing Date.
(e) THIS AGREEMENT. A counterpart of this Agreement and an initial
Supplement, with all schedules completed and attached thereto, and disclosing
such information as is acceptable to Lender.
(f) FINANCING STATEMENTS. Filing copies (or other evidenced of filing
satisfactory to Lender and its counsel) of such Uniform Commercial Code
financing statements, collateral assignments and termination statements, with
respect to the Collateral as Lender shall request.
(g) LIEN SEARCHES. Uniform Commercial Code lien, judgment, bankruptcy
and tax lien searches of Borrower from such jurisdictions or offices as Lender
may reasonably request, all as of a date reasonably satisfactory to Lender and
its counsel.
(h) GOOD STANDING CERTIFICATE. A Certificate of status or good standing
of Borrower as of a date acceptable to Lender from the jurisdiction of
Borrower's organization and any foreign jurisdictions where Borrower is or
should be qualified to do business.
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(i) WARRANT. A warrant issued by Borrower to Lender exercisable for such
number, type and class of shares of Borrower's capital stock, and for an initial
exercise price as is specified in the Supplement.
4.2 CONDITIONS TO ALL LOANS. The obligation of Lender to make its initial
Loan and each subsequent Loan is subject to the following further conditions
precedent that:
(a) NO DEFAULT. No Default or Event of Default has occurred and is
continuing or will result from the making of any such Loan, and the
representations and warranties of Borrower contained in Article 3 of this
Agreement and in any Supplement are true and correct as of the Borrowing Date of
such Loan.
(b) NO ADVERSE MATERIAL CHANGE. No Material Adverse Change shall have
occurred since the date of the most recent financial statements submitted to
Lender.
(c) BORROWING REQUEST. Borrower shall have delivered to Lender a Borrowing
Request for such Loan.
(d) NOTE. Borrower shall have delivered an executed Note evidencing such
Loan, in form and substance satisfactory to Lender.
(e) SUPPLEMENTAL LIEN FILINGS. Borrower shall have executed and delivered
such amendments or supplements to the this Agreement and such financing
statements as Lender may reasonably request in connection with the proposed
Loan, in order to create or perfect or to maintain the perfection of Lender's
Liens on the Collateral.
(f) VCOC LIMITATION. Lender shall not be obligated to make any Loan under
its Commitment if at the time of or after giving effect to the proposed Loan
Lender would no longer qualify as: (A) a "venture capital operating company"
under U.S. Department of Labor Regulations Section 2510.3-101(d), Title 29 of
the Code of Federal Regulations, as amended; and (B) a "business development
company" under the provisions of federal Investment Company Act of 1940, as
amended; and (C) a "regulated investment company" under the provisions of the
Internal Revenue Code of 1986. as amended.
ARTICLE 5 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all
obligations to Lender, Borrower will:
5.1 NOTICE TO LENDER. Promptly give written notice to Lender of:
(a) Any litigation or administrative or regulatory proceeding affecting
Borrower where the amount claimed against Borrower is at the Threshold Amount or
more, or where the granting of the relief requested could have a Material
Adverse Effect.
(b) The occurrence of any Default or any Event of Default where the
Borrower has knowledge of such Default or Event of Default.
(c) Any change in the location of any of Borrower's places of business or
Collateral at least thirty (30) days in advance of such change.
(d) Any default by Borrower under any joint venture, partnering,
distribution, cross-licensing, strategic alliance, collaborative research or
manufacturing, license or similar agreement which could reasonably be expected
to have a Material Adverse Effect.
(e) Any other matter which has resulted or might reasonably result in a
Material Adverse Change of which the Borrower is aware.
5.2 FINANCIAL STATEMENTS. Deliver to each Lender or cause to be delivered
to Lender, in form and detail satisfactory to Lender the following financial
information, which Borrower warrants shall be accurate and complete in all
material respects:
(a) QUARTERLY FINANCIAL STATEMENTS. As soon as available but no later than
forty five (45) days after the end of each quarter, Borrower's balance sheet as
of the end of such period, and Borrower's income statement for such period and
for that portion of Borrower's financial reporting year ending with such period,
prepared and attested by a responsible financial officer of Borrower as being
complete and correct and fairly presenting Borrower's financial condition and
the results of Borrower's operations. After a Qualified Public Offering, the
foregoing interim financial statements shall be delivered no later than 45 days
after
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each fiscal quarter and for the quarter-annual fiscal period then ended.
(b) YEAR-END FINANCIAL STATEMENTS. As soon as available but no later than
one hundred (100) days after and as of the end of each financial reporting year,
a complete copy of Borrower's audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash flows for
such year, prepared and certified by an independent certified public accountant
selected by Borrower and satisfactory to Lender (the "Accountant"). The
Accountant's certification shall not be qualified or limited due to a restricted
or limited examination by the Accountant of any material portion of Borrower's
records or otherwise.
(c) GOVERNMENT REQUIRED REPORTS; PRESS RELEASES. Within thirty (30) days
after sending, issuing, making available, or filing, copies of all statements
released by Borrower to any news media for publication, all reports, proxy
statements, and financial statements that Borrower sends or makes available to
its stockholders, and, not later than thirty (30) days after actual filing all
registration statements and reports that Borrower files or is required to file
with the Securities and Exchange Commission, or any other governmental or
regulatory authority.
(d) OTHER INFORMATION. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information as Lender may from
time to time reasonably request.
5.3 MANAGERIAL ASSISTANCE FROM LENDER. Permit Lender, as a "venture
capital operating company" to participate in, and influence the conduct of
management of Borrower through the exercise of "management rights," as such
terms are defined in 29 C.F.R. Section 2510.3-101(d), and:
(a) Permit Lender to make available to Borrower, at no cost to Borrower,
"significant managerial assistance", as defined in Section 2(a)(47) of the
Investment Company Act of 1940, as amended, either in the form of: (i)
consulting arrangements with Lender or any of its officers, directors,
employees or affiliates, (ii) Borrower's allowing Lender to provide
recommendations of prospective candidates for election to Borrower's Board of
Directors, or (iii) Lender, at Borrower's request, seeking the services of
third-party consultants to aid Borrower with respect to its management and
operations;
(b) Permit Lender to make available consulting and advisory services to
officers of Borrower regarding Borrower's equipment acquisition and financing
plans, and such other matters affecting the business, financial condition and
prospects of Borrower as Lender shall reasonably deem relevant; and
(c) If Lender reasonably believes that financial or other developments
affecting Borrower have impaired or are likely to impair Borrower's ability to
perform its obligations under this Agreement, permit Lender reasonable access to
Borrower's management and/or Board of Directors and opportunity to present
Lender's views with respect to such developments.
5.4 EXISTENCE. Maintain and preserve Borrower's existence and all rights
and privileges necessary or desirable in the normal course of its business; and
keep all Borrower's property in good working order and condition, ordinary wear
and tear excepted.
5.5 INSURANCE. Obtain and keep in force insurance in such amounts and
types as is usual in the type of business conducted by Borrower, with insurance
carriers having a policyholder rating of not less than "A" and financial
category rating of Class VII in "Best's Insurance Guide," unless otherwise
approved by Lender. Such insurance policies must be in form and substance
satisfactory to Lender, and shall list Lender as an additional insured or loss
payee, as applicable, on endorsement(s) in form reasonably acceptable to Lender.
Borrower shall furnish to Lender such endorsements, and upon Lender's request,
copies of any or all such policies.
5.6 ACCOUNTING RECORDS. Maintain adequate books, accounts and records, and
prepare all financial statements in accordance with GAAP, and in compliance with
the regulations of any governmental or regulatory authority having jurisdiction
over Borrower or Borrower's business; and permit employees or agents of Lender
at such reasonable times as Lender may request, to inspect Borrower's
properties, and to examine, and make copies and memoranda of Borrower's books,
accounts and records. Such examination shall be at Lender's expense, as long as
Borrower is not in Default.
5.7 COMPLIANCE WITH LAWS. Comply with all laws (including Environmental
Laws), rules, regulations applicable to, and all orders and directives of any
governmental or regulatory authority having
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jurisdiction over, Borrower or Borrower's business, and with all material
agreements to which Borrower is a party, except where the failure to so comply
would not have a Material Adverse Effect.
5.8 TAXES AND OTHER LIABILITIES. Pay all Borrower's obligations when due;
pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which Borrower shall
maintain appropriate reserves; and timely file all required tax returns.
5.9 SPECIAL COLLATERAL COVENANTS.
(a) MAINTENANCE OF COLLATERAL; INSPECTION. Do all things reasonably
necessary to maintain, preserve, protect and keep all Collateral in good working
order and salable condition, ordinary wear and tear excepted, deal with the
Collateral in all ways as are considered good practice by owners of like
property, and use the Collateral lawfully and only as permitted by Borrower's
insurance policies. Borrower hereby authorizes Lender's officers, employees,
representatives and agents upon reasonable notice, at reasonable times and with
reasonable frequency to inspect the Collateral and to discuss the Collateral and
the Records relating thereto with Borrower's officers and employees.
(b) FINANCING STATEMENTS AND OTHER ACTIONS. Execute and deliver to Lender
and file or record at Borrowers, expense all financing statements, notices and
other documents from time to time reasonably requested by any Lender to maintain
a first perfected security interest in the Collateral in favor of Lender all in
form and substance satisfactory to Lender; perform such other acts, and execute
and deliver to Lender such additional conveyances, assignments, agreements and
instruments, as Lender may at any time reasonably request in connection with the
administration and enforcement of this Agreement or Lender's rights, powers and
remedies hereunder.
(c) LIENS. Not create, incur, assume or permit to exist any Lien on any
Collateral, except Permitted Liens.
(d) DOCUMENTS OF TITLE. Not sign or authorize the signing of any financing
statement or other document naming Borrower as debtor or obligor, except those
which do not relate to the Collateral or which, with respect to the Collateral
are permitted under this Agreement, or acquiesce or cooperate in the issuance of
any warehouse receipt or other document of title with respect to any Collateral,
except those negotiated to Lender, or those naming Lender as Lender.
(e) DISPOSITION OF COLLATERAL. Not sell, transfer, lease or otherwise
dispose of any Collateral.
(f) CHANGE IN LOCATION OR NAME. If and to the extent the same would in any
manner impair the creation, perfection or priority of Lender's security interest
in the Collateral, (a) maintain items of Collateral, Records, its chief
executive office or residence, or a place of business at a location other than
specified in the supplement; or (b) change its name, mailing address, or its
legal structure.
(g) DECALS, MARKINGS. At the request of Lender, firmly affix a decal,
stencil or other marking to designated items of Equipment, indicating thereon
the security interest of Lender.
(h) AGREEMENT WITH REAL PROPERTY OWNER/LANDLORD. Obtain and maintain such
acknowledgments, consents, waivers and agreements from the owner, lienholder,
mortgagee and landlord with respect to any real property on which Equipment is
located as Lender may require, all in form and substance satisfactory to Lender.
ARTICLE 6 - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all
obligations to Lender, Borrower will not (without Lender's prior written
consent):
6.1 INDEBTEDNESS. Be indebted for borrowed money or the deferred
purchase price of property, or become liable as a surety, guarantor,
accommodation party or otherwise for or upon the obligation of any other Person,
except:
(a) Indebtedness incurred for the acquisition of supplies or inventory on
normal trade credit, including a working capital credit line with a bank; and
other indebtedness incurred pursuant to one or more transactions permitted under
SECTION 6.4;
(b) Indebtedness not to exceed Seven Hundred Fifty Thousand Dollars
($750,000) in
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aggregate principal amount outstanding at any time secured by purchase money
security interests covered by clause (c) of the definition of Permitted Lien;
(c) Indebtedness of Borrower under this Agreement; and
(d) Any Indebtedness approved by Lender prior to the Closing Date.
6.2 LIENS. Create, incur, assume or permit to exist any Lien, or grant any
other Person a negative pledge, on any of Borrower's property, except Permitted
Liens. Borrower and Lender agree that this covenant is not intended to
constitute a lien, deed of trust, equitable mortgage, or security interest of
any kind on any of Borrower's real property, and this Agreement shall not be
recorded or recordable.
6.3 DIVIDENDS. Except after a Qualified Public Offering, pay any dividends
or purchase, redeem or otherwise acquire or make any other distribution with
respect to any of Borrower's capital stock, except dividends or other
distributions solely of capital stock of Borrower or repurchases of unvested
shares, at the original purchase price, held by employees.
6.4 CHANGES/MERGERS. Liquidate or dissolve, or enter into any
consolidation, merger, partnership, joint venture or other combination that
would constitute a Material Adverse Change.
6.5 SALES OF ASSETS. Sell, transfer, lease or otherwise dispose of any of
Borrower's assets except for fair consideration or where such sale, transfer,
lease or other disposition of assets would not constitute a Material Adverse
Change.
6.6 LOANS/INVESTMENTS. Make or suffer to exist any loans, guaranties,
advances, or investments, except:
(a) Accounts receivable in the ordinary course of Borrower's business;
(b) Investments in domestic certificates of deposit issued by, and other
domestic investments with, financial institutions organized under the laws of
the United States or a state thereof, having One Hundred Million Dollars
($100,000,000) in capital and a rating of at least "investment grade" or "A" by
Moody's or any successor rating agency;"
(c) Investments in marketable obligations of the United States of America
and in open market commercial paper given the highest credit rating by a
national credit agency and maturing not more than one year from the creation
thereof; and
(d) Temporary advances to cover incidental expenses to be incurred in the
ordinary course of business.
6.7 TRANSACTIONS WITH RELATED PERSONS. Directly or indirectly enter into
any transaction with or for the benefit of a Related Person on terms more
favorable to the Related Person than would have been obtainable in art "arms'
length" dealing. This Section 6.7 shall not apply to any equity financing
transactions with the Company's existing venture capital investors.
ARTICLE 7 - EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT; ACCELERATION. Upon the occurrence and during the
continuation of any Default, the obligation of Lender to make any additional
Loan shall be suspended. The occurrence of any of the following shall terminate
any obligation of Lender to make any additional Loan; and shall, at the option
of Lender (1) make all sums of Basic Interest and principal, all Terminal
Payments, and other amounts owing under any Loan Documents immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor or any other notices or demands, and (2) give
Lender the right to exercise any other right or remedy provided by contract or
applicable law:
(a) Borrower shall fail to pay any principal, interest or Terminal Payment
under this Agreement, or fail to pay any fees or other charges when due under
any Loan Document, and such failure continues for five (5) Business Days or more
after the same first becomes due; or an Event of Default as defined in any other
Loan Document shall have occurred.
(b) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower under any Loan Document
shall prove to have been false or misleading in any material respect when made
or deemed made herein.
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(c) Borrower shall fail to pay its debts generally as they become due or
shall commence any Insolvency Proceeding with respect to itself; an involuntary
Insolvency Proceeding shall be filed against Borrower, or a custodian, receiver,
trustee, assignee for the benefit of creditors, or other similar official, shall
be appointed to take possession, custody or control of the properties of
Borrower, and such involuntary Insolvency Proceeding, petition or appointment is
acquiesced to by Borrower or is not dismissed within sixty (60) days; or the
dissolution or termination of the business of Borrower.
(d) Borrower shall be in default beyond any applicable period of grace or
cure under any other agreement involving the borrowing of money, the purchase of
property, the advance of credit or any other monetary liability of any kind to
Lender or to any Person which results in the acceleration of payment of such
obligation in an amount in excess of the Threshold Amount.
(e) Any governmental or regulatory authority shall take any judicial or
administrative action that would have a Material Adverse Effect and which cannot
be cured by Borrower within thirty days of such action.
(f) Any sale, transfer or other disposition of all or a substantial or
material part of the assets of Borrower, including without limitation to any
trust or similar entity, shall occur where such sale, transfer, lease or other
disposition of assets would constitute a Material Adverse Change.
(g) Any judgment(s) singly or in the aggregate in excess of the Threshold
Amount shall be entered against Borrower which remain unsatisfied, unvacated or
unstayed pending appeal for thirty (30) or more days after entry thereof.
(h) Borrower shall fail to perform or observe any covenant contained in
this Agreement or any other Loan Document (other than a covenant which is dealt
with specifically elsewhere in this Article 7) and the breach of such covenant
is not cured within 30 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such breach first becomes
known to any officer of Borrower; PROVIDED, HOWEVER that if such breach is not
capable of being cured within such 30-day period and Borrower timely notifies
Lender of such fact and Borrower diligently pursues such cure, then the cure
period shall be extended to the date requested in Borrower's notice but in no
event more than 90 days from the initial breach; PROVIDED, FURTHER, that such
additional 60-day opportunity to cure shall not apply in the case of any failure
to perform or observe any covenant which has been the subject of a prior failure
within the preceding 180 days or which is a willful and knowing breach by
Borrower.
7.2 REMEDIES UPON DEFAULT. Upon the occurrence and during the continuance
of an Event of Default, Lender shall be entitled to, at its option, exercise any
or all of the rights and remedies available to a Lender under the Uniform
Commercial Code or any other applicable law, and exercise any or all of its
rights and remedies provided for in this Agreement and in any other Loan
Document. The obligations of Borrower under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any Obligations is rescinded or must otherwise be returned by Lender upon, on
account of, or in connection with, the insolvency, bankruptcy or reorganization
of Borrower or otherwise, all as though such payment had not been made.
7.3 SALE OF COLLATERAL. After the occurrence and during the continuance
of an Event of Default, Lender may sell all or any part of the Collateral, at
public or private sales, to itself, a wholesaler, retailer or investor, for
cash, upon credit or for future delivery, and at such price or prices as
Lender may deem commercially reasonable. To the extent permitted by law,
Borrower hereby specifically waives all rights of redemption and any rights
of stay or appraisal which it has or may have under any applicable law in
effect from time to time. Any such public or private sales shall be held at
such times and at such place(s) as Lender may determine. In case of the sale
of all or any part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by Lender until the selling price is paid
by the purchaser, but Lender shall not incur any liability in case of the
failure of such purchaser to pay for the Collateral and, in case of any such
failure, such Collateral may be resold. Lender may, instead of exercising its
power of sale, proceed to enforce its security interest in the Collateral by
seeking a judgment or decree of a court of competent jurisdiction.
7.4 BORROWER'S OBLIGATIONS UPON DEFAULT. Upon the request of Lender after
the occurrence of an Event of Default, Borrower will:
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(a) Assemble and make available to Lender the Collateral at such place(s)
as Lender shall designate, segregating all Collateral so that each item is
capable of identification; and
(b) Subject to the rights of any previous lessor, permit Lender, by
Lender's officers, employees, agents and representatives, to enter any premises
where any Collateral is located, to take possession of the Collateral and to
remove the Collateral, or to conduct any public or private sale of the
Collateral, all without any liability of Lender for rent or other compensation
for the use of Borrower's premises.
ARTICLE 8 - SPECIAL COLLATERAL PROVISIONS
8.1 PERFORMANCE OF BORROWER'S OBLIGATIONS. Without having any obligation
to do so, upon reasonable prior notice to Borrower, Lender may perform or pay
any obligation which Borrower has agreed to perform or pay under this Agreement,
including, without limitation, the payment or discharge of taxes or Liens levied
or placed on or threatened against the Collateral. In so performing or paying,
Lender shall determine the action to be taken and the amount necessary to
discharge such obligations. Borrower shall reimburse Lender on demand for any
amounts paid by Lender pursuant to this Section, which amounts shall constitute
Indebtedness secured by the Collateral and shall bear interest from the date of
demand at the rate applicable to overdue payments under this Loan Agreement.
8.2 POWER OF ATTORNEY. For the purpose of protecting, preserving and
enforcing the Collateral and Lender's rights under this Agreement, Borrower
hereby irrevocably appoints Lender, with fill power of substitution, as its
attorney-in-fact with full power and authority to do any act which Borrower is
obligated to door Lender has the right to do, hereunder; to exercise such rights
with respect to the Collateral as Borrower might exercise; to use such
Equipment, Fixtures or other property as Borrower might use; to enter Borrower's
premises; to give notice of Lender's security interest in, and to collect the
Collateral and the proceeds; and to execute and file in Borrower's name any
financing statements, amendments and continuation statements necessary or
desirable to perfect or continue the perfection of Lender's security interests
in the Collateral. Borrower hereby ratifies all that Lender shall lawfully do or
cause to be done by virtue of this appointment.
8.3 AUTHORIZATION FOR LENDER TO TAKE CERTAIN ACTION. The power of attorney
created in Section 8.2 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Lender hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Lender to
exercise such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and in no event
shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act, except
for gross negligence or willful misconduct. After the occurrence and during the
continuance of an Event of Default, Lender may exercise this power of attorney
without notice to or assent of Borrower, in the name of Borrower, or in Lender's
own name, from time to time in Lender's sole discretion and at Borrower's
expense. To further carry out the terms of this Agreement, Lender may upon the
occurrence and during the continuance of an Event of Default:
(a) Sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts; drafts, certificates and statements under
any commercial or standby letter of credit relating to Collateral; or any other
documents relating to the Collateral, including without limitation the Records.
(b) Use or operate Collateral or any other property of Borrower for the
purpose of preserving or liquidating Collateral.
(c) File any claim or take any other action or proceeding in any court of
law or equity or as otherwise deemed appropriate by Lender for the purpose of
collecting any and all monies due or securing any performance to be rendered
with respect to the Collateral.
(d) Commence, prosecute or defend any suits, actions or proceedings or as
otherwise deemed appropriate by Lender for the purpose of protecting or
collecting the Collateral. Infurtherance of this right, upon the occurrence and
during the continuance of an Event of Default, Lender may apply for the
appointment of a receiver or similar official to operate Borrower's business.
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(e) Prepare, adjust, execute, deliver and receive payment under insurance
claims, and collect and receive payment of and endorse any instrument in payment
of loss or returned premiums or any other insurance refund or return, and apply
such amounts at Lender's sole discretion, toward repayment of the Indebtedness
or replacement of the Collateral.
8.4 APPLICATION OF PROCEEDS. Any Proceeds and other monies or property
received by Lender pursuant to the terms of this Agreement or any Loan Document
may be applied by Lender first to the payment of expenses of collection,
including without limitation reasonable attorneys' fees, and then to the payment
of the Indebtedness in such order of application as Lender may elect.
8.5 DEFICIENCY. If the Proceeds of any sale of the Collateral are
insufficient to cover all costs and expenses of such sale and the payment in
full of all the Indebtedness, plus all other sums required to be expended or
distributed by Lender, then Borrower shall be liable for any such deficiency.
8.6 LENDER TRANSFER. Upon the transfer of all or any part of the
Indebtedness, Lender may transfer all or any part of its interest in the
Collateral and shall be fully discharged thereafter from all liability and
responsibility with respect to such interest in the Collateral so transferred,
and the transferee shall be vested with all the rights and powers of Lender
hereunder with respect to such interest in the Collateral so transferred.
8.7 LENDER'S DUTIES.
(a) Lender shall use reasonable care in the custody and preservation of any
Collateral in its possession. Without limitation on other conduct which may be
considered the exercise of reasonable care, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of such Collateral if
such Collateral is accorded treatment substantially equal to that which Lender
accords its own property; or taking any necessary steps to preserve any rights
against any Person with respect to any Collateral. Under no circumstances shall
Lender be responsible for any injury or loss to the Collateral, or any part
thereof, arising from any cause beyond the reasonable control of Lender.
(b) Neither Lender, nor any of its directors, officers, employees, agents,
attorneys or any other person affiliated with or representing Lender shall be
liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Borrower or any other party through the
ordinary negligence of Lender, or any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Lender.
8.8 TERMINATION OF SECURITY INTERESTS. Upon the payment in full of the
Obligations and if Lender has no further obligations under its Commitment, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to Borrower. Upon any such termination, the Lender
shall, at Borrower's expense, execute and deliver to Borrower such documents as
Borrower shall reasonably request to evidence such termination.
ARTICLE 9 - GENERAL PROVISIONS
9.1 NOTICES. Any notice given by any party under any Loan Document shall
be in writing and personally delivered, sent by overnight courier, or United
States mail, postage prepaid, or sent by facsimile, to be promptly confirmed in
writing, or other authenticated message, charges prepaid, to the other party's
or parties' addresses shown on the Supplement. Each party may change the address
or facsimile number to which notices, requests and other communications are to
be sent by giving written notice of such change to each other party. Notice
given by hand delivery shall be deemed received on the date delivered; if sent
by overnight courier, on the next business day after delivery to the courier
service; if by first class mail, on the third business day after deposit in the
U.S. Mail; and if by telecopy, on the date of transmission.
9.2 BINDING EFFECT. The Loan Documents shall be binding upon and inure to
the benefit of Borrower and Lender and their respective successors and assigns;
provided, however, that Borrower may not assign or transfer Borrower's rights or
obligations under any Loan Document without Lender's prior written consent
except in connection with a consolidation, merger or other transaction in
compliance with Section 6.4 of this Agreement. Lender reserves the right to
sell, assign, transfer, negotiate or grant participations in all or any part of,
or any interest in, Lender's rights and obligations under the Loan Documents. In
connection with any of the foregoing, Lender may disclose all documents and
information which Lender now or
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hereafter may have relating to the Loans, Borrower, or its business; provided
that any person who receives such information shall have agreed in writing in
advance to maintain the confidentiality of such information on terms reasonably
acceptable to Borrower.
9.3 NO WAIVER. Any waiver, consent or approval by Lender of any Event of
Default or breach of any provision, condition, or covenant of any Loan Document
must be in writing and shall be effective only to the extent set forth in
writing. No waiver of any breach or default shall be deemed a waiver of any
later breach or default of the same or any other provision of any Loan Document.
No failure or delay on the part of Lender in exercising any power, right, or
privilege under any Loan Document shall operate as a waiver thereof, and no
single or partial exercise of any such power, right, or privilege shall preclude
any further exercise thereof or the exercise of any other power, right or
privilege. Lender has the right at its sole option to continue to accept
interest and/or principal payments due under the Loan Documents after default,
and such acceptance shall not constitute a waiver of said default or an
extension of the Maturity Date unless Lender agrees otherwise in writing.
9.4 RIGHTS CUMULATIVE. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
9.5 UNENFORCEABLE PROVISIONS. Any provision of any Loan Document executed
by Borrower which is prohibited or unenforceable in any jurisdiction, shall be
so only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.
9.6 ACCOUNTING TERMS. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined and
prepared in accordance with GAAP.
9.7 INDEMNIFICATION; EXCULPATION. Borrower shall pay and protect, defend
and indemnify Lender and Lender's employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Lender,
collectively "Agents") against, and hold Lender and each such Agent harmless
from, all claims, actions, proceedings, liabilities, damages, losses, expenses
(including, without limitation, attorneys' fees and costs) and other amounts
incurred by Lender and each such Agent, arising from (i) the matters
contemplated by this Agreement or any other Loan Documents or (ii) financing
statement or record outstanding at the time of this Agreement, or (iii) any
contention that Borrower has failed to comply with any law, rule, regulation,
order or directive applicable to Borrower's business; PROVIDED, HOWEVER, that
this indemnification shall not apply to any of the foregoing incurred solely as
the result of Lender's or any Agent's gross negligence or willful misconduct.
This indemnification shall survive the payment and satisfaction of all of
Borrower's Obligations to Lender.
9.8 REIMBURSEMENT. Borrower shall reimburse Lender for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements expended or incurred by Lender in any arbitration, mediation,
judicial reference, legal action or otherwise in connection with (a) the
preparation and negotiation of the Loan Documents, (b) the amendment,
interpretation and enforcement of the Loan Documents, including without
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to Lender's rights, remedies and obligations under
the Loan Documents, (c) collecting any sum which becomes due Lender under any
Loan Document, (d) any proceeding for declaratory relief, any counterclaim to
any proceeding, or any appeal, or (e) the protection, preservation or
enforcement of any rights of Lender. For the purposes of this section,
attorneys' fees shall include, without limitation, fees incurred in connection
with the following: (1) contempt proceedings; (2) discovery; (3) any motion,
proceeding or other activity of any kind in connection with an Insolvency
Proceeding; (4) garnishment, levy, and debtor and third party examinations; and
(5) postjudgment motions and proceedings of any kind, including without
limitation any activity taken to collect or enforce any judgment. All of the
foregoing costs and expenses shall be payable upon demand by Lender, and if not
paid within forty-five (45) days of presentation of invoices shall bear interest
at the highest applicable Default Rate.
9.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts which, when taken together, shall constitute but one
agreement.
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9.10 ENTIRE AGREEMENT. The Loan Documents are intended by the parties as
the final expression of their agreement and therefore contain the entire
agreement between the parties and supersede all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be amended
only in a writing signed by Borrower and Lender.
9.11 GOVERNING LAW AND JURISDICTION.
(a) THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF BORROWER AND LENDER CONSENTS, FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE
COURTS.
EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
CALIFORNIA LAW.
9.12 WAIVER OF JURY TRIAL. BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL
BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
ARTICLE 10 - DEFINITIONS
The definitions appearing in this Agreement or any Supplement shall be
applicable to both the singular and plural forms of the defined terms:
"AFFILIATE" means any Person which directly or indirectly controls, is
controlled by, or is under common control with Borrower. "Control," "controlled
by" and "under common control with" mean direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise); provided,
that control shall be conclusively presumed when any Person or affiliated group
directly or indirectly owns ten percent (10%) or more of the securities having
ordinary voting power for the election of directors of a corporation.
"AGREEMENT" means this Loan and Security Agreement and each Supplement thereto,
as each may be amended or supplemented from time to time.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 101, ET SEQ.), as amended.
"BASIC INTEREST" means the fixed rate of interest payable on the outstanding
balance of each Loan at the applicable Designated Rate.
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"BORROWING DATE" means the Business Day on which the proceeds of a Loan are
disbursed by Lender.
"BORROWING REQUEST" means a written request from Borrower in substantially the
form of EXHIBIT "B" to the Supplement, requesting the funding of one or more
Loans on a particular Borrowing Date.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which
commercial banks in New York City or San Francisco are authorized or required by
law to close.
"CLOSING DATE" means the date of this Agreement.
"COLLATERAL" means all Borrower's Equipment and Fixtures now owned or hereafter
acquired, wherever located, and whether held by Borrower or any third party, and
all proceeds and products thereof, including all insurance and condemnation
proceeds ("Proceeds"), and all monies now or at any time hereafter in the
possession or under the control of Lender or a bailee or affiliate of Lender,
including any cash collateral in any cash collateral or other account, and all
Records relating or useful to, or used in connection with any of the foregoing.
"COMMITMENT" means the obligation of Lender to make Loans to Borrower up to the
aggregate principal amount set forth in the Supplement.
"DEFAULT" means an event which with the giving of notice, passage of time, or
both would constitute an Event of Default.
"DEFAULT RATE" is defined in Section 2.7.
"DESIGNATED RATE" means the rate of interest per annum described in the
Supplement as being applicable to an outstanding Loan from time to time.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authorities, in each case
relating to environmental, health, or safety matters.
"EQUIPMENT" means all of Borrower's specific equipment identified and described
on SCHEDULE 1 attached to this Agreement and incorporated herein by this
reference (as such Schedule may be amended or supplemented from time to time),
all replacements, parts, accessions and additions thereto, and all proceeds
thereof arising from the sale, lease, rental or other use or disposition
thereof, including all rights to payment with respect to insurance or
condemnation, returned premiums, or any cause of action relating to any of the
foregoing.
"EVENT OF DEFAULT" means any event described in Section 7.1.
"FIXTURES" means all items of Equipment that are so related to the real property
upon which they are located that an interest in them arises under real property
law, and all proceeds thereof arising from the sale, lease, rental or other use
or disposition thereof.
"GAAP" means generally accepted accounting principles and practices consistent
with those principles and practices promulgated or adopted by the Financial
Accounting Standards Board and the Board of the American Institute of Certified
Public Accountants, their respective predecessors and successors. Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.
"INDEBTEDNESS" of any Person means at any date, without duplication and
without regard to whether matured or unmatured, absolute or contingent: (i)
all obligations of such Person for borrowed money; (ii) all obligations of
such Person evidenced by bonds, debentures, notes, or other similar
instruments; (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising
in the ordinary course of business; (iv) all obligations of such Person as
lessee under capital leases; (v) all obligations of such Person to reimburse
or prepay any bank or other Person in respect of amounts paid under a letter
of credit, banker's acceptance, or similar instrument, whether drawn or
undrawn; (vi) all obligations of such Person to purchase securities which
arise out of or in connection with the sale of the same or substantially
similar securities; (vii) all obligations of such Person to purchase, redeem,
exchange, convert or otherwise acquire for value any capital stock of such
Person or any warrants, rights or options to acquire such capital stock, now
or hereafter outstanding, except to the extent that such obligations remain
performable solely at the option of such Person; (viii) all obligations to
repurchase assets previously sold (including any obligation to repurchase any
accounts or chattel paper
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under any factoring, receivables purchase, or similar arrangement); (ix)
obligations of such Person under interest rate swap, cap, collar or similar
hedging arrangements; and (x) all obligations of others of any type described in
clause (i) through clause (ix) above guaranteed by such Person.
"INSOLVENCY PROCEEDING" means (a) any case, action or proceeding before any
court or other governmental authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar arrangement
in respect of its creditors generally or any substantial portion of its
creditors, undertaken under U.S. Federal, state or foreign law, including the
Bankruptcy Code.
"LIEN" means any voluntary or involuntary security interest, mortgage, pledge,
claim, charge, encumbrance, title retention agreement, or third party interest,
covering all or any part of the property of Borrower or any other Person.
"LOAN" means an extension of credit by Lender under Section 2 of this Agreement.
"LOAN DOCUMENTS" means, individually and collectively, this Loan and Security
Agreement, each Supplement, each Note, and any other security or pledge
agreement(s), any Warrants issued by Borrower to Lender in connection with this
Agreement, and all other contracts, instruments, addenda and documents executed
in connection with this Agreement or the extensions of credit which are the
subject of this Agreement.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means (a) a material
adverse change in, or a material adverse effect upon, the operations, business,
properties, or condition (financial or otherwise) of Borrower; (b) a material
impairment of the ability of Borrower to perform under any Loan Document; or (c)
a material adverse effect upon the legality, validity, binding effect or
enforceability against Borrower of any Loan Document.
"MATURITY DATE" means, with regard to a Loan, the earlier of (i) its maturity by
reason of acceleration, or (ii) its stated maturity date; and is the date on
which payment of all outstanding principal, accrued interest, and the Terminal
Payment with respect to such Loan is due.
"NOTE" means a promissory note substantially in the form attached to the
Supplement as EXHIBIT "A", executed by Borrower evidencing each Loan.
"OBLIGATIONS" means all advances, debts, liabilities, obligations, covenants and
duties arising under any Loan Document, owing by Borrower to Lender, whether
direct or indirect (including those acquired by assignment), absolute or
contingent, liquidated or unliquidated, due or to become due, now existing or
hereafter arising.
"PERMITTED LIEN" means
(a) Involuntary Liens which, in the aggregate, would not have a Material
Adverse Effect and which in any event would not exceed One-Hundred Thousand
Dollars ($100,000);
(b) Liens for current taxes or other governmental or regulatory assessments
which are not delinquent, or which are contested in good faith by the
appropriate procedures and for which appropriate reserves are maintained;
(c) Purchase Money security interests on any property held or acquired by
Borrower in the ordinary course of business securing Indebtedness incurred or
assumed for the purpose of financing all or any part of the cost of acquiring
such property; PROVIDED, that such Lien attaches solely to the property acquired
with such Indebtedness and that the principal amount of such Indebtedness does
not exceed one hundred percent (100%) of the cost of such property; and FURTHER
PROVIDED, that such property is not equipment with respect to which a Loan has
been made hereunder.
(d) Liens in favor of Lender;
(e) bankers' liens, rights of setoff and similar Liens incurred on deposits
made in the ordinary course of business;
(f) materialmen's, mechanics', repairmen's, employees' or other like Liens
arising in the ordinary course of business and which are not delinquent for more
than 45 days or are being contested in good faith by appropriate proceedings;
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(g) any judgment, attachment or similar Lien, unless the judgment it
secures has not been discharged or execution thereof effectively stayed and
bonded against pending appeal within 30 days of the entry thereof;
(h) licenses or sublicenses of Patents, Patent Licenses, Trademarks or
Trademark Licenses permitted under the Trademark Collateral Assignment or the
Patent Collateral Assignment; and,
(i) Liens which have been approved by Lender in writing prior to the
Closing Date and disclosed in Schedule 6.2 of this Agreement.
"PERSON" means any individual or entity.
"QUALIFIED PUBLIC OFFERING" means the closing of a firmly underwritten public
offering of Borrower's common stock with aggregate proceeds of not less than
$12,500,000 (prior to underwriting expenses and commissions).
"RECORDS" means all Borrower's computer programs, software, hardware, source
codes and data processing information, all written documents, books, invoices,
ledger sheets, financial information and statements, and all other writings
concerning Borrower's Equipment.
"RELATED PERSON" means any Affiliate of Borrower, or any officer, employee,
director or equity security holder of Borrower or any Affiliate.
"TERMINAL PAYMENT" means, with respect to each Loan, an amount payable on the
Maturity Date of such Loan in an amount equal to that percentage of the original
principal amount of such Loan specified in the Supplement.
"TERMINATION DATE" has the meaning specified in the Supplement.
"THRESHOLD AMOUNT" has the meaning specified in the Supplement.
"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
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SUPPLEMENT
TO THE
LOAN AND SECURITY AGREEMENT (EQUIPMENT)
DATED AS OF DECEMBER 16, 1997
BETWEEN
IMGIS, INC. ("BORROWER")
AND
VENTURE LENDING & LEASING II, INC. ("LENDER")
- -------------------------------------------------------------------------------
This is a Supplement identified in the document entitled Loan and Security
Agreement (Equipment) dated as of December 16, 1997 between Borrower and Lender.
All capitalized terms used in this Supplement and not otherwise defined in this
Supplement have the meanings ascribed to them in Section 10 of the Loan and
Security Agreement, which is incorporated in its entirety into this Supplement.
In the event of any inconsistency between the provisions of that document and
this Supplement, this Supplement is controlling. Execution of this Supplement by
the Lender and Borrower shall constitute execution of the Loan and Security
Agreement.
In addition to the provisions of the Loan and Security Agreement, the
parties agree as follows:
1. - ADDITIONAL DEFINITIONS:
"COMMITMENT": Lender commits to make loans to Borrower up to the aggregate,
original principal amount of Three Hundred Fifty Thousand Dollars ($350,000).
"DESIGNATED RATE": The Designated Rate is nine and 75/100 percent (9.75%)
per annum.
"TERMINAL PAYMENT": Each Terminal Payment shall be an amount equal to
fifteen percent (15%) of the original principal amount of the associated Loan.
"TERMINATION DATE": The Termination Date is the earlier of (a) the date
Lender may terminate making Loans or extending other credit pursuant to the
rights of Lender under Article 7 of the Agreement, or (b) December 31, 1997.
"THRESHOLD AMOUNT": Fifty Thousand Dollars ($50,000.00).
2. - ADDITIONAL TERMS AND CONDITIONS:
ISSUANCE OF WARRANT TO LENDER. As additional consideration for the making
of the Loans under the Agreement, upon the making of, and as a condition to, the
initial Loan, Lender shall be entitled to receive a warrant to purchase 5,180
shares of preferred stock of Borrower ("Warrant Shares") with an aggregate
initial exercise price of $24,501.40 determined on the basis of a per share
exercise price of $4.73. The warrant issued under this Agreement shall be in
substantially the form attached hereto as EXHIBIT "C"; shall be transferable by
Lender, subject to compliance with applicable securities laws; shall expire not
earlier than December 31, 2002; and shall include piggy-back registration
rights, "net issuance" provisions, and anti-dilution protections reasonably
satisfactory to Lender and its counsel.
<PAGE>
LIMITATION ON REIMBURSEMENT OF DOCUMENTATION COSTS. Notwithstanding
anything to the contrary in Section 9.8 of the Loan and Security Agreement,
Borrower's obligation to reimburse Lender its attorneys' fees and costs of
documenting this transaction shall not exceed $350.00.
LIMITATION ON EQUIPMENT LOANS. Each Loan shall be in an amount not to
exceed one hundred percent (100%) of the amount paid or payable by Borrower to a
non-affiliated manufacturer, vendor or dealer for an item of equipment as shown
on an invoice therefor (excluding any commissions and any portion of the payment
which relates to the servicing of the equipment and sales taxes payable by
Borrower upon acquisition, and delivery charges). Lender has the right to
approve individual items of Equipment for funding. Each Loan requested by
Borrower to be made on a single Business Day shall be for a minimum principal
amount of Thirty Five Thousand Dollars ($35,000) except to the extent the
remaining Commitment is a lesser amount.
3. - ADDITIONAL REPRESENTATIONS:
Borrower represents and warrants that as of the Closing Date:
Its chief executive office is
located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
Its Equipment is located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
and
611 Anton Blvd., Suite 400
Costa Mesa, CA 92626
Its Records are located at: 10101 North DeAnza Blvd., Suite 210
Cupertino, CA 95014
In addition to its chief executive office, Borrower maintains offices or
operates its business at the following locations:
None
Other than its full corporate name, Debtor has conducted business using
the following trade names or fictitious business names:
None
4. - ADDITIONAL LOAN DOCUMENTS:
Form of Note Exhibit "A"
Form of Borrowing Request Exhibit "B"
Form of Warrant Exhibit "C"
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Supplement as of the
date first above written.
BORROWER: LENDER:
IMGIS, INC. VENTURE LENDING &
LEASING II, INC.
By: /s/ JOHN A. TANNER By: /s/ R W SWENSON
----------------------- ---------------
Name: John A. Tanner Name: R W Swenson
----------------------- ---------------
Title: Chief Financial Officer Title: CEO
----------------------- ---------------
Address for Notices: Attn: Chief Financial Attn: Chief Financial
Officer Officer
10101 North DeAnza Blvd. 2010 North First
Ste 210 Street, Suite 310
Cupertino, CA 95014 San Jose, CA, 95131
Fax # (408) 873-3693 Fax # (408)436-8625
<PAGE>
SCHEDULE 1 TO THE LOAN AND SECURITY AGREEMENT
DESCRIPTION OF EQUIPMENT
<TABLE>
<CAPTION>
QUANTITY ARTICLE MAKE YEAR MFG. MODEL SERIAL OR MOTOR #
- -------- ------- ---- --------- ----- -----------------
<S> <C> <C> <C> <C> <C>
</TABLE>
See attached continuation to Schedule 1
together with all improvements, replacements, accessions and additions thereto,
wherever located, and all Proceeds thereof arising from the sale, lease, rental
or other use or disposition of any such property, including all rights to
payment with respect to insurance or condemnation, returned premiums, or any
cause of action relating to any of the foregoing.
IMGIS, INC.
By:________________________________
Name:
Its:
VENTURE LENDING & LEASING II, INC.
By: ________________________________
RONALD W. SWENSON
Chief Executive Officer
<PAGE>
EXHIBIT "A"
[Note No. X-XXX]
FORM OF PROMISSORY NOTE
$ _____________________ ____________________, 199____
San Jose, California
The undersigned ("Borrower") promises to pay to the order of VENTURE
LENDING & LEASING II, INC., a Maryland corporation ("Lender") at its office at
2010 North First Street, Suite 310, San Jose, California 95131, or at such other
place as Lender may designate in writing, in lawful money of the United States
of America, the principal sum of _______________________________ Dollars
($_________), with Basic Interest thereon from the date hereof until maturity,
whether scheduled or accelerated, at a fixed rate per annum of ________ percent
(_____________%), and a Terminal Payment in the sum of [15% of face amount]
Dollars ($______________) payable on the Maturity Date.
This Note is one of the Notes referred to in, and is entitled to all the
benefits of, a Loan Agreement dated _________________, 199___ , between Borrower
and Lender. Each capitalized term not otherwise defined herein shall have the
meaning set forth in the Loan Agreement. The Loan Agreement contains
provisions for the acceleration of the maturity of this Note upon the happening
of certain stated events.
Principal of and interest on this Note shall be payable as follows:
On the Borrowing Date, Borrower shall pay (i) Basic Interest, in advance,
on the outstanding principal balance of this Note at the Designated Rate for the
period from the Borrowing Date through [the last day of the same month ];
and (ii) a first (lst) amortization installment of principal and Basic
Interest in the amount of _________________, in advance for the month of
[first full month after borrowing date ] [ and (iii) a 42nd (last) amortization
installment of principal and Basic Interest in the amount of $_______________,
in advance for the month of [date of last regular amortization payment].
Commencing on the first day of the second full month after the Borrowing
Date, and continuing on the first day of each consecutive month thereafter,
principal and Basic Interest shall be payable, in advance, in thirty-nine
(39) equal consecutive installments of ____________________________ Dollars
($______________________) each, with a forieth (40th)] installment equal to
the entire unpaid principal balance and accrued Basic Interest on
_______________, 200___. The Terminal Payment amount shall be payable on
[one month later] , 200___.
Any unpaid payments of principal or interest on this Note shall bear
interest from their respective maturities, whether scheduled or accelerated, at
a rate per annum equal to the Default Rate. Borrower shall pay such interest on
demand.
Interest, charges and fees shall be calculated for actual days elapsed on
the basis of a 360-day year, which results in higher interest, charge or fee
payments than if a 365-day year were used. In no event shall Borrower be
obligated to pay interest, charges or fees at a rate in excess of the highest
rate permitted by applicable law from time to time in effect.
If Borrower is late in making any payment under this Note by more than five
(5) days, Borrower agrees to pay a "late charge" of five percent (5%) of the
installment due, but not less than fifty dollars ($50.00) for any one such
delinquent payment. This late charge may be charged by Lender for the purpose
of defraying the expenses
<PAGE>
incidental to the handling of such delinquent amounts. Borrower acknowledges
that such late charge represents a reasonable sum considering all of the
circumstances existing on the date of this Note and represents a fair and
reasonable estimate of the costs that will be sustained by Lender due to the
failure of Borrower to make timely payments. Borrower further agrees that proof
of actual damages would be costly and inconvenient. Such late charge shall be
paid without prejudice to the right of Lender to collect any other amounts
provided to be paid or to declare a default under this Note or any of the other
Loan Documents or from exercising any other rights and remedies of Lender.
This Note shall be governed by, and construed in accordance with, the laws
of the State of California.
IMGIS, INC.
By:____________________________
Name:__________________________
Its:_____________________________
<PAGE>
EXHIBIT B
BORROWING REQUEST
_____________, 1997
Venture Lending & Leasing, Inc.
Venture Lending & Leasing II, Inc.
2010 North First Street, Suite 310
San Jose, CA 95131
Re: IMGIS, INC.
Gentlemen:
Reference is made to the two Loan and Security Agreements dated as of
December 16, 1997 (as the same have been and may be amended from time to time,
the "Loan Agreements", the capitalized terms used herein as defined therein),
between Venture Lending & Leasing, Inc. and Venture Lending & Leasing II, Inc.
on one hand and IMGIS, Inc. (the "Company") on the other.
The undersigned is an Officer of the Company, authorized to borrow under
The Loan Agreements, and hereby requests Loans under the Loan Agreements, and
in that connection certifies as follows:
1. The aggregate amount of the proposed Loans is $________________. The
Business Day of the proposed Loan is _______, 1997. We understand that each of
you will be separately funding a Loan, and that the aggregate amount of the two
Loans will be as set forth above.
2. As of this date, no Default or Event of Default has occurred and is
continuing, or will result from the making of the proposed Loans, and the
representations and warranties of the Company contained in the Loan Agreements
are true and correct.
3. No Material Adverse Change has occurred since the date of the most
recent financial statements submitted to you by the Company.
The Company agrees to notify you promptly before the funding of the Loans
if any of the matters to which I have certified above shall not be true and
correct on the Borrowing Date.
Very Truly Yours,
___________________________________
Name
Title
<PAGE>
EXHIBIT C
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE
________ SHARES OF SERIES C PREFERRED STOCK OF
IMGIS, INC.
(Void after December 31, 2002)
This certifies that VENTURE LENDING & LEASING II, INC., a Maryland corporation,
or assigns (the "Holder"), for value received, is entitled to purchase from
IMGIS, INC., a California corporation (the "Company"), ___________ fully paid
and nonassessable shares of the Company's Series C Preferred Stock ("Preferred
Stock") for cash at a price of $4.73 per share (the "Stock Purchase Price") at
any time or from time to time up to and including 5:00 p.m. (Pacific time) on
December 3l, 2002 (the "Expiration Date"), upon surrender to the Company at its
principal office at 10101 North DeAnza Boulevard, Suite 210, Cupertino, CA
95014, (or at such other location as the Company may advise Holder in writing)
of this Warrant properly endorsed with the Form of Subscription attached hereto
duly filled in and signed and upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 4 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) Unless an election is made pursuant to clause (b) of this
Section 1, this Warrant shall be exercisable at the option of the Holder, at
any time or from time to time, on or before the Expiration Date for all or
any portion of the shares of Preferred Stock (but not for a fraction of a
share) which may be purchased hereunder for the Stock Purchase Price
multiplied by the number of shares to be purchased. In the event, however,
that pursuant to the Company's Articles of Incorporation, as amended, an
event causing automatic conversion of the Company's Preferred Stock shall
have occurred prior to the exercise of this Warrant, in whole or in part,
then this Warrant shall be exercisable for the number of shares of Common
Stock of the Company into which the Preferred Stock not purchased upon any
prior exercise of the Warrant would have been so convened (and, where the
context requires, reference to "Preferred Stock" shall be deemed to include
such Common Stock). The Company agrees that the shares of Preferred Stock
purchased under this Warrant shall be and are deemed to be issued to the
holder hereof as the record owner of such shares as of the close of business
on the date on which this Warrant shall have been surrendered and payment
made for such shares. Subject to the provisions of Section 2, certificates
for the shares of Preferred Stock so purchased, together with any other
securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by
this Warrant have been so exercised. Except as provided in clause (b) of
this Section 1, in case of a purchase of less than all the shares which may
be purchased under this Warrant, the Company shall cancel this Warrant and
execute and deliver a new Warrant or Warrants of like tenor for the balance
of the shares purchasable under the Warrant surrendered upon such purchase to
the Holder hereof within a reasonable time. Each stock certificate so
delivered shall be in such denominations of Preferred Stock as may be
requested by the Holder hereof and shall be registered in the name of such
Holder or such other name as shall be designated by such Holder, subject to
the limitations contained in Section 2.
<PAGE>
(b) The Holder, in lieu of exercising this Warrant by the payment
of the Stock Purchase Price pursuant to clause (a) of this Section 1, may
elect, at any time on or before the Expiration Date, to receive that number
of shares of Preferred Stock equal to the quotient of: (i) the difference
between (A) the Per Share Price (as hereinafter defined) of the Preferred
Stock, less (B) the Stock Purchase Price then in effect, multiplied by the
number of shares of Preferred Stock the Holder would otherwise have been
entitled to purchase hereunder pursuant to clause (a) of this Section 1 (or
such lesser number of shares as the Holder may designate in the case of a
partial exercise of this Warrant); over (ii) the Per Share Price. Election
to exercise under this section (b) may be made by delivering a signed form of
subscription to the Company via facsimile, to be followed by delivery of the
warrant.
(c) For purposes of clause (b) of this Section 1, "Per Share
Price" means the product of: (i) the greater of (A) the average of the
closing prices of the Company's Common Stock as quoted by NASDAQ or listed on
any exchange, whichever is applicable, as published in the Western Edition of
THE WALL STREET JOURNAL for the ten (10) trading days prior to the date of
the Holder's election hereunder or, (B) if applicable at the time of or in
connection with the exercise under clause (b) of this Section 1, the gross
sales price of one share of the Company's Common Stock pursuant to a
registered public offering or that amount which shareholders of the Company
will receive for each share of Common Stock pursuant to a merger,
reorganization or sale of assets; and (ii) that number of shares of Common
Stock into which each share of Preferred Stock is convertible. If the
Company's Common Stock is not quoted by NASDAQ or listed on an exchange, the
Per Share Price of the Preferred Stock (or the equivalent number of shares of
Common Stock into which such Preferred Stock is convertible) shall be the
price per share which the Company would obtain from a willing buyer for
shares sold by the Company from authorized but unissued shares as such price
shall be agreed upon by the Holder and the Company or, if agreement cannot be
reached within ten (10) business days of the Holder's election hereunder, as
such price shall be determined by a panel of three (3) appraisers, one (1) to
be chosen by the Company, one (1) to be chosen by the Holder and the third to
be chosen by the first two (2) appraisers. If the appraisers cannot reach
agreement within 30 days of the Holder's election hereunder, then each
appraiser shall deliver its appraisal and the appraisal which is neither the
highest nor the lowest shall constitute the Per Share Price. In the event
either party fails to choose an appraiser within 30 days of the Holder's
election hereunder, then the appraisal of the sole appraiser shall constitute
the Per Share Price. Each party shall bear the cost of the appraiser selected
by such party and the cost of the third appraiser shall be borne one-half by
each party. In the event either party fails to choose an appraiser, the cost
of the sole appraiser shall be borne one-half by each party.
2. LIMITATION ON TRANSFER.
(a) The Warrant and the Preferred Stock shall not be transferable
except upon the conditions specified in this Section 2, which conditions are
intended to insure compliance with the provisions of the Securities Act.
Each holder of this Warrant or the Preferred Stock issuable hereunder will
cause any proposed transferee of the Warrant or Preferred Stock to agree to
take and hold such securities subject to the provisions and upon the
conditions specified in this Section 2.
(b) Each certificate representing (i) this Warrant, (ii) the
Preferred Stock, (iii) shares of the Company's Common Stock issued upon
conversion of the Preferred Stock and (iv) any other securities issued in
respect of the Preferred Stock or Common Stock issued, upon conversion of the
Preferred Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by
the provisions of this Section 2 or unless such securities have been
registered under the Securities Act or sold under Rule 144) be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
2
<PAGE>
(c) The Holder of this Warrant and each person to whom this
Warrant is subsequently transferred represents and warrants to the Company
(by acceptance of such transfer) that it will not transfer the Warrant (or
securities issuable upon exercise hereof unless a registration statement
under the Securities Act was in effect with respect to such securities at the
time of issuance thereof) except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act
(or any other role under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to
counsel for the Company, that an exemption from such registration is
available.
(d) This Warrant will be wholly void and of no effect after the
date (the "Expiration Date") which is the earlier of (i) 5:00 p.m. (Pacific
time) December 31, 2002, or (ii) the effective time of a merger or
reorganization following which stockholders of the Company immediately prior
to such transaction own less than fifty percent (50%) of the equity
securities of the surviving corporation (or its parent, if any), so long as
the surviving entity is publicly traded and all securities in the surviving
entity held by the Company's shareholders are free of trading restrictions
within 30 days of the effective time of such transaction, and if the last day
on which this Warrant may be exercised is a Sunday or a legal holiday or a
day on which banking institutions doing business in the City of San Francisco
are authorized by law to close, this Warrant may be exercised prior to 5:00
p.m. (Pacific time) on the next succeeding full business day with the same
force and effect as if exercised on such last day specified herein.
3. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued
upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
and free from all preemptive rights of any shareholder and free of all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved, for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Preferred Stock, or other
securities and property, when and as required to provide for the exercise of
the rights represented by this Warrant. The Company will take all such
action as may be necessary to assure that such shares of Preferred Stock may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Preferred Stock may be listed. The Company will not take any
action which would result in any adjustment of the Stock Purchase Price (as
defined in Section 4 hereof) (i) if the total number of shares of Preferred
Stock issuable after such action upon exercise of all outstanding warrants,
together with all shares of Preferred Stock then outstanding and all shares
of Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Preferred Stock then authorized by the Company's
Articles of Incorporation, or (ii) if the total number of shares of Common
Stock issuable after such action upon the conversion of all such shares of
Preferred Stock together with all shares of Common Stock then outstanding and
then issuable upon exercise of all options and upon the conversion of all
convertible securites then outstanding would exceed the total number of
shares of Common Stock then authorized by the Company's Articles of
Incorporation.
4. ADJUSTMENT OF STOCK PURCHASE PRICE NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence
of certain events described in this Section 4. Upon each adjustment of the
Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled
to purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the
product thereof by the Stock Purchase Price resulting from such adjustment.
4.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide or combine its outstanding shares of Preferred
Stock the Stock Purchase Price shall be adjusted as described in Article
III(B)3(d) of the Company's articles of Incorporation for holders of Series C
preferred stock.
4.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. Unless provided for in the articles of incorporation, if
at any time or from time to time the holders of Preferred Stock (or any shares
3
<PAGE>
of stock or other securities at the time receivable upon the exercise of this
Warrant) shall have received or become entitled to receive, without payment
therefor,
(a) Preferred Stock, or any shares of stock or other
securities whether or not such securities are at any time directly or
indirectly convertible into or exchangeable for Preferred Stock, or any
rights or options to subscribe for, purchase or otherwise acquire any of the
foregoing by way of dividend or other distribution, or
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Preferred Stock or other or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Preferred Stock issued as a stock split, adjustments in
respect of which shall be covered by the terms of Section 4.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of
this Warrant, be entitled to receive, in addition to the number of shares of
Preferred Stock receivable thereupon, and without payment of any additional
consideration therefore, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Preferred Stock as of the date on which holders
of Preferred Stock received or became entitled to receive such shares and/or
all other additional stock and other securities and property.
4.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
any capital reorganization of the capital stock of the Company, or any
consolidation or merger of the Company with another corporation, or the sale
of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of Preferred Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for
Preferred Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provisions shall be made whereby the holder hereof shall thereafter have the
right to purchase and receive(in lieu of the shares of the Preferred Stock of
the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Preferred Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby. Except after the effective
time of a merger or reorganization following which stockholders of the
Company immediately prior to such transaction own less than fifty percent
(50%) of the equity securities of the surviving corporation (or its parent,
if any), so long as the surviving entity is publicly traded and all
securities in the surviving entity held by the Company's shareholders are
free of trading restrictions within 30 days of the effective time of such
transaction the Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument, executed and
mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver
to such Holder such shares of stock, securitie or assets as, in accordance
with the foregoing provisions, such Holder may be entitled to purchase. In
any such case, appropriate provision shall be made with respect to the rights
and interests of the holder of this Warrant to the end that the provisions
hereof (including, without limitation, provisions for adjustments of the
Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly
as may be possible, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
4.4 SALE OR ISSUANCE BELOW PURCHASE PRICE. If the Company shall at any
time or from time to time issue or sell any of its Common Stock, Preferred
Stock, options to acquire (or rights to acquire such options), or any other
securities convertible into or exercisable for Common Stock, for a
consideration per share less than the Stock Purchase Price in effect
immediately prior to the time of such issue or sale, the Stock Purchase Price
then in effect and then applicable for any subsequent period or periods shall
be adjusted as described in Article III(B)3(d) of the Company's articles of
Incorporation for holders of Series C Preferred Stock.
4
<PAGE>
4.5 NOTICE OF ADJUSTMENT. Upon any adjustment of the Stock Purchase
Price, and/or any increase or decrease in the number of shares purchasable
upon the exercise of this Warrant the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company. The notice shall state the Stock Purchase Price resulting from
such adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4.6 OTHER NOTICES. If at any time:
(a) the Company shall declare any cash dividend upon its Preferred
Stock;
(b) the Company shall declare any dividend upon its Preferred
Stock payable in stock or make any special dividend or other distribution to
the holders of its Preferred Stock;
(c) the Company shall offer for subscription pro rata to the
holders of its Preferred Stock any additional shares of stock of any class or
other rights;
(d) there shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all of its assets to, another
corporation;
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
(f) the Company shall take or propose to take any other action,
notice of which is actually provided to holders of the Preferred Stock;
then, in any one or more of said cases, the Company shall give, by first
class mail, postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company, (i) at least 20
day's prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action and (ii) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, or other action, at least 20 day's written notice
of the date when the same shall take place. Any notice given in accordance
with the foregoing clause (i) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on which the holders
of Preferred Stock shall be entitled thereto. Any notice given in accordance
with the foregoing clause (ii) shall also specify the date on which the
holders of Preferred Stock shall be entitled to exchange their Preferred
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, or other action as the case may be.
5. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax in respect thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the then Holder of the Warrant
being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any Warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
5
<PAGE>
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent as a shareholder in respect of
meetings of shareholders for the election of directors of the Company or any
other matters or any rights whatsoever as a shareholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant
or the interest represented hereby or the shares purchasable hereunder until,
and only to the extent that, this Warrant shall have been exercised. No
provisions hereof, in the absence of affirmative action by the holder to
purchase shares of Preferred Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability
of such Holder for the Stock Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by its
creditors.
8. INTENTIONALLY DELETED.
9. REGISTRATION RIGHTS. The Holder hereof shall be entitled, with
respect to the shares of Preferred Stock issued upon exercise hereof or the
shares of Common Stock or other securities issued upon conversion of such
Preferred Stock as the case may be, to registration rights to the same extent
and on the same terms and conditions as possessed by the Series C
Investors/Purchasers. The company shall take such action as may be
reasonably necessary to assure that the granting of such registration rights
to the Holder does not violate the provisions of such agreement or any of the
Company's charter documents or rights of prior Grantees of registration
rights.
10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder
of shares of Preferred Stock issued upon exercise of this Warrant, contained
in Sections 6 and 8 shall survive the exercise of this Warrant.
11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be deemed to have been given (i) upon receipt if delivered personally or by
courier (ii) upon confirmation of receipt if by telecopy or (iii) three
business days after deposit in the US mail, with postage prepaid and
certified or registered, to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor in
the first paragraph of this Warrant.
13. BINDING EFFECT ON SUCCESSORS. All of the obligations of the
Company relating to the Preferred Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assign of the holder hereof. The Company will, at the time of
the exercise of this Warrant, in whole or in part, upon request of the Holder
hereof but at the Company's expense, acknowledge in writing its Continuing
obligation to the Holder hereof in respect of any rights (including, without
limitation, any right to registration of the shares of Common Stock) to which
the holder hereof shall continue to be entitled after such exercise in
accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the Holder hereof in respect of such rights.
14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
6
<PAGE>
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and
warrants to the Holder hereof that upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
any Warrant or stock certificate and, in the case of any such loss, theft or
destruction, upon receipt of an indemnity reasonably satisfactory to the
Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company at its expense
will make and deliver a new Warrant or stock certificate, of like tenor, in
lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.
16. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
17. REPRESENTATIONS OF HOLDER. With respect to this Warrant, Holder
represents and warrants to the Company as follows:
17.1 EXPERIENCE. It is experienced in evaluating and investing in
companies engaged in businesses similar to that of the Company; it
understands that investment in the Warrant involves substantial risks; it has
made detailed inquiries concerning the Company, its business and services,
its officers and its personnel; the officers of the Company have made
available to Holder any and all written information it has requested; the
officers of the Company have answered to Holder's satisfaction all inquiries
made by it; in making this investment it has relied upon information made
available to it by the Company; and it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of investment in the Company and it is able to bear the economic
risk of that investment.
17.2 INVESTMENT. It is acquiring the Warrant for investment for
its own account and not with a view to, or for resale in connection with, any
distribution thereof. It understands that the Warrant, the shares of
Preferred Stock issuable upon exercise thereof and the shares of Common Stock
issuable upon conversion of the Preferred Stock, have not been registered
under the Securities Act of 1933, as amended, nor qualified under applicable
state securities laws.
17.3 RULE 144. It acknowledges that the Warrant, the Preferred
Stock and the Common Stock must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. It has been advised or is aware of the provisions
of Rule 144 promulgated under the Securities Act.
17.4 ACCESS TO DATA. It has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and has had the opportunity to inspect the Company's facilities.
18. ADDITIONAL REPRESENTATIONS AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and agrees as follows:
18.1 CORPORATE POWER. The Company has all requisite corporate
power and corporate authority to issue this Warrant and to carry out and
perform its obligations hereunder.
18.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this has been taken.
This Warrant is a valid and binding obligation of the Company, enforceable in
accordance with its terms.
18.3 OFFERING. Subject in part to the truth and accuracy of
Holder's representations set forth in Section 17 hereof, the offer, issuance
and sale of the Warrant is, and the issuance of Preferred Stock upon exercise
of the Warrant and the issuance of Common Stock upon conversion of the
Preferred Stock will be exempt from the registration requirements of the
Securities Act, and are exempt from the qualification requirements of any
applicable state securities laws; and neither the Company nor anyone acting
on its behalf will take any action hereafter that would cause the loss of
such exemptions.
7
<PAGE>
18.4 STOCK ISSUANCE. Upon exercise of the Warrant, the Company
will use its best efforts to cause stock certificates representing the shares
of Preferred Stock purchased pursuant to the exercise to be issued in the
individual names of Holder, its nominees or assignees, as appropriate at the
time of such exercise. Upon conversion of the shares of Preferred Stock to
shares of Common Stock, the Company will issue the Common Stock in the
individual names of Holder, its nominees or assignees, as appropriate.
18.5 ARTICLES AND BY-LAWS. The Company has provided Holder with
true and complete copies of the Company's Articles or Certificate of
Incorporation, By-Laws, and each Certificate of Determination or other
charter document setting, forth any rights, preferences and privileges of
Company's capital stock, each as amended and in effect on the date of
issuance of this Warrant.
18.6 CONVERSION OF PREFERRED STOCK. As of the date hereof, each
share of the Preferred Stock is convertible into one share of the Common
Stock.
18.7 FINANCIAL AND OTHER REPORTS. From time to time up to the
earlier of the Expiration Date or the complete exercise of this Warrant, the
Company shall furnish to Holder (i) within 100 days after the close of each
fiscal year of the Company an audited balance sheet and statement of changes
in financial position at and as of the end of such fiscal year, together with
an audited statement of income for such fiscal year; (ii) within 45 days
after the close of each fiscal quarter of the Company, an unaudited balance
sheet and statement of cash flows at and as of the end of such quarter,
together with an unaudited statement of income for such quarter; and (iii)
promptly after sending, making available, or filing, copies of all reports,
proxy statements, and financial statements that the Company sends or makes
available to its shareholders and all registration statements and reports
that the Company files with the SEC or any other governmental or regulatory
authority.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by its officers, thereunto duly authorized this ____ day of December, 1997.
IMGIS, INC.
By: ________________________________
Title: _____________________________
8
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: ______________________________
The undersigned, the holder of the within Warrant, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, ____________________________________________ (_________) shares of
Preferred Stock of _____________________________and herewith makes payment of
_____________________ Dollars ($_____________) therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to,
__________________________, whose address is ________________________________.
The undersigned represents that it is acquiring such Preferred Stock for its own
account for investment and not with a view to or for sale in connection with any
distribution thereof (subject, however, to any requirement of law that the
disposition thereof shall at all times be within its control.
DATED: _______________________
________________________________
(Signature must conform to name of Holder
as specified on the face of the Warrant
or as specified in an Assignment)
(Address)
_______________________________
_______________________________
(1) Insert here the number of shares called for on the face of the Warrant (or,
in the case of a partial exercise, the portion thereof as to which the
Warrant is being exercised), in either case without making any adjustment
for additional Preferred Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of the
Warrant, may be deliverable upon exercise.
9
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant, hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of shares of Preferred Stock covered
thereby set forth hereinbelow, unto:
<TABLE>
<CAPTION>
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- -----------------------------------------------------------------------------------------
<S> <C> <C>
</TABLE>
Dated: ________________________________
_________________________________________
(Signature must conform to name of Holder
as specified on the face of the Warrant or
as specified in an Assignment)
10
<PAGE>
EXHIBIT "A"
This Exhibit is incorporated by reference into that certain Warrant
dated _______________________, 199___, issued by _____________________, a
_________________ corporation (the "Company"), to VENTURE LENDING & LEASING,
INC., a Maryland corporation (the "Holder").
This certifies that the Holder is entitled to purchase from the Company
______________________________________
(__________________________) fully paid and nonassessable shares of the
Company's __________________ Stock at price of Dollars ($____________) per
share (the "Stock Purchase Price"). The Stock Purchase Price and the number
of shares purchasable under the Warrant remain subject to adjustment as
provided in Section 4 of the Warrant.
IN WITNESS WHEREOF, the Company and the Holder have executed this
Exhibit to the Warrant this _______day of ____________,199____.
[ISSUER]
By: ________________________________
Name: ______________________________
Title: _____________________________
VENTURE LENDING & LEASING, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
11
<PAGE>
Exhibit 10.22
M A S T E R L E A S E A G R E E M E N T
MASTER LEASE AGREEMENT (the "Master Lease") dated December 2,1997 by and between
COMDISCO, INC. ("Lessor") and IMGIS, INC.("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured Party,
despite any defense or claim which it has against Lessor. Lessee reserves its
right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not
<PAGE>
contravene any law or governmental rule, regulation or order applicable to it,
do not and will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which it is a party or
by which it is bound, and the Master Lease and each Schedule constitute legal,
valid and binding agreements of the Lessee, enforceable in accordance with their
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any court
or before any governmental commission, board or authority which, if adversely
determined, will have a material adverse effect on the ability of the Lessee to
perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any document or certificate furnished to the Lessor hereunder
if that failure or inaccuracy continues for ten (10) business days after written
notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable Schedule by
appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
2
<PAGE>
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of Directors meeting within thirty (30) days following the
date of such meeting held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (2) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees that
Lessor shall not, by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
3
<PAGE>
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
RENT - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
IMGIS, INC. COMDISCO, INC.,
as Lessee as Lessor
By: By:
--------------------------- ---------------------------
Title: Title:
----------------------- ------------------------
4
<PAGE>
ADDENDUM TO THE
MASTER LEASE AGREEMENT DATED AS OF DECEMBER 2, 1997
BETWEEN IMGIS, INC. AS LESSEE
AND COMDISCO, INC. AS LESSOR
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease are hereby modified and amended as follows:
1) 5.2., "RELOCATION OR SUBLEASE"
Last line of the second paragraph, insert "reasonably" before the words
"acceptable to Lessor".
2) 5.3., "ASSIGNMENT BY LESSOR"
Paragraph (a), first line, insert "other than rights under Section 14.1"
before the word "but".
3) 8., "REPRESENTATIONS AND WARRANTIES OF LESSEE"
Paragraph (b), line 4, insert the words "to its knowledge" before the words
"do not".
Paragraph (c), begin the paragraph with the words "To its knowledge,".
Paragraph (e), begin the paragraph with the words "To its knowledge,".
Paragraph (f), at the beginning of the paragraph delete the words "the best
of the Lessee's" and insert the word "its". In the last line delete the words
"conflict with".
Paragraph (g), begin the paragraph with the words "To its knowledge,".
4) 14.1., "BOARD ATTENDANCE"
Delete the first sentence in its entirety.
5) 14.2., "FINANCIAL STATEMENTS"
In the second line, after the word "Lessor" delete the words "the same
information which Lessee provides to its Board of Directors, but which will
include not less than".
<PAGE>
6) 14.7., "BINDING NATURE"
To the end of the second sentence add the words "except as provided in
Section 14.4".
7) 14.9., "NOTICES"
In line 5, insert the word "overnight" after the word "by" and in line 6,
insert the words "overnight courier" in place of the words "personal delivery or
mail".
8) 14.10., "APPLICABLE LAW"
In lines 3 and 4, delete the word "ILLINOIS" and replace with the word
"CALIFORNIA".
9) 14.4., "MERGER AND SALE PROVISIONS"
In the second line, delete "sixty (60)" and replace with "fifteen (15)".
To the end of this section, add the folllowing:
"Notwithstanding the foregoing, Lessor hereby consents to any Merger in
which the surviving entity has a net worth of at least $10,000,000."
10) 14.14., "SECRETARY'S CERTIFICATE"
Delete the second sentence in its entirety.
11) 14.16., "LANDLORD/MORTGAGE"
Delete this section in its entirety.
12) 14.18., "DEFINITIONS"
"CASUALTY VALUE", first line, insert the words "present value of" before
the word "aggregate" and in the second line, insert "(discounted at 6%)" before
the word "or".
"NOTICE PERIOD", first line, delete "ninety (90)" and insert "sixty (60)".
<PAGE>
IMGIS, INC. COMDISCO, INC.
as LESSEE as LESSOR
By: /s/ JOHN A. TANNER By: /s/ JAMES P. LABE
-------------------------- ---------------------------------------
Title: CHIEF FINANCIAL OFFICER Title: PRESIDENT COMDISCO VENTURES DIVISION
----------------------- ------------------------------------
Date: DEC. 2, 1997 Date: DEC. 9, 1997
------------------------ ------------------------------------
<PAGE>
EQUIPMENT SCHEDULE VL-1
DATED AS OF DECEMBER 2, 1997
TO MASTER LEASE AGREEMENT
DATED AS OF DECEMBER 2, 1997 (THE "MASTER LEASE")
<TABLE>
<S> <C>
LESSEE: IMGIS, INC. LESSOR: COMDISCO, INC.
ADMIN.CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Ms. Nadine Franczyk 6111 North River Road
Phone: (408) 873-3680 x121 Rosemont, Illinois 60018
Fax: (408) 873-3690 Attn.: Venture Group
ADDRESS FOR NOTICES:
10101 N DeAnza Blvd. #210
Cupertino, CA 95014
Attn.:
CENTRAL BILLING LOCATION: RENT INTERVAL: Monthly
Same as above
Attn.:
Lessee Reference No.:
(24 digits maximum)
LOCATION OF EQUIPMENT: INITIAL TERM: 42 MONTHS
Same as above (Number of Rent Intervals)
LEASE RATE FACTOR: 2.715%
Attn.:
EQUIPMENT (as defined below): ADVANCE: Phase I $13.575.00
Phase II $54,300.00
</TABLE>
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period December 2, 1997 through December 2, 1998
("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $2,500,000
("Commitment Amount") available in 2 phases. The first phase in the amount of
$500,000 available immediately ("Phase I") and the next succeeding phase in the
amount of $2,000,000 ("Phase II") shall be made available upon formal approval
from Comdisco Ventures. Equipment shall exclude custom use equipment, leasehold
improvements, installation costs and delivery costs, rolling stock, special
tooling, hand held items, molds and fungible items. In no event shall software
exceed 10% of the Commitment Amount.
<PAGE>
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is of
category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgment
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than December 3,
1997*. Lessor will not perform a Sale- Leaseback Transaction for
any request or accompanying Equipment ownership documents which
arrive after the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to: (1)
Lessor prior approval of the Equipment; and (2) if approved, at
Lessor's actual net appraised Equipment value pursuant to the
schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
----------------------------- -----------------------------------
<S> <C>
Between 09/04/97 and 12/03/97 100%
Between 07/05/97 and 09/03/97 80%
Between 04/05/97 and 07/04/97 70%
Between 01/04/97 and 04/04/97 65%
</TABLE>
Lessee represents that it has paid all California sales tax due on
the cost of that portion of Equipment to be installed in California
and agrees to provide evidence of such payment to Lessor, if
specifically requested. As a result of the election, Lessor agrees
that it will not invoice Lessee for use tax on the monthly rental
rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except
prior to installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new or
used Equipment from its inventory at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar month into a
Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar month thereafter.
Each Summary Equipment Schedule will contain the Equipment location,
description, serial number(s) and cost and will incorporate the terms and
conditions of the Master Lease and this Schedule and will constitute a separate
lease.
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event,
the rent to be paid during said extended period shall be mutually agreed upon
and if the parties cannot mutually agree, then the Summary Equipment Schedule
shall continue in full force and effect pursuant to the existing terms and
conditions until terminated in accordance with its terms. The Summary
Equipment Schedule will continue in effect following said extended period
until terminated by either party upon not less than ninety (90) days prior
written notice, which notice shall be effective as of the date of receipt.
<PAGE>
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the
option at the expiration of the Initial Term of the Summary Equipment
Schedule to purchase all, but not less than all, of the Equipment listed
therein for a purchase price and upon terms and conditions to be mutually
agreed upon by the parties following Lessee's written notice, plus any taxes
applicable at time of purchase. Said purchase price shall be paid to Lessor
at least thirty (30) days before the expiration date of the Initial Term or
extended term. Title to the Equipment shall automatically pass to Lessee upon
payment in full of the purchase price but, in no event, earlier than the
expiration of the fixed Initial Term or extended term, if applicable. If the
parties are unable to agree on the purchase price or the terms and conditions
with respect to said purchase, then the Summary Equipment Schedule with
respect to this Equipment shall remain in full force and effect.
Notwithstanding the exercise by Lessee of this option and payment of the
purchase price, until all obligations under the applicable Summary Equipment
Schedule have been fulfilled, it is agreed and understood that Lessor shall
retain a purchase money security interest in the Equipment listed therein and
the Summary Equipment Schedule shall constitute a Security Agreement under
the Uniform Commercial Code of the state in which the Equipment is located.
5. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly
set forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations
and warranties set forth in Section 8) except as modified herein by this
Schedule. This Schedule may not be amended or rescinded except by a writing
signed by both parties.
IMGIS, INC. COMDISCO, INC.
As Lessee As Lessor
By: JOHN A. TANNER By: JAMES P. LABE
-------------------------- ---------------------------------------
Title: CHIEF FINANCIAL OFFICER Title: PRESIDENT COMDISCO VENTURES DIVISION
----------------------- ------------------------------------
Date: DEC. 2, 1997 Date: DEC 9, 1997
----------------------- ------------------------------------
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. FOR PERIOD BEGINNING: AND ENDING:
2. INITIAL TERM STARTS ON: INITIAL TERM:
(Number of Rent Intervals)
3. TOTAL SUMMARY EQUIPMENT COST:
4. LEASE RATE FACTOR:
5 RENT:
6. ACCEPTANCE DOC TYPE:
<PAGE>
EQUIPMENT SCHEDULE VL-2
DATED AS OF SEPTEMBER 29, 1998
TO MASTER LEASE AGREEMENT
DATED AS OF DECEMBER 2, 1997 (THE "MASTER LEASE")
<TABLE>
<S> <C>
LESSEE: IMGIS, INC. LESSOR: COMDISCO, INC.
ADMIN.CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Ms. Nadine Franczyk 6111 North River Road
Phone: (408) 873-3680 x121 Rosemont, Illinois 60018
Fax: (408) 873-3690 Attn.: Venture Group
ADDRESS FOR NOTICES:
10101 N De Anza Blvd. #210
Cupertino, CA 95014
Attn.:
CENTRAL BILLING LOCATION: RENT INTERVAL: Monthly
Same as above
Attn.:
LESSEE Reference No.:______________
(24 digits maximum)
LOCATION OF EQUIPMENT: INITIAL TERM: 42 MONTHS
Various (Number of Rent Intervals)
LEASE RATE FACTOR: 2.715%
Attn.:
EQUIPMENT (as defined below): ADVANCE: Phase I $13.575.68
Phase II $6,786.82
</TABLE>
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period September 29, 1998 through March 29, 2000
("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $750,000.00
("Commitment Amount") available in 2 phases. The first phase in the amount of
$500,025.00 available immediately ("Phase I"). So long as no Event of Default
shall have occurred and is continuing and upon Lessee's written request and upon
payment of an additional Advance in the amount of $6,786.82, subject to final
review and approval by Lessor, at any time during the Equipment Delivery Period,
an additional amount of $249,975.00 ("Phase II") shall be available to Lessee
under the same terms and conditions as stated herein. Such additional amount
shall thereafter be considered an addition to the Commitment Amount referenced
above. Equipment shall exclude custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling, hand held
items, molds and fungible items. In no event shall software exceed 10% of the
Commitment Amount.
Notwithstanding the Commitment Amount specified above, if no Event of Default
shall have occurred and is continuing hereunder, Lessor agrees to transfer any
unused Commitment Amount hereunder to Lessee's Equipment Schedule VL-3 of even
date herewith upon Lessee's written request.
<PAGE>
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is of
category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgment
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than October 29,
1998*. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to: (1)
Lessor prior approval of the Equipment; and (2) if approved, at
Lessor's actual net appraised Equipment value pursuant to the
schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- -----------------------------------
<S> <C>
Between 7/1/98 and 9/29/98 100%
Between 5/1/98 and 6/30/98 80%
Between 1/30/98 and 4/30/98 70%
Between 10/31/98 and 1/29/98 65%
</TABLE>
Lessee represents that it has paid all California sales tax due
on the cost of that portion of Equipment to be installed in California
and agrees to provide evidence of such payment to Lessor, if
specifically requested. As a result of the election, Lessor agrees
that it will not invoice Lessee for use tax on the monthly rental
rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except
prior to installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new or
used Equipment from its inventory at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar month into a
Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar month thereafter.
Each Summary Equipment Schedule will contain the Equipment location,
description, serial number(s) and cost and will incorporate the terms and
conditions of the Master Lease and this Schedule and will constitute a separate
lease.
<PAGE>
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve, (12 months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will nave the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its terms. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a fair
market value purchase price and upon terms and conditions to be mutually agreed
upon by the parties following Lessee's written notice, plus any taxes applicable
at time of purchase. Said purchase price shall be paid to Lessor at least thirty
(30) days before the expiration date of the Initial Term or extended term. Title
to the Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to agree
on the purchase price or the terms and conditions with respect to said purchase,
then the Summary Equipment Schedule with respect to this Equipment shall remain
in full force and effect. Notwithstanding the exercise by Lessee of this option
and payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment listed
therein and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
IMGIS, INC. COMDISCO, INC.
As Lessee As Lessor
By: /s/ JOHN A. TANNER By: /s/ JAMES P. LABE
----------------------------- --------------------------------------
Title: CFC/EVP OF FINANCE & ADMIN Title: PRESIDENT COMDISCO VENTURES DIVISION
-------------------------- -----------------------------------
Date: 12/9/98 Date: 9/30/98
--------------------------- ------------------------------------
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. FOR PERIOD BEGINNING: AND ENDING:
2. INITIAL TERM STARTS ON: INITIAL TERM:
(Number of Rent Intervals)
3. TOTAL SUMMARY EQUIPMENT COST:
4. LEASE RATE FACTOR:
5. RENT:
6. ACCEPTANCE DOC TYPE:
<PAGE>
EQUIPMENT SCHEDULE VL-3
DATED AS OF SEPTEMBER 29, 1998
TO MASTER LEASE AGREEMENT
DATED AS OF DECEMBER 2, 1997 (THE "MASTER LEASE")
<TABLE>
<S> <C>
LESSEE: IMGIS, INC. LESSOR: COMDISCO, INC.
ADMIN.CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Ms. Nadine Franczyk 6111 North River Road
Phone: (408) 873-3680 x121 Rosemont, Illinois 60018
Fax: (408) 873-3690 Attn.: Venture Group
ADDRESS FOR NOTICES:
10101 N De Anza Blvd. #210
Cupertino, CA 95014
Attn.:
CENTRAL BILLING LOCATION: RENT INTERVAL: Monthly
Same as above
Attn.:
Reference No.: ________________
(24 digits maximum)
LOCATION OF EQUIPMENT: INITIAL TERM: 42 MONTHS
Various (Number of Rent Intervals)
LEASE RATE FACTOR: 2.715%
Attn.:
EQUIPMENT (as defined below): ADVANCE: Phase I $40.727.00
Phase II $20,360.46
</TABLE>
Servers and PC equipment specifically approved by Lessor, which shall be
delivered to and accepted by Lessee during the period September 29, 1998 through
March 29, 2000 ("Equipment Delivery Period"), for which Lessor receives vendor
invoices approved for payment, up to an aggregate purchase price of $2,250,000
("Commitment Amount") available in 2 phases. The first phase in the amount of
$1,500,075.00 available immediately ("Phase I"). So long as no Event of Default
shall have occurred and is continuing and upon Lessee's written request and upon
payment of an additional Advance in the amount of $20,300.46, subject to final
review and approval by Lessor, at any time during the Equipment Delivery Period,
an additional amount of $749,925.00 ("Phase II") shall be available to Lessee
under the same terms and conditions as stated herein. Such additional amount
shall thereafter be considered an addition to the Commitment Amount referenced
above. Equipment shall exclude custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling, hand held
items, molds and fungible items. In no event shall software exceed 10% of the
Commitment Amount.
Notwithstanding the Commitment Amount specified above, if no Event of Default
shall have occurred and is continuing hereunder, Lessor agrees to transfer any
unused Commitment Amount hereunder to Lessee's Equipment Schedule VL-2 of even
date herewith upon Lessee's written request.
<PAGE>
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is of
category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgment
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than October 29,
1998*. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to: (1)
Lessor prior approval of the Equipment; and (2) if approved, at
Lessor's actual net appraised Equipment value pursuant to the
schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
<S> <C>
Between 7/1/98 and 9/29/98 100%
Between 5/1/98 and 6/30/98 80%
Between 1/30/98 and 4/30/98 70%
Between 10/31/98 and 1/29/98 65%
</TABLE>
Lessee represents that it has paid all California sales tax due on
the cost of that portion of Equipment to be installed in California
and agrees to provide evidence of such payment to Lessor, if
specifically requested. As a result of the election, Lessor agrees
that it will not invoice Lessee for use tax on the monthly rental
rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except
prior to installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
Value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new or
used Equipment from its inventory at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar month into a
Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar month thereafter.
Each Summary Equipment Schedule will contain the Equipment location,
description, serial number(s) and cost and will incorporate the terms and
conditions of the Master Lease and this Schedule and will constitute a separate
lease.
<PAGE>
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12') months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its terms. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a fair
market value purchase price and upon terms and conditions to be mutually agreed
upon by the parties following Lessee's written notice, plus any taxes applicable
at time of purchase. Said purchase price shall be paid to Lessor at least thirty
(30) days before the expiration date of the Initial Term or extended term. Title
to the Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to agree
on the purchase price or the terms and conditions with respect to said purchase,
then the Summary Equipment Schedule with respect to this Equipment shall remain
in full force and effect. Notwithstanding the exercise by Lessee of this option
and payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment listed
therein and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
IMGIS, INC. COMDISCO, INC.
As Lessee As Lessor
By: JOHN A. TANNER By: JAMES P. LABE
-------------------------- ---------------------------------------
Title: CFC/EVP FINANCE & ADMIN. Title: PRESIDENT COMDISCO VENTURES DIVISION
----------------------- ------------------------------------
Date: [ILLEGIBLE] Date: 9/30/98
------------------------ ------------------------------------
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. FOR PERIOD BEGINNING: AND ENDING:
2. INITIAL TERM STARTS ON: INITIAL TERM:
(Number of Rent Intervals)
3. TOTAL SUMMARY EQUIPMENT COST:
4. LEASE RATE FACTOR:
5. RENT:
6. ACCEPTANCE DOC TYPE:
<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 30, 1999, with respect
to AdForce, Inc. and our report dated October 29, 1998 with respect to StarPoint
Software, Inc. in Amendment No. 2 to the Registration Statement (Form S-1) and
related Prospectus of AdForce, Inc. for the registration of shares of its common
stock.
Our audits also included the financial statement schedule of AdForce,
Inc. listed in Item 16(b). This schedule is the responsibility of AdForce's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
May 3, 1999
