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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999
REGISTRATION NO. 333-86353
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IMANAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 36-4043595
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
2121 SOUTH EL CAMINO REAL, SUITE 400
SAN MATEO, CALIFORNIA 94403
(650) 356-1166
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MAHMOOD PANJWANI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
IMANAGE, INC.
2121 SOUTH EL CAMINO REAL, SUITE 400
SAN MATEO, CALIFORNIA 94403
(650) 356-1166
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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GREGORY M. GALLO, ESQ. CURTIS L. MO, ESQ.
DAVID A. HUBB, ESQ. RICHARD C. LESKA, ESQ.
VICTORIA W-Y LEE, ESQ. BROBECK, PHLEGER & HARRISON LLP
GRAY CARY WARE & FREIDENRICH LLP TWO EMBARCADERO PLACE
400 HAMILTON AVENUE 2200 GENG ROAD
PALO ALTO, CALIFORNIA, 94301-1825 PALO ALTO, CALIFORNIA 94303
(650) 833-2000 (650) 424-0160
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration 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,
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 or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1999.
LOGO
3,600,000 SHARES
COMMON STOCK
This is our initial public offering and no public market currently exists
for our shares. We have applied for approval for quotation of our common stock
on the Nasdaq National Market under the symbol IMAN. We anticipate that the
initial public offering price will be between $8.00 and $10.00 per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to iManage......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
iManage has granted the underwriters a 30-day option to purchase up to an
additional 540,000 shares of common stock to cover any over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
-------------------------
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
C.E. UNTERBERG, TOWBIN
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (1) one
prospectus to be used in connection with an offering in the United States and
Canada and (2) one prospectus to be used in connection with a concurrent
offering outside of the United States and Canada. The U.S. prospectus and the
international prospectus are identical in all respects except for the front
cover page and the first page of the "Underwriting" section. The front cover
page and the first page of the "Underwriting" section of the international
prospectus are included immediately after the back cover of the prospectus.
<PAGE> 4
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND IN CONNECTION WITH
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Special Note Regarding 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.................................................... 32
Management.................................................. 44
Related Party Transactions.................................. 53
Principal Stockholders...................................... 59
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 66
Underwriting................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find Additional Information................... 70
Index to Financial Statements............................... F-1
</TABLE>
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PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our financial statements and accompanying notes
appearing elsewhere in this prospectus. 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. In this
prospectus, iManage, we, us and our refer to iManage, Inc. and all entities
owned or controlled by iManage, Inc. except where it is clear that the term
means only the parent company.
IMANAGE, INC.
We provide content and collaboration management software for enterprises
engaged in electronic business, or e-business. Our software provides a web-based
unified content platform, that is, it brings together various forms of
information and content, including graphics, video, text, audio and data, and
manages, organizes and delivers this information and content in a centralized
manner throughout the extended enterprise. Our software has been designed to
address the needs of a broad range of markets, such as financial services,
retail, manufacturing and distribution, banking and professional services,
though initially we targeted substantially all of our sales and marketing
efforts on the legal applications market.
With the growing pervasiveness of the Internet, organizations are
increasingly engaging in e-business transactions. To enable these transactions,
organizations are developing intranets, which are web-based technologies
designed to disseminate, exchange and manage information internally, and
extranets, which are web-based technologies designed to extend the enterprise
and enable direct collaboration with partners, customers and service providers.
As a result of these developments in electronic business, or e-business, there
has been a dramatic increase in the amount of information available to the
average employee. The overwhelming amount and variety of information that may be
disseminated in e-business transactions threatens an enterprise's ability to
deliver the right information to the right person at the right time.
Our comprehensive e-business content and collaboration management software
(a) offers a scalable and reliable platform; (b) ensures timely delivery of
relevant information; and (c) provides security and accountability. We sell our
software products, including the iManage infoCommerce Server, iManage infoLink,
iManage infoLook, and iManage infoRite, through our direct sales force and a
network of strategic partners and systems integrators.
Our objective is to be the leading provider of e-business content and
collaboration management software. Key elements of our strategy to achieve this
objective include:
- capturing additional market share;
- leveraging our installed customer base;
- expanding key business relationships;
- maintaining our technological leadership; and
- strengthening our international presence.
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<PAGE> 6
We were originally incorporated in Illinois in October 1995 under the name
NetRight Technologies, Inc. and we reincorporated in Delaware in December 1996.
In April 1999, we changed our name from NetRight Technologies, Inc. to iManage,
Inc. Our principal offices are located at 2121 South El Camino Real, Suite 400,
San Mateo, California 94403. Our telephone number is (650) 356-1166. Our website
address is located at www.iManage.com, but the information on our web site does
not constitute a part of this prospectus.
iManage is a registered trademark of iManage, Inc. This prospectus contains
other trade names, trademarks and service marks of iManage, Inc. and of other
companies.
THE OFFERING
Common stock offered by iManage................. 3,600,000 shares
Common stock to be outstanding after the
offering........................................ 21,447,791 shares
Use of proceeds................................. For general corporate
purposes, capital
expenditures and working
capital. See "Use of
Proceeds" on page 14.
Proposed Nasdaq National Market symbol.......... IMAN
The number of shares of our common stock outstanding after the offering is
based on shares outstanding as of September 30, 1999 and does not include
1,079,439 shares of common stock subject to options outstanding under our equity
incentive plans as of September 30, 1999. The number of shares outstanding also
assumes the conversion of all our outstanding shares of preferred stock into
8,033,117 shares of common stock.
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<PAGE> 7
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NINE MONTH PERIOD
PERIOD FROM ENDED
OCTOBER 10, 1995 YEAR ENDED DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO -------------------------- -----------------
DECEMBER 31, 1995 1996 1997 1998 1998 1999
----------------- ------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues......................... $ -- $ 74 $ 1,530 $ 7,741 $ 4,810 $12,704
Gross profit........................... -- 32 1,231 6,114 3,760 10,308
Loss from operations................... (64) (688) (3,609) (2,979) (2,623) (2,736)
Net loss............................... (64) (692) (3,596) (2,840) (2,562) (2,433)
Net loss per share -- basic and
diluted.............................. $(0.01) $(0.12) $ (0.57) $ (0.38) $ (0.35) $ (0.29)
Shares used in net loss per
share -- basic and diluted........... 6,000 6,004 6,292 7,455 7,363 8,386
Pro forma net loss per share -- basic
and diluted.......................... $ (0.21) $ (0.15)
Shares used in pro forma net loss per
share -- basic and diluted........... 13,489 16,419
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term investments.... $15,079 $15,079 $44,211
Working capital...................................... 7,406 7,406 36,538
Total assets......................................... 21,550 21,550 50,682
Long-term debt....................................... 1,806 1,806 1,806
Total stockholders' equity........................... 7,954 7,954 37,086
</TABLE>
The pro forma data give effect to the conversion of all of our outstanding
shares of preferred stock into common stock upon the closing of this offering.
The pro forma as adjusted data give effect to the sale of the 3,600,000 shares
of common stock that we are offering under this prospectus at an assumed initial
public offering price of $9.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. See
"Capitalization" on page 15.
Unless otherwise indicated, all information contained in this prospectus
assumes:
- no exercise of the underwriters' over-allotment option, and
- the conversion of each outstanding share of preferred stock into one
share of common stock immediately before the consummation of this
offering.
This prospectus includes statistical data regarding the Internet industry.
These data are taken or derived from information published by sources, including
the Delphi Group. Although we believe that these data are generally indicative
of the matters reflected in those reports, these data are inherently imprecise,
and we caution you not to place undue reliance on these data.
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<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus, before you decide to buy
our common stock. If any of the following risks actually occur, our business,
financial condition and operating results could be seriously harmed, the trading
price of our common stock could decline and you may lose all or part of your
investment.
OUR LIMITED OPERATING HISTORY MAY PREVENT US FROM ACHIEVING SUCCESS IN OUR
BUSINESS.
We were founded in October 1995 and began shipping our first product in
October 1996. Because of our limited operating results, we have limited insight
into trends that may emerge and affect our business. As a result, an evaluation
of our prospects is difficult to make. The potential revenues and income of our
business and many of the markets we intend to target are unproven.
We face significant risks because of our limited operating history,
including:
- we have a limited number of product offerings and will need to
successfully introduce new products and enhance our existing offering,
with, for example, an enhanced version of iManage infoLink, which we
expect to release in October 1999 and an enhanced version of iManage
infoCommerce Server, which we expect to release by the end of the first
quarter of 2000;
- we need to sell additional licenses and software products to our existing
customers and expand our customer base beyond legal and other
professional service firms; and
- we need to expand our sales and marketing and customer support
organization to focus on a broad range of markets and build strategic
relationships with information technology consultants, systems
integrators and unified messaging original equipment manufacturers to
increase sales.
If we do not successfully address any of these and other challenges, our
business and operating results will be seriously harmed.
WE HAVE AN ACCUMULATED DEFICIT OF APPROXIMATELY $9.6 MILLION AS OF SEPTEMBER 30,
1999 AND MAY NOT BE ABLE TO ACHIEVE PROFITABILITY.
Our failure to significantly increase our total revenues would seriously
harm our business and operating results. We incurred net losses of $692,000 in
1996, $3.6 million in 1997, $2.8 million in 1998 and $2.4 million for the nine
month period ended September 30, 1999. As of September 30, 1999, we had an
accumulated deficit of approximately $9.6 million.
To increase our revenues, we must incur significant expenses to increase
our research and development, sales and marketing and general and administrative
resources. If our revenues do not grow to offset these increased expenses, we
will not be profitable. We may not be able to sustain our recent revenue growth
rates. In fact, we may not have any revenue growth, and our revenues could
decline.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE MARKET
PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. As a result, we believe that
period-to-period comparisons of our operating
4
<PAGE> 9
results are not meaningful and should not be relied upon as indicators of our
future performance. In the future, our operating results may be below the
expectations of securities analysts and investors. Our failure to meet these
expectations would likely cause the price of our common stock to decline.
Operating results vary depending on a number of factors, including:
- the size, timing, terms and fluctuations of customer orders; and
- the timing of the introduction or enhancement of products by us.
In addition, depending on the manner in which we sell existing or future
products, this could have the effect of extending the length of time over which
we recognize revenues. Our quarterly revenues could be significantly affected
based on how applicable accounting standards are amended or interpreted over
time.
Furthermore, our expense levels are relatively fixed and are based, in
part, on expectations of future revenues. Therefore, if revenue levels fall
below our expectations, our net loss will increase because only a small portion
of our expenses vary with our revenues.
OUR REVENUES WILL DECLINE SIGNIFICANTLY IF THE MARKET DOES NOT CONTINUE TO
ACCEPT OUR IMANAGE SUITE OF PRODUCTS.
In 1998 and the nine month period ended September 30, 1999, we derived all
of our license revenues from the sale of licenses for our iManage infoCommerce
Server, iManage infoRite and iManage infoLink products. We currently expect to
continue to derive substantially all of our license revenues from these
products. If the market does not continue to accept these products, our revenues
will decline significantly and this could negatively affect our operating
results. Factors that may affect the market acceptance of these products include
the performance, price and total cost of ownership of our products and the
availability, functionality and price of competing products and technologies.
Many of these factors are beyond our control.
WE HAVE ALWAYS BEEN HEAVILY DEPENDENT UPON LAW FIRM CUSTOMERS. IF WE DO NOT
EXPAND SALES OF OUR PRODUCTS TO OTHER CUSTOMERS, WE MAY NOT BE ABLE TO GROW OUR
REVENUES CONSISTENT WITH PAST GROWTH RATES AND OUR OPERATING RESULTS WILL
SUFFER.
We derived 89.0% of our total revenues in 1998 and 94.0% of our total
revenues for the nine month period ended September 30, 1999 from the sale of
licenses to law firms and professional service firms. As of September 30, 1999,
81.0% of our customers were law firms or professional service firms. Since
January 1, 1998, 49 of our top 50 customers, in terms of billings, were law
firms or professional service firms. Our future success is substantially
dependent on our ability to sell a significant number of licenses to customers
in other businesses, particularly large multi-national corporations. To sell a
significant number of licenses to these businesses, we must devote time and
resources to train our sales employees to work in industries outside law firms
and professional service firms. We may not be successful in our efforts. Unlike
law firms and professional service organizations, customers in other industries,
including large multi-national corporations, may not require or perceive the
value of our content and collaboration management solution. If we cannot license
our products to customers in other industries, our business could be
significantly adversely affected.
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<PAGE> 10
WE MAY BE UNABLE TO PENETRATE ADDITIONAL MARKETS AND GROW OUR REVENUES IF WE DO
NOT SUCCESSFULLY OBTAIN LEADS OR REFERRALS FROM OUR CUSTOMERS.
To increase sales of our e-business content and collaboration management
solution and grow our total revenues, we will try to obtain leads or referrals
from our current customers. If we are unable to maintain these existing customer
relationships, or fail to establish additional relationships, we will have to
devote substantially more resources, both financial and personnel, to the sales
and marketing of our products. As a result, our success depends in part on the
ultimate success of these current relationships and the willingness of our
customers to provide us with these introductions, referrals and leads. Our
current customer relationships do not, and any future relationships we establish
may not, afford us any exclusive marketing or distribution rights. In addition,
at any time, our customers may terminate their relationships with us, pursue
other relationships with our competitors or develop or acquire products that
compete with our products. Even if our customers provide us with leads and
introductions, we may not penetrate additional markets or grow our revenues.
IF THE EMERGING MARKET FOR E-BUSINESS CONTENT AND COLLABORATION MANAGEMENT
SOFTWARE DOES NOT DEVELOP AS QUICKLY AS WE EXPECT, OUR BUSINESS WILL SUFFER.
The market for e-business content and collaboration management software has
only recently begun to develop, is rapidly evolving and will likely have an
increasing number of competitors. We cannot be certain that a viable market for
our products will emerge or be sustainable. If the e-business content and
collaboration management market fails to develop, or develops more slowly than
expected, demand for our products will be less than anticipated and our business
and operating results would be seriously harmed.
Furthermore, to be successful in this emerging market, we must be able to
differentiate our business from our competitors through our product and service
offerings and brand name recognition. We may not be successful in
differentiating our business or achieving widespread market acceptance of our
products and services. In addition, enterprises that have already invested
substantial resources in other methods of managing their content and
collaborative process may be reluctant or slow to adopt a new approach that may
replace, limit or compete with their existing systems.
DUE TO OUR LENGTHY AND VARIABLE SALES CYCLE, WE MAY NOT BE ABLE TO PREDICT WHEN
OR IF SALES WILL BE MADE AND WE MAY EXPERIENCE UNPLANNED SHORTFALLS IN REVENUES.
Our products have an unpredictable sales cycle that contributes to the
uncertainty of our future operating results. Customers often view the purchase
of our products as a significant and strategic decision, and this decision
typically involves a considerable commitment of resources and is influenced by
the customers' budget cycles. Selling our products also requires us to educate
potential customers on their use and benefits because our e-business content and
collaboration management software is a new category of product. As a result, our
products have a lengthy sales cycle, which has historically ranged from
approximately two to six months.
As potential customers evaluate our products and before they place an order
with us, we typically expend significant sales and marketing expenses. Larger
customers may purchase our products as part of multiple, simultaneous purchasing
decisions, which may result in additional unplanned administrative processing
and other delays in our product sales. If sales forecasted from a specific
customer for a particular quarter are not realized, we may experience unplanned
shortfalls in revenues. As a result, we have only a limited ability to forecast
the timing and size of sales of our products.
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COMPETITION FROM PROVIDERS OF SOFTWARE ENABLING CONTENT AND COLLABORATION
MANAGEMENT AMONG BUSINESSES MAY INCREASE, WHICH COULD CAUSE US TO REDUCE OUR
PRICES, AND RESULT IN REDUCED GROSS MARGINS OR LOSS OF MARKET SHARE.
The market for products that enable companies to manage and share content
and collaborate throughout an extended enterprise is new, highly fragmented,
rapidly changing and increasingly competitive. We expect competition to continue
to intensify, which could result in price reductions for our products, reduced
gross margins and loss of market share, any of which would have a material
adverse effect on our business and financial condition.
IF OUR EFFORTS TO ENHANCE EXISTING PRODUCTS AND INTRODUCE NEW PRODUCTS ARE NOT
SUCCESSFUL, WE MAY NOT BE ABLE TO GENERATE DEMAND FOR OUR PRODUCTS.
Our future success depends on our ability to provide a comprehensive
e-business content and collaboration management solution. To provide this
comprehensive solution, we must continually develop and introduce high quality,
cost-effective products as well as product enhancements on a timely basis. In
August 1999, we shipped iManage infoLook, a product that integrates with
Microsoft Outlook. Our future revenue growth will depend significantly on the
success of this new product. To date, we have only tested this product with a
limited number of customers, and we delayed its release two months to
incorporate customer-specific functionality. Therefore, we cannot guarantee that
this product will gain widespread market acceptance. If the market does not
accept iManage infoLook or other new products, our business will suffer and our
stock price will likely fall.
In addition, while our current product offerings have the ability to manage
many types of content, such as graphics, video, text, audio and data, we are
dependent upon third parties to develop additional interfaces that will enable
the deposit of other types of structured relational data, particularly data
generated by enterprise resource planning systems, into the iManage e-business
Server. These third parties may not be able to develop these technologies, and
we may therefore not be able to continue to offer a comprehensive e-business
content and collaboration management solution. Our failure to offer a
comprehensive solution would seriously harm our business.
IF OUR PRODUCTS CANNOT SCALE TO MEET THE DEMANDS OF THOUSANDS OF CONCURRENT
USERS, OUR TARGETED CUSTOMERS MAY NOT LICENSE OUR SOLUTIONS, WHICH WILL CAUSE
OUR REVENUE TO DECLINE.
Our strategy is to target large organizations that, because of the
significant amounts of information and content that they generate and use,
require our e-business content and collaboration management solution. For this
strategy to succeed, our software products must be highly scalable; that is,
they must be able to accommodate thousands of concurrent users. If our products
cannot scale to accommodate a large number of concurrent users, our target
markets will not accept our products and our business and operating results will
suffer.
While we and independent test laboratories have tested the scalability of
our products in simulations, we have not had the opportunity to observe the
performance of our products in the context of an actual large-scale, that is,
tens to hundreds of thousands of concurrent users, customer implementation. If
our customers cannot successfully implement large-scale deployments, or if they
determine that our products cannot accommodate large-scale deployments, our
customers will not license our solutions and this will materially adversely
affect our financial condition and operating results.
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OUR PRODUCTS MIGHT NOT BE COMPATIBLE WITH ALL MAJOR PLATFORMS, WHICH COULD
INHIBIT SALES AND HARM OUR BUSINESS.
We must continually modify and enhance our products to keep pace with
changes in computer hardware and software and database technology, as well as
emerging technical standards in the software industry. For example, we have
designed our products to work with databases and servers such as Informix,
Oracle and SQL Server and software applications including Microsoft Office,
Lotus Notes and Novell GroupWise. Any changes to these platforms could require
us to modify our products and could cause us to delay releasing a product until
the updated version of that platform or application has been released. As a
result, customers could delay purchases until they determine how our products
will operate with these updated platforms or applications.
In addition, our iManage infoCommerce Server runs on the Windows NT
platform. If a customer does not currently use the Windows NT platform and does
not choose to adopt this platform, we will be unable to license our products to
this customer. Furthermore, some of our products do not run on other popular
operating systems, such as the UNIX operating system. If another platform
becomes more widely used, we could be required to convert our product to that
platform. We may not succeed in these efforts, and even if we do, potential
customers may not choose to license our product.
DEFECTS IN OUR SOFTWARE PRODUCTS COULD DIMINISH DEMAND FOR OUR PRODUCTS.
Our software products are complex and may contain errors, including year
2000-related errors, that may be detected at any point in the life of the
product. We cannot assure you that, despite testing by us, our implementation
partners and our current and potential customers, errors will not be found in
new products or releases after shipment, resulting in loss of revenues, delay in
market acceptance and sales, diversion of development resources, injury to our
reputation or increased service and warranty costs. If any of these were to
occur, our business would be adversely affected and our stock price could fall.
Because our products are generally used in systems with other vendors'
products, they must integrate successfully with these existing systems. System
errors, whether caused by our products or those of another vendor, could
adversely affect the market acceptance of our products, and any necessary
revisions could cause us to incur significant expenses.
IF WE ARE UNABLE TO RESPOND TO RAPID MARKET CHANGES DUE TO CHANGING TECHNOLOGY
AND EVOLVING INDUSTRY STANDARDS, OUR FUTURE SUCCESS WILL BE ADVERSELY AFFECTED.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
introductions and changes in customer demands. Our future success will depend to
a substantial degree on our ability to offer products and services that
incorporate leading technology, and respond to technological advances and
emerging industry standards and practices on a timely and cost-effective basis.
You should be aware that:
- our technology or systems may become obsolete upon the introduction of
alternative technologies, such as products that better manage various
types of content; and
- we may not have sufficient resources to develop or acquire new
technologies or to introduce new products or services capable of
competing with future technologies or service offerings.
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OUR PRODUCTS MAY LACK ESSENTIAL FUNCTIONALITY IF WE ARE UNABLE TO OBTAIN AND
MAINTAIN LICENSES TO THIRD-PARTY SOFTWARE AND APPLICATIONS.
We rely on software that we license from third parties, including software
that is integrated with internally developed software and used in our products
to perform key functions. For example, we license Search '97 from Verity, Inc.
and we license Outside In Viewer Technology and Outside In HTML Export from INSO
Corporation. The functionality of our products therefore depends on our ability
to integrate these third-party technologies into our products. Furthermore, we
may license additional software from third parties in the future to add
functionality to our products. If our efforts to integrate this third-party
software into our products are not successful, our customers may not license our
products and our business will suffer.
In addition, we would be seriously harmed if the providers from whom we
license software ceased to deliver and support reliable products, enhance their
current products or respond to emerging industry standards. Moreover, the
third-party software may not continue to be available to us on commercially
reasonable terms or at all. Our license agreement with Verity terminates in
January 2003 and our agreement with INSO terminates in December 2001. Each of
these license agreements may be renewed only with the other party's written
consent. The loss of, or inability to maintain or obtain licensed software,
could result in shipment delays or reductions. Furthermore, we might be forced
to limit the features available in our current or future product offerings.
Either alternative could seriously harm our business and operating results.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE COULD LOSE MARKET
SHARE, INCUR COSTLY LITIGATION EXPENSES OR LOSE VALUABLE ASSETS.
We believe that our continued success depends on protecting our proprietary
technology. We rely on a combination of patent, trademark, service mark, trade
secret and copyright law and contractual restrictions to protect the proprietary
aspects of our technology. In addition, we enter into confidentiality or license
agreements with our employees and consultants, and control access to and
distribution of our software, documentation and other proprietary information.
These legal and practical protections afford only limited protection. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use our proprietary
information. These attempts, if successful, could cause us to lose market share
and thus harm our business and operating results. Litigation may be necessary to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. Any
litigation could result in substantial costs and diversion of resources and
could seriously harm our business and operating results. In addition, as we
expand our international sales, we may find that the laws of many countries,
particularly those in the Asia/Pacific region, do not protect our proprietary
rights to as great an extent as the laws of the United States.
OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US WHICH COULD BE TIME CONSUMING
AND EXPENSIVE FOR US TO DEFEND.
Other companies, including our competitors, may obtain patents or other
proprietary rights that would prevent, limit or interfere with our ability to
make, use or sell our products. For example, we may discover that third parties
have developed similar or competing technologies to manage, organize and deliver
information and content. As a result, we may be found to infringe on the
proprietary rights of others. Furthermore, companies in the software market are
increasingly bringing suits that allege infringement of their proprietary
rights, particularly patent rights. We could incur substantial
9
<PAGE> 14
costs to defend any litigation, and intellectual property litigation could force
us to do one or more of the following:
- cease using key aspects of our e-business content and collaboration
management solution that incorporate the challenged intellectual
property;
- obtain a license from the holder of the infringed intellectual property
right; and
- redesign some or all of our products to avoid infringing.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business and
operating results would be significantly harmed.
WE COULD BE SUBJECT TO PRODUCT LIABILITY CLAIMS IF OUR CUSTOMERS' INFORMATION OR
CONTENT IS DAMAGED THROUGH THE USE OF OUR PRODUCTS.
If software errors or design defects in our products cause damage to
customers' data and our agreements do not protect us from related product
liability claims, our business, financial condition and operating results may be
materially adversely affected. Errors, bugs or viruses may result in the loss of
market acceptance or the loss of customer data. Our agreements with customers
that attempt to limit our exposure to product liability claims may not be
enforceable in jurisdictions where we operate.
WE MAY BE UNABLE TO RETAIN OUR CURRENT KEY PERSONNEL AND ATTRACT ADDITIONAL
QUALIFIED PERSONNEL TO OPERATE AND EXPAND OUR BUSINESS.
Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel, such as Mahmood
Panjwani, our president and chief executive officer, and Rafiq Mohammadi, our
chief technology officer. We may not be successful in attracting, assimilating
or retaining qualified personnel in the future. None of our senior management or
other key personnel is bound by an employment agreement. If we lose one or more
of these key employees, our business and operating results could be seriously
harmed. In addition, our future success will depend largely on our ability to
continue attracting and retaining highly skilled personnel. Like other
high-technology companies, we face intense competition for qualified personnel.
OUR TOTAL REVENUES WILL NOT INCREASE IF WE FAIL TO SUCCESSFULLY MANAGE OUR
GROWTH AND EXPANSION.
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our limited resources. We have grown
from 29 employees at January 1, 1998 to 93 employees at September 30, 1999. To
be successful, we will need to implement additional management information
systems, improve our operating, administrative, financial and accounting systems
and controls, train new employees and maintain close coordination among our
executive, research and development, accounting, finance, marketing, sales and
operations organizations. Any failure to manage growth effectively could
seriously harm our business and operating results.
AS WE EXPAND OUR OPERATIONS INTERNATIONALLY, WE WILL FACE SIGNIFICANT RISKS IN
DOING BUSINESS IN FOREIGN COUNTRIES.
A key component to our business strategy is to expand our existing sales
and marketing activities internationally, particularly in Asia, Australia, New
Zealand and the United Kingdom. If our efforts
10
<PAGE> 15
are successful, we will be subject to a number of risks associated with
international business activities, including:
- costs of customizing our products for foreign countries, including
localization, translation and conversion to international and other
foreign technology standards;
- compliance with multiple, conflicting and changing governmental laws and
regulations, including changes in regulatory requirements that may limit
our ability to sell our software in particular countries;
- import and export restrictions, tariffs and greater difficulty in
collecting accounts receivable; and
- foreign currency-related risks if a significant portion of our revenues
become denominated in foreign currencies.
Our failure to successfully address any of these risks will hurt our operations
and may prevent our total revenues from growing.
YEAR 2000 COMPLIANCE COSTS AND RISKS ARE DIFFICULT TO ASSESS AND COULD RESULT IN
DELAY OR LOSS OF REVENUES, DIVERSION OF DEVELOPMENT RESOURCES, DAMAGE TO OUR
REPUTATION OR INCREASED SERVICE, WARRANTY OR LITIGATION COSTS.
Our internally-developed proprietary systems could be substantially
impaired or cease to operate if they cannot recognize date information correctly
when the year changes to 2000. In addition, we rely on information technology
supplied by third parties. Year 2000 problems experienced by us or any of these
third parties could materially adversely affect our business. Furthermore, the
Internet could face serious disruptions arising from the year 2000 problem.
We believe that many of our customers and potential customers have
implemented policies that prohibit or strongly discourage making changes or
additions to their internal computer systems until after January 1, 2000. We
will experience fewer sales if potential customers who might otherwise purchase
our products delay the purchase and implementation of our product until after
January 1, 2000 in an effort to stabilize their internal computer systems to
cope with the year 2000 problem or because their information technology budgets
have been diverted to address year 2000 issues. If our potential customers delay
purchasing or implementing our products as a result of the year 2000 problem,
our business will be seriously harmed. In addition, because the revenues from
some of our customers are recognized on a ratable basis, any implementation
delays by these customers caused by their needs to address year 2000 issues will
affect our ability to recognize these revenues.
Given the pervasive nature of the year 2000 problem, we cannot guarantee
that disruptions in other industries and market segments will not adversely
affect our business. We have not completed our year 2000 investigation and
overall compliance initiative. The costs related to year 2000 compliance, which
thus far have not been material, could ultimately be significant and may harm
our business.
FUTURE ACQUISITIONS MAY BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE
STOCKHOLDER VALUE OR DIVERT MANAGEMENT ATTENTION.
As part of our business strategy, we may find it necessary to acquire
additional businesses, products or technologies that we feel could complement or
expand our business, increase our market coverage, enhance our technical
capabilities or offer other types of growth opportunities. If we identify an
appropriate acquisition candidate, we may not be able to successfully negotiate
the terms of the acquisition, finance the acquisition, or integrate the acquired
business, products or technologies into
11
<PAGE> 16
our existing business and operations. Furthermore, completing a potential
acquisition and integrating an acquired business will cause significant
diversions of management time and other resources. Since we have never acquired
another business, we may experience unexpected difficulties and obstacles in
acquiring and integrating new operations.
If we consummate a significant acquisition in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with a significant acquisition in which the
consideration included cash, we could be required to use a substantial portion
of our available cash, including proceeds of this offering, to consummate that
acquisition. Acquisition financing may not be available on favorable terms, if
at all. In addition, we may be required to amortize significant amounts of
goodwill and other intangible assets in connection with future acquisitions,
which would seriously harm our operating results.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL RETAIN SIGNIFICANT
CONTROL OVER IMANAGE AFTER THIS OFFERING, WHICH MAY LEAD TO CONFLICTS WITH OTHER
STOCKHOLDERS OVER CORPORATE GOVERNANCE MATTERS.
Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own approximately 60.9% of our
outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions, which
could have the effect of delaying or preventing a third party from acquiring
control over or merging with us. We also plan to reserve up to 5% of the shares
offered in this offering under a directed share program in which our executive
officers, directors, principal stockholders, employees, business associates and
related persons may be able to purchase shares in this offering at the initial
public offering price. This program may further increase the amount of stock
held by persons whose interests are closely aligned with management's interests.
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT
OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
The initial public offering price for our common stock will be determined
through negotiations between the underwriters and us. If you purchase shares of
common stock, an active trading market may not develop and you may not be able
to resell those shares at or above the initial public offering price. The market
price of our common stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control, including:
- quarterly fluctuations in operating results;
- changes in financial estimates or recommendations by securities analysts;
- announcements by us or our competitors of financial results, new
products, significant technological innovations, contracts, acquisitions,
strategic partnerships, joint ventures, capital commitments or other
events;
- additions or departures of key personnel;
- any future sales of our common stock or other securities; and
- stock market price and volume fluctuations, which are particularly common
among securities of Internet-related companies.
In addition, the stock market has experienced extreme volatility that often
has been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.
12
<PAGE> 17
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS WHICH WOULD LIMIT OUR
ABILITY TO GROW.
We may need to seek additional funding in the future. We do not know if we
will be able to obtain additional financing on favorable terms, if at all. In
addition, if we issue equity securities, stockholders may experience additional
dilution or the new equity securities may have rights, preferences or privileges
senior to those of existing holders of common stock. If we cannot raise funds on
acceptable terms, if and when needed, we may not be able to develop or enhance
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements, which could seriously harm our
business.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Business and elsewhere in this prospectus constitute forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as may,
will, should, expect, plan, intend, forecast, anticipate, believe, estimate,
predict, potential, continue or the negative of these terms or other comparable
terminology. The forward-looking statements contained in this prospectus involve
known and unknown risks, uncertainties and situations that may cause our or our
industry's actual results, level of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include
those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements.
13
<PAGE> 18
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 3,600,000 shares of
common stock we are offering will be approximately $29,132,000, at an assumed
initial public offering price of $9.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that our
net proceeds will be approximately $33,652,000.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock, to enhance our ability to
acquire other businesses, products or technologies, and to facilitate future
access to public equity markets. We intend to use the proceeds for working
capital, capital expenditures and other general corporate purposes. We may also
use a portion of the net proceeds from this offering to acquire or invest in
businesses, technologies or products that are complementary to our business. We
currently have no commitments or agreements for any acquisitions. Pending our
use of the net proceeds, we intend to invest them in short-term, interest
bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not currently anticipate paying these cash dividends. We currently anticipate
that we will retain all of our future earnings for use in the development and
expansion of our business and for general corporate purposes. Any determination
to pay dividends in the future will be at the discretion of our board of
directors and will depend upon our financial condition, operating results and
other relevant factors as determined by the board of directors, in its
discretion. Additionally, we have entered into loan agreements with creditors
that restrict our ability to pay dividends.
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<PAGE> 19
CAPITALIZATION
The following table presents the capitalization of iManage as of September
30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of each outstanding share
of preferred stock into one share of common stock upon the closing of
this offering; and
- on a pro forma as adjusted basis to reflect the sale of 3,600,000 shares
of common stock that we are offering at an assumed initial public
offering price of $9.00 per share after deducting estimated underwriting
discounts and commissions and our estimated offering expenses and the
application of the net proceeds we receive from this offering. The pro
forma as adjusted information reflects none of the 1,079,439 shares of
common stock issuable upon exercise of outstanding options at September
30, 1999 at a weighted average exercise price of $1.02.
This table should be read in conjunction with our financial statements and
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(UNAUDITED AND IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt............................................ $ 1,806 $ 1,806 $ 1,806
------- ------- -------
Stockholders' equity:
Preferred stock; 8,153,708 shares authorized, actual;
2,000,000 shares authorized, pro forma and pro forma
as adjusted; 8,033,117 shares issued and outstanding,
actual; none issued or outstanding, pro forma and pro
forma as adjusted.................................... 8 -- --
Common stock; 20,000,000 shares authorized, actual;
100,000,000 shares authorized, pro forma and pro
forma as adjusted; 9,814,674 shares issued and
outstanding, actual; 17,847,791 issued and
outstanding, pro forma; 21,447,791 shares issued and
outstanding, pro forma as adjusted................... 10 18 22
Additional paid-in capital.............................. 22,497 22,497 51,625
Deferred stock-based compensation....................... (3,934) (3,934) (3,934)
Notes receivable for common stock....................... (1,002) (1,002) (1,002)
Accumulated deficit..................................... (9,625) (9,625) (9,625)
------- ------- -------
Total stockholders' equity...................... 7,954 7,954 37,086
------- ------- -------
Total capitalization............................ $ 9,760 $ 9,760 $38,892
======= ======= =======
</TABLE>
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<PAGE> 20
DILUTION
If you invest in our common stock, your interest will be diluted in an
amount equal to the difference between:
- the public offering price per share of our common stock and
- the pro forma net tangible book value per share of our common stock after
this offering.
The pro forma net tangible book value per share after this offering equals:
- the net tangible book value, which is tangible assets less total
liabilities, divided by
- the number of outstanding shares of common stock after the offering,
which will include 8,033,117 shares of common stock from the conversion
of preferred stock upon consummation of this offering.
Our pro forma net tangible book value as of September 30, 1999 was
approximately $7,478,000, or $0.42 per share of common stock. If you participate
in this offering, you could pay as much as $9.00 per share, which substantially
exceeds $0.42 per share.
The pro forma as adjusted net tangible book value per share takes into
account the estimated net proceeds from this offering. Based upon an assumed
initial public offering price of $9.00 per share and after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses, our pro forma as adjusted net tangible book value as of September 30,
1999 would have been approximately $36,610,000, or $1.71 per share. This
represents an immediate increase in pro forma as adjusted net tangible book
value of $1.29 per share to existing stockholders and an immediate dilution of
$7.29 per share to investors purchasing common stock in this offering. The
following table illustrates the per share dilution:
<TABLE>
<CAPTION>
ASSUMING NO
EXERCISE OF
OVER-ALLOTMENT
OPTION
--------------
<S> <C> <C>
Assumed initial public offering price per share............. $9.00
Pro forma net tangible book value per share as of September
30, 1999.................................................... $ 0.42
Increase per share attributable to new investors.......... 1.29
-------
Pro forma as adjusted net tangible book value per share
after the offering........................................ 1.71
-----
Dilution per share to new investors......................... $7.29
=====
</TABLE>
The following table summarizes as of September 30, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this
offering, before deducting the estimated underwriting discounts and commissions
and estimated offering expenses. Additionally, as detailed below, new investors
purchasing shares in this offering at the initial public offering price will
contribute 72.0% of the total consideration paid to us but will own only 16.8%
of our shares.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
---------- ------- ----------- ------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 17,847,781 83.2% $12,615,000 28.0% $0.71
New investors....................... 3,600,000 16.8% $32,400,000 72.0% 9.00
---------- ----- ----------- -----
Total..................... 21,447,791 100.0% $45,015,000 100.0%
========== ===== =========== =====
</TABLE>
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<PAGE> 21
SELECTED FINANCIAL DATA
The following data have been derived from financial statements audited
by
PricewaterhouseCoopers LLP, independent accountants, except for the data for the
nine month periods ended September 30, 1998 and 1999. Balance sheets at December
31, 1997 and 1998, the related statements of operations and of cash flows for
the three years ended December 31, 1998 and related notes appear elsewhere in
this prospectus. The statement of operations data for the period from October
10, 1995, our inception, through December 31, 1995 and the balance sheet data as
of December 31, 1995 and 1996 are derived from audited financial statements not
included in this prospectus.
The selected financial data presented below contains only a portion of
iManage's financial statements and should be read in conjunction with the
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
NINE MONTH
PERIOD FROM PERIOD ENDED
OCTOBER 10, 1995 YEAR ENDED DECEMBER 31, SEPTEMBER 30,
(INCEPTION) TO -------------------------- -----------------
DECEMBER 31, 1995 1996 1997 1998 1998 1999
----------------- ------ ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
License............................................. $ -- $ 70 $ 1,172 $ 6,509 $ 4,044 $ 9,750
Support and services................................ -- 4 358 1,232 766 2,954
------ ------ ------- ------- ------- -------
Total revenues............................... -- 74 1,530 7,741 4,810 12,704
------ ------ ------- ------- ------- -------
Cost of revenues:
License............................................. -- 4 136 414 261 538
Support and services................................ -- 38 163 1,213 789 1,858
------ ------ ------- ------- ------- -------
Total cost of revenues....................... -- 42 299 1,627 1,050 2,396
------ ------ ------- ------- ------- -------
Gross profit.......................................... -- 32 1,231 6,114 3,760 10,308
Operating expenses:
Sales and marketing................................. 19 335 1,120 4,393 3,010 5,818
Research and development............................ 24 113 935 2,351 1,653 2,931
General and administrative.......................... 21 272 706 1,295 908 1,527
Stock-based compensation............................ -- -- 2,079 1,054 812 2,768
------ ------ ------- ------- ------- -------
Total operating expenses..................... 64 720 4,840 9,093 6,383 13,044
------ ------ ------- ------- ------- -------
Loss from operations.................................. (64) (688) (3,609) (2,979) (2,623) (2,736)
Interest income (expense), net........................ -- (4) 13 139 61 332
------ ------ ------- ------- ------- -------
Loss before provision for income taxes................ (64) (692) (3,596) (2,840) (2,562) (2,404)
------ ------ ------- ------- ------- -------
Provision for income taxes............................ -- -- -- -- -- 29
------ ------ ------- ------- ------- -------
Net loss.............................................. $ (64) $ (692) $(3,596) $(2,840) $(2,562) $(2,433)
====== ====== ======= ======= ======= =======
Net loss per share -- basic and diluted............... $(0.01) $(0.12) $ (0.57) $ (0.38) $ (0.35) $ (0.29)
Shares used in net loss per share -- basic and
diluted............................................. 6,000 6,004 6,292 7,455 7,363 8,386
Pro forma net loss per share -- basic and diluted..... $ (0.21) $ (0.15)
Shares used in pro forma net loss per share -- basic
and diluted......................................... 13,489 16,419
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ SEPTEMBER 30,
1995 1996 1997 1998 1999
---- ---- ------ ------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEETS DATA:
Cash, cash equivalents and short term investments........... $ 10 $359 $1,789 $ 7,617 $15,079
Working capital (deficit)................................... (18) 17 1,740 6,119 7,406
Total assets................................................ 44 511 3,260 13,495 21,550
Long-term debt.............................................. -- -- -- -- 1,806
Total stockholders' equity.................................. 17 90 1,986 7,360 7,954
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We supply e-business content and collaboration management software that
provides organizations with a web-based unified content platform that manages,
organizes and delivers relevant information from a variety of sources in a
centralized manner throughout the extended enterprise. We believe we are a
leading provider of e-business content and collaboration management software,
based on the number of customers we serve and the features our software
provides. Since 1996, we have licensed our products to over 400 customers for
use by over 100,000 end users.
We were incorporated in October 1995 and commenced operations shortly after
that time. During the period October 1995 through September 1996 we were a
development stage company and had no revenues. Our operating activities during
this period related primarily to developing our product, building our corporate
infrastructure and raising capital. In October 1996, we released the first
version of our iManage infoCommerce Server and iManage infoRite,and sold them
through a small sales force and support staff. In June 1997, we enhanced our
iManage suite of products and shipped iManage infoLink. In March 1998, we
released an enhanced version of iManage infoCommerce Server. We began shipping
our iManage infoLook in August 1999.
Our total revenues, which consist of software license revenues and support
and services revenues, totaled $74,000 in 1996, $1.5 million in 1997, $7.7
million in 1998 and $12.7 million for the nine month period ended September 30,
1999. Through September 30, 1999, substantially all of our total revenues were
derived from licenses of the iManage infoCommerce Server, iManage infoRite and
iManage infoLink and related services. We currently expect that substantially
all of our total revenues will be derived from our iManage infoCommerce Server,
iManage infoRite and iManage infoLink product lines and related services. Our
license revenues are based on the number of users and servers. Support and
services revenues consist of customer support, training and consulting.
Customers who license our products generally purchase support contracts, which
are billed on a subscription basis typically covering a 12-month period.
Training services are billed on a per student or per class session basis and
consulting is customarily billed at a fixed daily rate plus our out-of-pocket
expenses.
We market our software and services primarily through our direct sales
organization, resellers and system integrators in the United States and Canada,
and through distributors in the United Kingdom and Australia. Revenues from
iManage infoCommerce Server, iManage infoRite and iManage infoLink licenses and
services to customers outside the United States and Canada have been
insignificant to date.
Through 1997, we recognized revenues based on the American Institute of
Certified Public Accountants Statement of Position 91-1. Commencing in 1998, we
began recognizing revenues based on the American Institute of Certified Public
Accountants Statement of Position 97-2, Software Revenue Recognition, or SOP
97-2, as amended by Statement of Position 98-4. Further implementation
guidelines relating to these standards may result in unanticipated changes in
our revenue recognition practices, and these changes could affect our future
revenues and earnings.
We recognize license revenues upon shipment if a signed contract exists,
the fee is fixed and determinable, collection of resulting receivables is
probable and product returns are reasonably estimable and if applicable,
acceptance criteria have been met. Provisions for estimated warranty costs and
sale returns are recorded at the time of shipment.
For contracts with multiple obligations, for example, deliverable and
undeliverable products, support and other service, we allocate revenues to the
undelivered element of the contract based on
18
<PAGE> 23
objective evidence of its fair value. This objective evidence is the sales price
of the element when sold separately by us. We generally do not allow the right
of return but have accepted returns in isolated instances when resellers, system
integrators and distributors have incorrectly ordered product. We recognize
revenues allocated to undelivered products when the criteria for license
revenues described above are met. We recognize support and services revenues,
including amounts allocated from contracts with multiple obligations and for
ongoing customer support, ratably over the period of the support contract. Our
support and service arrangements entitle customers to telephone support and
unspecified upgrades and enhancements. Payments for support and services are
generally made in advance and are non-refundable. For revenues allocated to
training and consulting services or derived from the separate sales of these
services, we recognize revenues as the related services are performed.
Our cost of license revenues includes royalties due to third parties for
integrated technology, the cost of manuals and product documentation, production
media used to deliver our products and packaging costs. Our cost of support and
services revenues includes salaries and related expenses for the customer
support and training organization and an allocation of overhead expenses.
Our operating expenses are classified as sales and marketing, research and
development, general and administrative and stock-based compensation. We
classify all charges to these operating expense categories based on the nature
of the expenditures. Although each category includes expenses that are unique to
the category type, there are common recurring expenditures that are typically
included in all operating expense categories, including salaries, employee
benefits, incentive compensation, bonuses, travel costs, professional fees,
telephone, communication and rent and allocated facilities costs. The sales and
marketing category of operating expenses includes additional expenditures
specific to the sales group, such as commissions, and expenditures specific to
the marketing group, including public relations and advertising, trade shows and
marketing collateral materials. In the development of our new products and
enhancements of existing products, the technological feasibility of the software
is not established until substantially all product development is complete.
Historically, software development costs eligible for capitalization have been
insignificant, and we have expensed all costs related to internal research and
development as we have incurred them.
In connection with the granting of stock options to our employees and
consultants, we have recorded deferred stock-based compensation totaling
approximately $8.9 million through September 30, 1999, of which approximately
$3.9 million remains to be amortized. This amount represents the difference
between the exercise price and the current estimated fair value of our common
stock on the date these stock options were granted. This amount is included as
part of stockholders' equity and is being amortized by charges to operations
over the vesting period of the options, consistent with the method described in
Financial Accounting Standards Board, or FASB, Interpretation No. 28. We
recognized stock-based compensation expense of approximately $2.1 million in
1997, $1.1 million in 1998, and approximately $2.8 million for the nine month
period ended September 30, 1999, which includes stock-based compensation expense
amounts for services provided before the grant date of the options. Future
compensation expense from options granted through September 30, 1999 is
estimated to be approximately $828,000 for the remainder of 1999, $2.0 million
for 2000, $830,000 for 2001, $304,000 for 2002 and $21,000 for 2003.
We anticipate that our operating expenses will increase substantially as we
intend to continue to incur significant research and development costs and
invest heavily in the expansion of our sales, marketing and support
organizations to build an infrastructure to support our long-term growth
strategy. The number of our full-time employees increased from 59 as of December
31, 1998 to 93 as of September 30, 1999. We will seek to hire additional
employees in the future. As a result of investments relating to the expansion of
our business, we have incurred net losses in each quarter since inception and,
as of September 30, 1999, had an accumulated deficit of $9.6 million. To achieve
profitability, we will have to increase our total revenues significantly. We
cannot assure you that we will ever attain or maintain profitability.
19
<PAGE> 24
In view of the rapidly changing nature of our market and our limited
operating history, we believe that period-to-period comparisons of our revenues
and operating results are not necessarily meaningful and should not be relied
upon as indicative of future performance. Our historic revenue growth rates are
not necessarily sustainable or indicative of our future growth. Our prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered by companies in early stages of development, particularly companies
in new and rapidly evolving markets. We cannot assure you we will be successful
in addressing these risks and difficulties.
RESULTS OF OPERATIONS
The following table presents our statement of operations data as a
percentage of total revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------
1996 1997 1998 1998 1999
------- ------- ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
License.......................................... 94.6% 76.6% 84.1% 84.1% 76.7%
Support and services............................. 5.4 23.4 15.9 15.9 23.3
------- ------- ------ ----- -----
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
------- ------- ------ ----- -----
Cost of revenues:
License.......................................... 5.4 8.9 5.3 5.4 4.2
Support and services............................. 51.4 10.7 15.7 16.4 14.6
------- ------- ------ ----- -----
Total cost of revenues.................... 56.8 19.5 21.0 21.8 18.8
------- ------- ------ ----- -----
Gross profit....................................... 43.2 80.5 79.0 78.2 81.2
Operating expenses:
Sales and marketing.............................. 452.7 73.2 56.7 62.6 45.8
Research and development......................... 152.7 61.1 30.4 34.4 23.1
General and administrative....................... 367.6 46.1 16.7 18.9 12.0
Stock-based compensation......................... 0.0 135.9 13.6 16.9 21.8
------- ------- ------ ----- -----
Total operating expenses.................. 973.0 316.3 117.5 132.8 102.7
------- ------- ------ ----- -----
Loss from operations............................... (929.7) (235.9) (38.5) (54.6) (21.5)
Interest income (expense), net..................... (5.4) 0.8 1.8 1.3 2.6
------- ------- ------ ----- -----
Loss before provision for income taxes............. (935.1) (235.0) (36.7) (53.3) (18.9)
------- ------- ------ ----- -----
Provision for income taxes......................... 0.0 0.0 0.0 0.0 0.2
------- ------- ------ ----- -----
Net loss........................................... (935.1)% (235.0)% (36.7)% (53.3)% (19.1)%
======= ======= ====== ===== =====
</TABLE>
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES
Our total revenues are derived from software licenses and related support
and services. Our revenues were $4.8 million for the nine month period ended
September 30, 1998 and $12.7 million for the nine month period ended September
30, 1999, representing an increase of $7.9 million, or 164.1%. International
revenues were not significant for the nine month period ended September 30, 1998
and 1999.
20
<PAGE> 25
License Revenues. Our license revenues were $4.0 million for the nine month
period ended September 30, 1998 and $9.8 million for the nine month period ended
September 30, 1999, representing an increase of $5.8 million, or 141.1%. License
revenues represented 84.1% of total revenues for the nine month period ended
September 30, 1998 and 76.7% of total revenues for the nine month period ended
September 30, 1999. This increase was primarily a result of increased sales of
iManage infoCommerce Server, iManage infoRite and iManage infoLink, reflecting
the increased market acceptance of these products, as well as increases in the
size and productivity of the sales force and our resellers.
Support and Services Revenues. Support and services revenues consist
primarily of support and, to a lesser extent, training and consulting services
associated with the increase in licenses of iManage infoCommerce Server, iManage
infoRite and iManage infoLink during these periods. Our support and services
revenues were $766,000 for the nine month period ended September 30, 1998 and
$3.0 million for the nine month period ended September 30, 1999, representing an
increase of $2.2 million, or 285.6%. Support and services revenues represented
15.9% of total revenues for the nine month period ended September 30, 1998 and
23.3% of total revenues for the nine month period ended September 30, 1999. The
increase in support and services revenues for the nine month period ended
September 30, 1999 compared to the nine month period ended September 30, 1998
was primarily a result of increased licenses of iManage infoCommerce Server,
iManage infoRite and iManage infoLink in 1999. We expect that the proportion of
our support and services revenues to total revenues will fluctuate in the
future, depending in part on the level and nature of license revenues as well as
the number of support contracts sold and the level of training and consulting
revenues.
COST OF REVENUES
Cost of License Revenues. Cost of license revenues was $261,000 for the
nine month period ended September 30, 1998 and $538,000 for the nine month
period ended September 30, 1999, representing an increase of $277,000, or
106.1%. This increase was principally a result of increased royalties owed to
third parties for integrated technologies as a result of additional third-party
technology arrangements entered into during 1999. Cost of license revenues
represented 6.4% of license revenues for the nine month period ended September
30, 1998 and 5.5% for the nine month period ended September 30, 1999. We expect
that the cost of license revenues will fluctuate as a percentage of license
revenues in the future depending in part on the demand for our current products.
Cost of Support and Services Revenues. Cost of support and services
revenues was $789,000 for the nine month period ended September 30, 1998 and
$1.9 million for the nine month period ended September 30, 1999, representing an
increase of $1,069,000, or 135.5%. This increase was primarily a result of an
increase of $523,000 in technical support and training personnel costs and
headcount, an increase of $357,000 in facility-related overhead costs and an
increase of $209,000 in travel-related costs, all of which were necessary to
manage and support our growing customer base. Cost of support and services
revenues was 103.0% of support and services revenues for the nine month period
ended September 30, 1998 and 62.9% for the nine month period ended September 30,
1999. Cost of support and services revenues as a percentage of support and
services revenues may vary between periods due to the customer support services
versus the mix of training and consulting services we provide.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses were $3.0 million for the
nine month period ended September 30, 1998 and $5.8 million for the nine month
period ended September 30, 1999, representing an increase of $2.8 million, or
93.3%. This increase was primarily a result of investments
21
<PAGE> 26
in sales and marketing, which included an increase of $1.5 million in
personnel-related costs to recruit and hire sales and marketing personnel, an
increase of $257,000 in facility-related overhead expenses and an increase of
$345,000 in professional service expenses primarily related to third-party
consultants. Sales and marketing employees increased from 20 as of September 30,
1998 to 32 as of September 30, 1999, an increase of 12, or 60.0%. Sales and
marketing expenses represented 62.6% of total revenues for the nine month period
ended September 30, 1998 and 45.8% for the nine month period ended September 30,
1999. We believe that a significant increase in our sales and marketing efforts
is essential for us to maintain our market position and further increase
acceptance of our products. Therefore, we anticipate that sales and marketing
expenses will increase in absolute dollars but may fluctuate as a percentage of
total revenues in future periods.
Research and Development. Research and development expenses were $1.7
million for the nine month period ended September 30, 1998 and $2.9 million for
the nine month period ended September 30, 1999, representing an increase of $1.2
million, or 77.3%. This increase was primarily a result of an increase in the
number of software developers, program management, documentation personnel and
outside contractors we use to support development of our products. Our research
and development employees increased from 14 as of September 30, 1998 to 27 as of
September 30, 1999, an increase of 13, or 92.9%. Research and development costs
represented 34.4% of total revenues for the nine month period ended September
30, 1998 and 23.1% for the six month period ended September 30, 1999. We believe
that significant increases in our research and development investment are
essential for us to maintain our market position, to continue to expand our
product line and to enhance the unified content technology platform for our
suite of products. Therefore, we anticipate that we will continue to invest
significantly in product research and development, and as a result, our research
and development expenses are likely to increase in absolute dollars in future
periods.
General and Administrative. General and administrative expenses were
$908,000 for the nine month period ended September 30, 1998 and $1.5 million for
the nine month period ended September 30, 1999, representing an increase of
$619,000, or 68.2%. This increase was primarily a result of an increase of
$350,000 related to additional finance, executive, information services and
human resources personnel needed to support the growth of our business, an
increase of $181,000 in facility-related overhead costs and an increase of
$58,000 in outside contractors expense associated with expanded human resources
programs. General and administrative costs represented 18.9% of our total
revenues for the nine month period ended September 30, 1998 and 12.0% for the
nine month period ended September 30, 1999. We believe that our general and
administrative expenses will continue to increase in absolute dollars as a
result of the continued expansion of our administrative staff and expenses
associated with being a public company.
Interest Income (Expense), Net. Interest income was $71,000 for the nine
month period ended September 30, 1998 and $382,000 for the nine month period
ended September 30, 1999, representing an increase of $311,000, or 438.0%. This
increase reflects the higher cash and short-term investment base as a result of
proceeds we received in September 1998 from the issuance of our series C
preferred stock and borrowings under our equipment line of credit in March 1999,
in addition to the generation of cash from operations during 1999. Interest
expense was $10,000 for the nine month period ended September 30, 1998 and
$50,000 for the nine month period ended September 30, 1999, with the increase
primarily the result of borrowings under our equipment line of credit in March
and September 1999.
Provision for Income Taxes. As of September 30, 1999, we had estimated net
operating loss carryforwards for federal and state income tax reporting purposes
which expire through 2018. The U.S. tax laws contain provisions that limit the
use in any future period of net operating loss and credit carryforwards upon the
occurrence of events, such as a significant change in ownership
22
<PAGE> 27
interests. We had deferred tax assets, including our net operating loss
carryforwards and tax credits, against which a valuation allowance has been
recorded for the entire deferred tax asset as a result of uncertainties
regarding the realization of the asset balance.
YEAR ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
Our revenues were $74,000 in 1996, $1.5 million in 1997 and $7.7 million in
1998, representing increases of $1.4 million, or 1,927.0%, from 1996 to 1997,
and $6.2 million, or 413.3%, from 1997 to 1998.
License Revenues. Our license revenues were $70,000 in 1996, $1.2 million
in 1997 and $6.5 million in 1998, representing increases of $1.1 million, or
1,614.3%, from 1996 to 1997 and $5.3 million, or 441.7%, from 1997 to 1998.
License revenues represented 94.6% of our total revenues in 1996, 76.6% in 1997
and 84.1% in 1998. The increase in our license revenues from 1996 to 1997 was
primarily the result of the initial shipment in October 1996 of iManage
infoCommerce Server, iManage infoRite and iManage infoLink. The increase in our
license revenues from 1997 to 1998 was primarily due to increased market
acceptance of these products and increased prices for these products.
Support and Services Revenues. Our support and services revenues were
$4,000 in 1996, $358,000 in 1997 and $1.2 million in 1998, representing
increases of $354,000 from 1996 to 1997 and $842,000, or 235.2%, from 1997 to
1998. In 1997 and 1998, support and services revenues consisted primarily of
customer support and, to a lesser extent, training services, associated with the
increasing license revenues during these periods. Support and services revenues
represented 5.4% of our total revenues in 1996, 23.4% in 1997 and 15.9% in 1998.
The increase in absolute dollars in support and services revenues from 1997 to
1998 reflects increasing licenses of our iManage infoCommerce Server, iManage
infoRite and iManage infoLink.
COST OF REVENUES
Cost of License Revenues. Cost of license revenues was $4,000 in 1996,
$136,000 in 1997 and $414,000 in 1998, representing increases of $132,000, or
3,300.0%, from 1996 to 1997 and $278,000, or 204.4%, from 1997 to 1998. The
increase from 1996 to 1997 was a result of increased costs of production of
manuals and other media associated with the increasing license revenues during
this period. The increase in 1997 to 1998 was a result of increased royalties to
third parties for technology integrated into our iManage infoCommerce Server in
the fourth quarter of 1997 and the first quarter of 1998. Cost of license
revenues as a percentage of license revenues was 5.7% for 1996, 11.6% for 1997
and 6.4% for 1998.
Cost of Support and Services Revenues. Cost of support and services
revenues was $38,000 in 1996, $163,000 in 1997 and $1.2 million in 1998,
representing increases of $125,000, or 328.9%, from 1996 to 1997 and $1.0
million, or 636.2%, from 1997 to 1998. The increases from 1996 to 1998 resulted
primarily from an increase of $94,000 in 1997 and an increase of $689,000 in
1998 related to personnel-related expenses from increases in technical support
and training personnel and an increase of $213,000 in 1998 related to increases
in travel-related costs to manage and support our growing customer base. Cost of
support and services revenues as a percentage of support and services revenues
was 950.0% for 1996, 45.5% for 1997 and 98.5% for 1998.
23
<PAGE> 28
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses were $335,000 in 1996,
$1.1 million in 1997 and $4.4 million in 1998, representing increases of
$765,000, or 228.4%, from 1996 to 1997 and $3.3 million, or 300.0%, from 1997 to
1998. The increases from 1996 through 1998 primarily reflected investments in
our sales and marketing infrastructure, which included an increase of $406,000
in 1997 and an increase of $2.3 million in 1998 related to significant
personnel-related expenses including salaries, benefits and commissions,
recruiting fees, and related costs of hiring sales management, sales
representatives, sales engineers and marketing personnel. Sales and marketing
employees totaled three as of December 31, 1996, nine as of December 31, 1997
and 23 as of December 31, 1998, representing increases of 200.0% from 1996 to
1997 and 155.6% from 1997 to 1998. The increase in sales and marketing expenses
from 1997 to 1998 also reflected an increase of $399,000 in travel and
entertainment expenses, an increase of $340,000 in public relations and trade
show expenses, and an increase of $201,000 in facility-related overhead costs.
Sales and marketing expenses as a percentage of total revenues were 452.7% for
1996, 73.2% for 1997 and 56.7% for 1998. The decreases in sales and marketing
expenses as a percentage of total revenues from 1996 through 1998 reflected the
more rapid growth of our total revenues compared to the growth of sales and
marketing expenses in these periods.
Research and Development. Research and development expenses were $113,000
in 1996, $935,000 in 1997 and $2.4 million in 1998, representing increases of
$822,000, or 727.4%, from 1996 to 1997 and $1.5 million, or 156.7% from 1997 to
1998. The increases from 1996 through 1998 were primarily related to increased
personnel costs resulting from the increase in the wage rates, benefits and the
number of software developers and quality assurance personnel and third-party
consultants to support our product development and testing activities related to
the development of iManage infoRite, iManage infoLink and iManage infoLook as
well as enhancements to iManage infoCommerce Server. Our research and
development employees totaled three as of December 31, 1996, 12 as of December
31, 1997 and 16 as of December 31, 1998, representing increases of 300.0% from
1996 to 1997 and 33.3% from 1997 to 1998. Research and development costs as a
percentage of total revenues were 152.7.% in 1996, 61.1% in 1997 and 30.4% in
1998. The decreases in research and development expenses as a percentage of
total revenues from 1996 through 1998 reflected increases in our total revenues.
General and Administrative. General and administrative expenses were
$272,000 in 1996, $706,000 in 1997 and $1.3 million in 1998, representing
increases of $434,000, or 159.6%, from 1996 to 1997 and $594,000, or 84.1%, from
1997 to 1998. The increases from 1996 through 1998 were primarily the result of
increased personnel costs of $177,000 in 1997 and $339,000 in 1998 resulting
from additional finance, executive and administrative personnel and increases of
$69,000 in 1997 and $245,000 in 1998 in professional service costs, primarily
accounting and legal, to support the growth of our business during these
periods. General and administrative costs, as a percentage of total revenues
were 367.6% in 1996, 46.1% in 1997 and 16.7% in 1998.
Interest Income (Expense), Net. Interest income (expense), net was $(4,000)
in 1996, $13,000 in 1997 and $139,000 in 1998, representing increases of
$17,000, or 425.0%, from 1996 to 1997, and $126,000, or 969.2%, from 1997 to
1998. The increases from 1996 through 1998 were primarily the result of the
higher invested cash base as a result of proceeds received from the issuance of
our series A, B and C preferred stock.
Provision for Income Taxes. We have not recorded a provision for federal
and state income taxes because we have experienced net losses since inception
which has resulted in deferred tax assets. We have recorded a valuation
allowance for the entire deferred tax asset as a result of uncertainties
regarding the realization of the asset balance.
24
<PAGE> 29
QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited statement of operations data for the
seven quarters ended September 30, 1999, as well as such data expressed as a
percentage of our total revenues for the periods indicated. We have derived this
unaudited information on a basis consistent with our audited financial
statements and, in the opinion of our management, it reflects all normal
recurring adjustments considered necessary for a fair presentation of our
financial position and operating results for the quarters presented. Our
quarterly results have in the past been, and may in the future be, subject to
significant fluctuations. As a result, we believe that results of operations for
interim periods should not be relied upon as any indication of the results to be
expected in any future period.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
-----------------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1998 1998 1998 1998 1999 1999 1999
------- -------- -------- ------- ------- -------- --------
(UNAUDITED AND IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
License............................. $ 564 $1,285 $2,195 $2,465 $2,805 $ 3,354 $3,591
Support and services................ 206 178 382 466 774 941 1,239
------- ------ ------ ------ ------ ------- ------
Total revenues............... 770 1,463 2,577 2,931 3,579 4,295 4,830
------- ------ ------ ------ ------ ------- ------
Cost of revenues:
License............................. 53 97 112 152 149 178 211
Support and services................ 233 266 289 425 526 647 685
------- ------ ------ ------ ------ ------- ------
Total cost of revenues....... 286 363 401 577 675 825 896
------- ------ ------ ------ ------ ------- ------
Gross profit.......................... 484 1,100 2,176 2,354 2,904 3,470 3,934
------- ------ ------ ------ ------ ------- ------
Operating expenses:
Sales and marketing................. 810 988 1,212 1,383 1,707 1,970 2,141
Research and development............ 487 571 595 698 900 984 1,047
General and administrative.......... 280 297 331 387 440 498 589
Stock-based compensation............ 249 173 390 242 527 1,464 777
------- ------ ------ ------ ------ ------- ------
Total operating expenses..... 1,826 2,029 2,528 2,710 3,574 4,916 4,554
------- ------ ------ ------ ------ ------- ------
Loss from operations.................. (1,342) (929) (352) (356) (670) (1,446) (620)
Interest income (expense), net........ 2 32 27 78 77 109 146
------- ------ ------ ------ ------ ------- ------
Loss before provision for income
taxes............................... (1,340) (897) (325) (278) (593) (1,337) (474)
------- ------ ------ ------ ------ ------- ------
Provision for income taxes............ -- -- -- -- 1 3 25
------- ------ ------ ------ ------ ------- ------
Net loss.............................. $(1,340) $ (897) $ (325) $ (278) $ (594) $(1,340) $ (499)
======= ====== ====== ====== ====== ======= ======
</TABLE>
25
<PAGE> 30
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
-----------------------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30, SEPT 30,
1998 1998 1998 1998 1999 1999 1999
------- -------- -------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
As a percentage of total
revenues:
Revenues:
License....................... 73.2% 87.8% 85.2% 84.1% 78.4% 78.1% 74.3%
Support and services.......... 26.8 12.2 14.8 15.9 21.6 21.9 25.7
------- ------ ------ ------ ------ ------- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------ ------ ------ ------ ------- -----
Cost of revenues:
License....................... 6.9 6.6 4.3 5.2 4.2 4.1 4.4
Support and services.......... 30.3 18.2 11.2 14.5 14.7 15.1 14.2
------- ------ ------ ------ ------ ------- -----
Total cost of
revenues............. 37.1 24.8 15.6 19.7 18.9 19.2 18.6
------- ------ ------ ------ ------ ------- -----
Gross profit.................... 62.9 75.2 84.4 80.3 81.1 80.8 81.4
------- ------ ------ ------ ------ ------- -----
Operating expenses:
Sales and marketing........... 105.2 67.5 47.0 47.2 47.7 45.9 44.3
Research and development...... 63.2 39.0 23.1 23.8 25.1 22.9 21.7
General and administrative.... 36.4 20.3 12.8 13.2 12.3 11.6 12.2
Stock-based compensation...... 32.3 11.8 15.1 8.3 14.7 34.1 16.1
------- ------ ------ ------ ------ ------- -----
Total operating
expenses............. 237.1 138.7 98.1 92.5 99.9 114.5 94.3
------- ------ ------ ------ ------ ------- -----
Loss from operations............ (174.3) (63.5) (13.7) (12.2) (18.7) (33.7) (12.9)
Interest income (expense),
net........................... 0.3 2.2 1.0 2.7 2.2 2.5 3.0
------- ------ ------ ------ ------ ------- -----
Loss before provision for income
taxes......................... (174.0) (61.3) (12.6) (9.5) (16.6) (31.1) (9.9)
------- ------ ------ ------ ------ ------- -----
Provision for income taxes...... 0.0 0.0 0.0 0.0 0.0 0.1 0.6
------- ------ ------ ------ ------ ------- -----
Net loss........................ (174.0)% (61.3)% (12.6)% (9.5)% (16.6)% (31.2)% (10.3)%
======= ====== ====== ====== ====== ======= =====
</TABLE>
Revenues. Our total revenues increased in each of the seven quarterly
periods presented above. The increase in total revenues in these periods
reflects the increase in the number of customers and increased sales following
our release of enhancements to our iManage infoCommerce Server in March 1998.
Since June 30, 1998, our license revenues have decreased as a percentage of our
total revenues as our support and services revenues have increased with the
increase in our customer base.
Cost of Revenues. Cost of revenues increased in each of the seven quarterly
periods ended September 30, 1999 as a result of the growth of revenues.
Operating Expenses. Operating expenses increased significantly in each of
the seven quarterly periods presented above, except the quarter ended September
30, 1999, as a result of increased sales and marketing expenses associated with
higher numbers of personnel, use of independent contractors and other third
parties for development of our products, recruiting and related hiring expenses
for additional senior management in our sales and marketing, general and
administrative, and research and development organizations and stock-based
compensation expense. The decrease in operating expenses from the quarter ended
June 30, 1999 to the quarter ended September 30, 1999 was the result of
decreased amortization of stock-based compensation in the quarter ended
September 30, 1999.
Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future. We believe that our
period-to-period operating results are not meaningful, and you should not rely
on them as indicative of our future performance. Although we have experienced
significant revenue growth recently, our revenues might not continue to grow and
26
<PAGE> 31
we might not become or remain profitable in the future. Our future operating
results will depend on many factors, including:
- the size, timing, terms and fluctuations of customer orders, particularly
large orders from a limited number of customers, especially in markets
outside the legal applications market where we have traditionally focused
our sales and marketing efforts;
- our ability to expand our relationships with information technology
consultants, system integrators and unified messaging original equipment
manufacturers;
- the timing of the introduction or enhancement of products by us, such as
the release of enhanced versions of our iManage infoLink in October 1999
and our iManage infoCommerce Server planned for the end of the first
quarter of 2000, and the release of new or enhanced products by our
competitors; and
- changes in technology, industry standards or customer preferences, such
as customers placing a lower priority on content and collaboration
management.
We have in the past experienced delays in the planned release dates of our
new software products or upgrades and have discovered software defects in our
new products after their introduction. Our new products or upgrades may not be
released according to schedule, or when released may contain defects. Either of
these situations could result in adverse publicity, loss of revenues, delay in
market acceptance or claims by customers brought against us, any of which could
harm our business. In addition, the timing of individual sales has been
difficult for us to predict, and large individual sales have, in some cases,
occurred in quarters after the time we anticipated that they would occur. The
loss or deferral of one or more significant sales may harm our quarterly
operating results.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through sales of
convertible preferred stock, resulting in net proceeds of $10.9 million through
September 30, 1999. To a lesser extent, we have financed our operations through
lending arrangements. As of September 30, 1999, we had cash, cash equivalents
and short-term investments of $15.1 million and approximately $2.5 million of
available borrowings under a line of credit.
Net cash used in operating activities was $412,000 in 1996, $1.8 million in
1997 and $622,000 in 1998. For the nine month period ended September 30, 1999,
net cash provided by operations was $6.6 million. For the 1996, 1997 and 1998
periods, net cash used by operating activities was primarily a result of funding
ongoing operations. Net cash provided by operations in the nine month period
ended September 30, 1999 was primarily the result of increasing sales of our
iManage suite of products, receipt of cash associated with license and support
and service revenues in advance of revenue recognition and non-cash charges
associated with stock-based compensation expense.
Since inception, our investing activities have consisted of purchases of
property and equipment and, in 1999, the purchase of short-term investments. Net
cash used in investing activities totaled $59,000 in 1996, $192,000 in 1997,
$431,000 in 1998 and $6.9 million in the nine month period ended September 30,
1999. We finance the acquisition of property and equipment, which largely
consists of computer hardware and software and furniture and fixtures for our
increasing employee base as well as for our management information systems,
primarily through a line of credit. We anticipate that we will experience an
increase in our capital expenditures consistent with our anticipated growth in
operations, infrastructure and personnel. We do not expect to incur significant
costs to make our products or internal information systems year 2000 compliant
because we believe our products and information systems are designed to function
properly through and beyond the year 2000.
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Our financing activities provided $820,000 in 1996, $3.4 million in 1997,
$6.9 million in 1998 and $2.3 million in the nine month period ended September
30, 1999. In 1996, cash provided by financing activities consisted primarily of
$625,000 received in connection with the sale of series A preferred stock. In
1997, cash provided by financing activities consisted primarily of $3.4 million
received in connection with the sale of series A and series B preferred stock.
In 1998, cash provided by financing activities consisted primarily of $7.0
million received in connection with the sale of series B and series C preferred
stock. In the nine month period ended September 30, 1999, cash provided by
financing activities consisted primarily of $2.0 million of proceeds under our
equipment line of credit.
As of September 30, 1999, we had a revolving line of credit with a bank for
$5.0 million, which bears interest at the lending bank's prime rate plus 0.25%.
Borrowings were limited to the lesser of 80% of eligible accounts receivable or
$5.0 million and were secured by substantially all of our assets. As of
September 30, 1999, we had not borrowed under the revolving line of credit. We
could borrow approximately $2.5 million under this line as of September 30,
1999. In addition, as of September 30, 1999, we had an equipment line of credit
with a bank for $2.0 million, which bears interest at the lending bank's prime
rate plus 0.5%. As of September 30, 1999, we had borrowed the full $2.0 million
under the equipment line of credit. This line of credit includes covenant
restrictions requiring us to (a) maintain a monthly quick assets to current
liabilities ratio of at least two to one; (b) to maintain a minimum
profitability level requiring that we not incur a net loss in any quarter of a
fiscal year, except we are permitted to incur a loss of $150,000 in one quarter
per fiscal year, and (c) limit our ability to declare and pay dividends. We were
in violation of the profitability covenant at June 30, 1999 and received a
waiver from the bank for our violation through June 30, 1999. This profitability
covenant was amended for all future periods to require profitability in all
quarters of a fiscal year, with the one quarter allowable net loss of $150,000.
The profitability, however, is to be determined based upon our operating
results, excluding charges for software development and non-cash charges for
amortization of stock-based compensation. We were in compliance with such
amended covenants at September 30, 1999.
We currently anticipate that the net proceeds of this offering, together
with our existing lines of credit and available funds, will be sufficient to
meet our anticipated needs for working capital and capital expenditures at least
through the next 12 to 24 months. However, we may be required, or could elect,
to seek additional funding before that time. Our future capital requirements
will depend on many factors, including our future revenue, the timing and extent
of spending to support product development efforts and expansion of sales,
general and administrative activities, the timing of introductions of new
products and market acceptance of our products. We cannot assure you that
additional equity or debt financing, if required, will be available on
acceptable terms or at all.
YEAR 2000 COMPLIANCE
Background of Year 2000 Issues. Many currently installed computer systems
and software products are unable to distinguish between twentieth century dates
and twenty-first century dates because the systems were developed using two
digits rather than four to determine the applicable year. For example, computer
programs that have date-sensitive software may recognize a date using 00 as the
year 1900 rather than the year 2000. This error could result in system failures
or miscalculations causing disruptions of operations, including a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced to comply with these year 2000 requirements.
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State of Readiness. We have completed our assessment of the potential
overall impact of the impending century change on our business. Based on this
assessment, we believe the current versions of our software products are year
2000 compliant. By year 2000 compliant, we mean that our software products, when
used with accurate date data and according to their associated documentation,
are capable of properly processing date data from, into and between the 20th and
21st centuries, including the years 1999, 2000 and leap years, provided that all
other products, such as hardware, software and firmware, used with our products
properly exchange date data with them. However, our products are generally
integrated into enterprise systems involving sophisticated hardware and complex
software products that we cannot adequately evaluate for year 2000 compliance.
We may face claims based on year 2000 problems in other companies' products, or
issues arising from the integration of multiple products within an overall
system even if our products are otherwise year 2000 compliant. Although we have
not been a party to any litigation or arbitration proceeding involving our
products or services related to year 2000 compliance issues, we may in the
future be required to defend our products or services in these proceedings, or
to negotiate resolutions of claims based on year 2000 issues. The costs of
defending and resolving year 2000-related disputes, regardless of the merits of
these disputes, and any liability we may have for year 2000-related damages,
including consequential damages, could substantially harm our business.
We have completed our review of internal management information and other
computer systems to identify any year 2000 problems. To date, we have not
encountered any material year 2000 problems with our internal management
information or computer systems or any other equipment that might be subject to
these problems. We believe that the Verity and INSO software that we incorporate
into our iManage infoCommerce Server are year 2000 compliant based on
information that each of them has provided to us. We are beginning to
communicate with our other external vendors that supply us with other software
and information systems and with our significant suppliers to determine their
year 2000 readiness. We have completed our year 2000 investigation of our major
vendors and suppliers and overall compliance initiative.
Costs. To date, we have not incurred any material costs directly associated
with our year 2000 compliance efforts, except for compensation expenses
associated with our salaried employees who have devoted some of their time to
our year 2000 assessment and remediation efforts. We do not expect the total
cost of year 2000 problems to be material to our business. However, we will
continue to evaluate new versions of our software products, new software and
information systems provided to us by third parties and any new infrastructure
systems that we acquire to determine whether they are year 2000 compliant.
Despite our current assessment, we may not identify and correct all significant
year 2000 problems on a timely basis. Year 2000 compliance efforts may involve
significant time and expense and unremediated problems could substantially harm
our business.
Risks. We are not currently aware of any year 2000 readiness problems
relating to our internally developed proprietary systems that would
substantially harm our business. We may discover year 2000 readiness problems in
these systems that will require substantial revision. In addition, third-party
software, hardware or services incorporated into our material systems may need
to be revised or replaced, all of which could be time-consuming and expensive.
Our failure to fix or replace our internally developed proprietary software or
third-party software, hardware or services on a timely basis could result in
lost revenues, increased operating costs, the loss of customers and other
business interruptions, any of which could substantially harm our business.
Moreover, our failure to adequately address year 2000 readiness issues in our
internally developed proprietary software could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, we believe that year 2000 issues may affect the purchasing
patterns of customers and potential customers, as companies expend significant
resources to correct or upgrade their current
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software systems for year 2000 compliance or defer additional software purchases
until after 2000. As a result, some customers and potential customers may have
more limited budgets available to purchase software products such as those
offered by us, and others may choose to refrain from changes in their
information technology environment until after January 1, 2000. To the extent
year 2000 issues cause significant delay in, or cancellation of, purchases of
our products or services, our business would be materially adversely affected.
Finally, governmental agencies, telephone and utility companies, Internet
access companies, third-party service providers and others outside of our
control may not be year 2000 ready. The failure by these entities to be year
2000 ready could result in a systemic failure beyond our control, such as a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services to our customers, decrease the use of
the Internet or prevent users from accessing web sites.
Contingency Plan. We have not yet completed development of our contingency
plans. The results of our year 2000 simulation testing and the responses
received from third-party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans we adopt.
We currently anticipate that we will complete development of our contingency
plans within the next few months.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition. SOP 98-9 amends SOP 97-2
to require that an entity recognize revenue for multiple element arrangements by
means of the residual method when (1) there is no vendor-specific objective
evidence, or VSOE, of the fair values of all the undelivered elements that are
not accounted for by means of long-term contract accounting, (2) VSOE of fair
value does not exist for one or more of the delivered elements and (3) all
revenue recognition criteria of SOP 97-2, other than the requirement for VSOE of
the fair value of each delivered element, are satisfied. The provisions of SOP
No. 98-9 that extend the deferral of various paragraphs of SOP 97-2 became
effective December 15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 will be
effective for transactions that are entered into in fiscal years beginning after
March 15, 1999. Retroactive application is prohibited. We are currently
evaluating the impact of the requirements of SOP 98-9 and the effects, if any,
on our current revenue recognition policies.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. In July 1999, the
Financial Accounting Standard Boards issued SFAS No. 137, or SFAS 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133. SFAS 137 deferred the effective date of SFAS 133
until the first fiscal quarter beginning after June 15, 2000. We do not
currently hold derivative instruments or engage in hedging activities. We are
continuing to evaluate the impact of the requirements of SFAS No. 133 and SFAS
No. 137 will have on our financial statements and related disclosures.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, and to a lesser extent in Europe and Asia/Pacific regions. As a result,
our financial results could be affected
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by changes in foreign currency exchange rates or weak economic conditions in
foreign markets. Because all of our revenues are currently denominated in U.S.
dollars, a strengthening of the dollar could make our products less competitive
in foreign markets. Our interest income is sensitive to changes in the general
level of U.S. interest rates, particularly since the majority of our investments
are in short-term instruments. Our interest expense is also sensitive to changes
in the general level of U.S. interest rates. Due to the short-term nature of our
investments, we believe that there is not a material risk exposure.
ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, member states of the European Economic Community, or
the EEC, fixed their currencies to a new currency, the euro. On that day, the
euro became a functional legal currency within these countries. Furthermore,
during the three years beginning on January 1, 1999, business in these EEC
member states will be conducted in both the existing national currency, such as
the Netherlands guilder, French franc or Deutsche mark, and the euro. Companies
operating in or conducting business in EEC member states will need to ensure
that their financial and other software systems are capable of processing
transactions and properly handling the existing currencies, as well as the euro.
We are still assessing the impact that the euro will have on our internal
systems and products. While we believe our enterprise-wide information systems
will be euro-compliant, we have not tested these systems. We have not determined
the costs related to any euro-related problems that may arise in the future.
These problems may materially adversely affect our business, operating results
and financial condition.
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BUSINESS
COMPANY OVERVIEW
We provide e-business content and collaboration management software. Our
software provides a web-based unified content platform that manages, organizes
and delivers relevant information from a variety of sources in a centralized
manner throughout the extended enterprise. We believe that our solution features
a highly scalable, reliable and robust platform designed to provide security,
accountability and the timely delivery of relevant information, content and
documents. Our core technology architecture has been developed over the last
four years and has been deployed in over 500 customers, including: Airtouch
Communications, Inc., America Online, Inc., Charles Schwab & Company, Inc.,
Cleary, Gottlieb, Steen & Hamilton, Cravath, Swaine & Moore, Fried, Frank,
Harris, Shriver & Jacobson, Marriott International, Inc., Morgan, Lewis &
Bockius LLP, Wal-Mart Stores Inc., and Wilson, Sonsini, Goodrich & Rosati, Inc.,
Professional Corporation.
INDUSTRY BACKGROUND
The Internet is having a dramatic and pervasive impact on the way that many
organizations conduct business. Organizations worldwide are looking for new and
innovative ways to use the Internet to gain competitive advantages. For example,
organizations are employing web-based technologies to disseminate, exchange and
manage information internally through corporate intranets to enable
collaboration among employees. Organizations are also using web-based
technologies to develop corporate extranets that extend the enterprise and
enable it to collaborate directly with its partners, customers and service
providers. According to a recent survey from the Delphi Group, collaborative
information management, that is, the dissemination, exchange and management of
information across an extended enterprise, is the number one priority of
corporate information technology departments. The use of web-based technologies
has led to the development of an electronic business environment, or e-business,
where the dynamic exchange, timely dissemination and use of information is
essential to conducting business.
The development of e-business has led to a dramatic increase in the amount
of information available to the average employee. This increase in information
has not only transformed the business world but has also introduced new
complexities and challenges as employees struggle to cope with the volume and
diversity of information that they are required to process on a daily basis. The
average employee receives a broad range of information, content and documents
through a variety of sources including email, voicemail, enterprise and desktop
applications, facsimiles and photocopies, the Internet, and intranet and
extranet web sites. In addition, the growth of e-business has resulted in a
proliferation of the various forms in which employees receive and exchange
information. These new forms include media such as graphics, video, text, audio
and data. The e-business requirement that the right information be delivered to
the right person at the right time is threatened by the overwhelming amount and
variety of information that is now disseminated through these disparate media
sources.
Most companies have ineffective approaches for addressing the challenge of
ensuring that the right information gets to the right person at the right time.
In the absence of a comprehensive e-business solution, organizations have
generally adopted one of two approaches. Organizations have either developed a
custom approach through a combination of email and intranet and extranet web
sites or used packaged applications that are not specifically designed to meet
the requirements of e-business. Organizations that have implemented a custom
approach often fail to achieve the integrated delivery and management of
critical information and content for several reasons. Email, while easy-to-use
and convenient, lacks effective collaboration and project management, control,
accountability
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and security, and is not integrated with intranet information and content.
Intranets and extranets, while more effective mechanisms for disseminating
information, typically lack the scalable content management infrastructure to
ensure that posted information is accurate, up-to-date, organized and actually
viewed by the intended audience.
Alternatively, other organizations have attempted to address the
information challenges of e-business by deploying a variety of packaged
applications, including enterprise information portals, web-based information
delivery systems, and knowledge and document management solutions. Enterprise
information portals and web-based information delivery systems are effective
means of accessing and distributing information. However, they lack the
comprehensive infrastructure to manage and organize all forms of information,
content and documents and to enable collaboration and project management across
the extended enterprise. Client-server based knowledge and document management
systems are capable of organizing and storing documents but are expensive to
maintain and are not designed to deliver and exchange information over the web
to thousands of concurrent users. As the custom approach and use of packaged
applications demonstrate, there is no comprehensive solution that addresses the
key aspects of content and collaboration management to enable more effective
information management, organization and delivery across the extended
enterprise.
SOLUTION
We provide e-business content and collaboration management software. Our
solution provides a web-based unified content platform that manages, organizes
and delivers relevant information from a variety of sources in a centralized
manner throughout the extended enterprise.
Our solution provides the following key benefits:
Comprehensive E-Business Content and Collaboration Management. Our iManage
infoCommerce Server provides a comprehensive e-business content and
collaboration management solution that addresses key aspects of managing,
organizing and delivering information and content to the right person at the
right time throughout the extended enterprise. Our server provides users with a
centralized online location to access content, such as graphics, video, text,
audio and data. In addition to offering a robust underlying content management
infrastructure, our solution is designed to ensure effective content access,
delivery and notification based on relevance to particular projects, processes
and individuals. We believe our comprehensive solution enables our customers to
more effectively collaborate and exchange information over the web.
Highly Scalable, Reliable and Robust Platform. We believe our solution
features a highly scalable, reliable and robust platform. We have developed our
underlying architecture over the last four years and have deployed our solution
in over 500 customers. Our software has been designed to accommodate the demands
of e-business and to scale to tens of thousands of concurrent users and millions
of information objects. For example, in a single customer deployment, our
solution scaled to accommodate over 3.8 million information objects and 2,400
concurrent users in over 14 geographic locations across the world.
Timely Delivery of Relevant Information. Our solution ensures the timely
delivery of relevant information by notifying the appropriate users of the
information and providing them with access to the information through the web
and email. For example, with the release of iManage infoLook in August 1999, a
user can specify business rules or profiles so that new information is delivered
only to those individuals who meet the criteria that the user specifies. Through
the use of rules and profiles, a user can limit the information he receives to
meet his specified criteria. The delivery of and access to relevant information
is immediate through our automatic publication and notification features. This
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functionality is designed to ensure that the right information is delivered to
the right person at the right time.
Security and Accountability. Our solution offers the ability to centrally
enforce security privileges based on individual or group access level
permissions within an organization or across the extended enterprise. For
example, rather than attaching documents to email, which is a highly insecure
method of distributing information, our solution only sends a link to the
content which resides on a secure content server. This approach enhances
security in contrast to other forms of information distribution. The use of
links also ensures accountability by preserving control of the content in a
single location. As a result, organizations using our solution can now track
when documents were sent, when they were received and reviewed, when project
folders were accessed and who accessed them.
Our solution has been designed to address the needs of a broad range of
markets, such as financial services, retail, manufacturing and distribution,
banking and professional services. Initially, we targeted substantially all of
our sales and marketing efforts on the legal applications market. The customers
in this market require management and organization of a large volume of critical
information in a scalable and secure environment. We now intend to leverage on
our success and experience in the legal applications market to market our
solution to other markets.
STRATEGY
Our objective is to become the leading provider of e-business content and
collaboration management software. Key elements of our strategy to achieve this
objective include:
Capture Market Share. Our strategy is to become the market leader in
providing software to enable unified e-business content and collaboration
management over the Internet. As our customers deploy our solution, their
customers, partners and service providers will be exposed to the benefits and
functionality of our products. We believe that the introduction of our products
to these non-customers will accelerate industry recognition and adoption of our
products. As more and more organizations deploy our e-business solution, we
believe that the management, organization and delivery of relevant information
will improve, which will drive greater usage.
Leverage Installed Customer Base. We believe there are significant
opportunities to leverage the use of our products throughout our current
customer base. Our corporate customers generally deploy our products initially
on a departmental basis and we believe that initial customer satisfaction with
these deployments will lead to significant opportunities for enterprise-wide
adoption. In addition, most companies and professional service firms, including
our customers, are just beginning to exploit the business opportunities that the
web has created. As they increasingly migrate their business processes to the
web, we believe they will need additional licenses of our software to support
and enable e-business content and collaboration applications.
Expand and Leverage Key Business Relationships. To accelerate the
acceptance of our solution and to promote the adoption of e-business content and
collaboration management over the web, we intend to develop over the next 12
months additional cooperative alliances and relationships with leading
information technology consultants, system integrators and unified messaging
original equipment manufacturers. We believe that these alliances and
relationships will provide additional marketing and sales channels for our
products, enable us to more rapidly incorporate additional functions and
platforms into our e-business suite of products, and facilitate the successful
deployment of customer applications.
Maintain Technological Leadership. We believe that we offer the most
complete e-business content and collaboration management solution available
today. We have devoted significant resources
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to developing our solution over the last four years. We intend to extend our
leadership position by continuing to enhance our technology through significant
investment in research and development activities. We also plan over the next 12
months to expand our unified content platform by integrating content from new
media sources including facsimile machines, photocopiers, voicemail systems and
scanners.
Strengthen International Presence. We believe that there will be
significant international opportunities for our products and services and intend
to strengthen our global sales, marketing and distribution efforts to address
the range of markets and applications for our e-business content and
collaboration management solution. We currently have a direct sales presence in
the U.S., Canada and the United Kingdom. In Europe and the Asia/Pacific region,
we sell our products through third-party distributors. During the next 12
months, we intend to aggressively strengthen our international presence by
adding direct sales personnel and increasing our indirect sales channels to
fully capitalize on international market opportunities.
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IMANAGE PRODUCTS
Our iManage suite of e-business content and collaboration management
products, which we have developed over the last four years, provides a
comprehensive set of application modules that work in concert with each other
and the same underlying server. Our current product line consists of the iManage
infoCommerce Server and iManage infoLink, iManage infoLook and iManage infoRite
application modules.
The following table describes the major features and benefits of our
iManage suite of products.
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
PRODUCT FEATURES BENEFITS
- -------------------------------------------------------------------------------------------------
iManage infoCommerce Application server Ensures server uptime by splitting server
Server failover processes across multiple servers so that if
Content and collaboration any one server fails, users are automatically
server routed to the next available server.
Transaction Ensures all server transactions are completed
processing in full or the information is restored to the
previous state before the transaction
commenced.
Content indexing Allows users to use search criteria to find
specific information.
Roles-based security Protects content from unauthorized access and
allows users to be assigned security privileges
based on their role in an organization.
- -------------------------------------------------------------------------------------------------
iManage infoLook Auto-notification Automatically alerts subscribers when new
Microsoft Outlook content has been contributed to a project
folder.
integration module Auto-publishing Automates the process of publishing content to
an intranet, extranet or Internet web site.
Link/URL routing Allows users to email links and uniform
resource locators, or URLs, to specific server
content instead of physically transferring
content by email, ensuring system security,
accountability and network efficiency.
Rules-based Provides the ability to route to specific
processing project folders incoming email, content and
facsimiles based on specific user defined
rules.
- -------------------------------------------------------------------------------------------------
iManage infoLink Security-based Enables navigation through project folders and
Web-portal module navigation review of content based on security privileges.
User-definable Allows content from multiple projects to be
search folders dynamically grouped together using search
criteria.
Secured content Allows secure content contribution into iManage
contribution repositories securely over the Internet.
- -------------------------------------------------------------------------------------------------
iManage infoRite Content profiling Adds context to content and enables users to
Content-authoring module and history track usage of content and access history.
Integrated online Allows users to search the content of iManage
research repositories and online information services.
Microsoft Office Provides access to iManage repositories and the
integration ability to submit content directly from within
Microsoft Word, Excel and PowerPoint products.
Content relationship Enables information to be grouped so that users
grouping can track information that is relevant to a
project, process or individual.
- -------------------------------------------------------------------------------------------------
</TABLE>
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Our iManage infoCommerce Server provides the core functionality of our
content and collaboration management solution. Each of our application modules,
iManage infoLook, iManage infoLink and iManage infoRite, works in conjunction
with the iManage infoCommerce Server and with one another. Each of these modules
delivers additional functionality for different client configurations and
applications. An organization can elect to use any combination of iManage
infoLink, iManage infoLook and iManage infoRite with the iManage infoCommerce
Server as its needs dictate. Additionally, multiple organizations using iManage
infoLink with iManage infoCommerce Server enjoy the benefits of using an iManage
virtual private network upon which they can collaborate and share information.
iManage infoLook, our newest module, integrates with Microsoft Outlook and
enables users to manage, organize and deliver e-business information, content
and documents through the familiar, easy-to-use Outlook environment. iManage
infoLink is a web-based user interface that provides full access to all iManage
infoCommerce Server content through a web browser. iManage infoRite is a
dedicated content-authoring interface that integrates with Microsoft Office
publishing tools, such as Excel, Word and PowerPoint and is designed for heavy
publishing uses. These application modules allow different users with different
interfaces to share and exchange information and content. The overall objective
in the design of each element of the iManage suite of products is to provide a
simplified mechanism to enable intra-business and business-to-business content
and collaboration management capabilities for organizations over their existing
email, intranet and Internet networks.
We also provide the following products:
iManage Notes Module. The iManage Notes Module enables users of the Lotus
Notes application environment to integrate their Notes content and email
correspondence directly into an iManage e-business Server repository.
iManage GroupWise Module. The iManage GroupWise Module enables users of the
Novell GroupWise application environment to integrate their GroupWise content
and email correspondence directly into an iManage e-business Server repository.
iManage Software Development Kit, or SDK. iManage SDK is a software
development kit developed primarily for third-party developers who wish to
integrate their applications with iManage infoCommerce Server repositories.
Software integrators also use the iManage SDK to develop their own applications
based on the iManage suite of e-business content and collaboration management
products.
Our products are licensed to customers on a per server and a per user
basis. We do not license our products on a concurrent user basis, nor are they
available on a rental or service basis. However, we are reviewing both
subscription and services-based licensing models for possible adoption in future
product offerings.
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Technology Platform.
The following illustrates how our e-business content and collaboration
management software manages, organizes and delivers information from a variety
of sources throughout the extended enterprise.
[iManage Components Architecture Graphic]
The iManage suite of products incorporates a number of open industry
standards as well as proprietary technologies that ensure our broad industry
suitability to e-business collaboration and content applications. The following
is a list of technologies that are employed within our products to meet the
requirements of the market and provide competitive advantages to our products:
MAPI Store Provider interface, or MSP. The MSP interface integrates
Microsoft Outlook to our repositories and functionality to enable Outlook to
work with the iManage infoCommerce Server as if it were a Microsoft Exchange
server. This integration allows us to seamlessly route and forward email,
voicemail and other content into the iManage infoCommerce Server directly from
Outlook.
NT and NDS directory service support. Our products incorporate a highly
sophisticated security management system. This system integrates with the
existing directories of Microsoft Windows NT and Novell NDS so that users of NT
and Novell networks can automatically be listed as users of the iManage system.
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JAVA, HTML and Active Server Page support. We developed web interfaces to
support the most widely used web application and content technologies, namely
JAVA, HTML and Active Server Pages, or ASP. Using these technologies, we have
designed interfaces so that users of Microsoft Internet Explorer and Netscape
Navigator web browsers, as well as other browsers, can access information
contained within iManage infoCommerce Server repositories.
Microsoft Office 2000 integration. We designed interfaces to our server
that enable users of Microsoft Office 2000 and previous Microsoft Office
versions to contribute content directly to the iManage repositories. This
integration enables authors of information, which is to be published on an
intranet, extranet or Internet site, to remain within the authoring tool of
choice, such as Excel, Word or PowerPoint, and save their content directly to
the iManage repository.
Component Object Model, or COM, support. We employed COM as our standard
means of integrating each component of our solution into other components and
the operating environment itself. COM has become a development standard for all
Microsoft Windows applications and an efficient means to develop new modular
functionality for our products.
International support. To date, our software has been translated and
localized into German for distribution in Germany. We expect to provide
additional language conversions to ensure our products can be distributed in
additional non-English speaking international markets.
SALES AND MARKETING
We sell our software products through our direct sales force and a network
of strategic partners and systems integrators. As of September 30, 1999, we
employed 32 people in our sales, marketing and business development
organization. Our distribution network of over 150 reseller partners and systems
integrators complements our direct sales force and represents us in Australia,
Canada, New Zealand, the United Kingdom and the United States. Our application
specialists provide pre-sales support and post-sales implementation for our
customers.
Our marketing programs focus on creating overall awareness of e-business
content and collaboration management. To generate market awareness, we
participate in market research, industry analyst product and strategy updates,
trade shows and seminars and engage in web site marketing to generate qualified
sales leads. We utilize market research in a formal feedback process to
determine specific industry segment needs, which we use to define and direct our
product development efforts.
Our sales process consists of engaging senior management, primarily chief
information and chief technology officers, at our potential customers to explain
the benefits of our solution. With our technical professionals and systems
integration partners, we assess the specific needs of the enterprise and create
demonstrations and proposals to satisfy customer requirements. We have certified
and trained approximately 500 third-party consultants to assist our customers in
the technical implementation of our solution.
We believe that strategic alliances will be increasingly important in
marketing and selling our solution and developing customer applications. Over
the next 12 months, we intend to broaden the number of alliances we have with
key systems integrators. Furthermore, we intend during the next 12 months to
aggressively expand our sales and marketing staff and devote substantial
resources to our sales and marketing activities.
CUSTOMERS
We have licensed our products to over 500 customers. To date, we have
focused our sales and marketing resources primarily on law firms. We derived
89.0% of our total revenues in 1998 and
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<PAGE> 44
94.0% of our total revenues in the nine month period ended September 30, 1999
from the sale of licenses to law firms and professional service firms. The
following table lists our top twenty law firm customers, in terms of billings,
since January 1, 1998 and our non-law firm customers that have purchased
licenses in excess of $50,000 since January 1, 1998.
<TABLE>
<S> <C>
Airtouch Communications Inc. Minter Ellison
America Online, Inc. Morgan, Lewis & Bockius LLP
Charles Schwab & Company, Inc. Motorola
City of Phoenix National Association of Securities Dealers
Choice One Communications Paul, Weiss, Rifkind, Wharton & Garrison
Cleary, Gottlieb, Steen & Hamilton Pillsbury Madison & Sutro LLP
Commodities Corporation LLC Ropes & Gray
Cravath, Swaine & Moore Sidley & Austin
Federal Home Loan Bank Chicago State of California
Fraser Milner State of Indiana
Fried, Frank, Harris, Shriver & Jacobson Stoel Rives LLP
Gibson, Dunn & Crutcher LLP TIAA-CREF
Herbert Smith Vinson & Elkins L.L.P.
Jenkens & Gilchrist, A Professional Wal-Mart Stores Inc.
Corporation Wilmer, Cutler & Pickering
Lane Powell Spears Lubersky LLP Wilson, Sonsini, Goodrich & Rosati,
Marriott International, Inc. Professional Corporation
Mayer, Brown & Platt
McDermott, Will & Emery
</TABLE>
In 1996, Hahn Loeser & Parks accounted for 31% of our total revenues, MBL
Life Assurance Corporation accounted for 15% of our total revenues, McFall
Sherwood & Sheehy accounted for 10% of our total revenues and Norfolk Southern
accounted for 11% of our total revenues. There were no customers that accounted
for more than 10% of our total revenues for 1997, 1998 and the nine month period
ended September 30, 1999.
CUSTOMER SERVICE, TRAINING AND SUPPORT
We believe that customer satisfaction is essential for our long-term
success. Our technical support group provides dependable and timely resolution
of customer technical inquiries and is available to customers by telephone,
email and over the web. We use a customer service automation system to track
each customer's inquiry until it is resolved. Our training services group
delivers education and training to our customers and partners. We offer a
comprehensive series of classes to our customers to provide them with the
knowledge and skills to successfully deploy, use and maintain our products.
These courses focus on the technical aspects of our products as well as related
business issues and processes. We regularly hold our classes in various
locations throughout the United States and in our training facilities at our
research and development headquarters in Chicago, Illinois. Our customer support
and training organization consisted of 19 employees at September 30, 1999.
RESEARCH AND DEVELOPMENT
We believe that our future success will depend in large part on our ability
to enhance our product family, develop new products, maintain technological
leadership, and satisfy an evolving range of customer requirements for
large-scale interactive online content and collaboration management
applications. Our product development organization is responsible for product
architecture, core technology, product testing, quality assurance, documentation
and expanding the ability of our products to operate with leading hardware
platforms, operating systems, database management systems, and key electronic
commerce transaction processing standards. As of September 30, 1999, our product
development organization consisted of 27 employees.
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<PAGE> 45
We believe that our product development team and core technologies
represent a significant competitive advantage. Our product development team
includes key members of other past research and development organizations that
have developed scalable, reliable, critical online applications. We believe our
technically skilled, quality-oriented and highly productive development
organization is a key component of the success of our new product offerings. We
must attract and retain highly qualified employees to further our product
development efforts. Our business and operating results could be seriously
harmed if we are not able to hire and retain a sufficient number of these
individuals.
Our research and development expenditures were approximately $113,000 for
1996, $935,000 for 1997, $2.4 million for 1998 and $2.9 million for the nine
month period ended September 30, 1999. All research and development expenditures
have been expensed as incurred. We expect to continue to devote substantial
resources to our research and development activities.
COMPETITION
We have experienced and expect to continue to experience increased
competition from current and potential competitors. Many of these companies have
greater name recognition, longer operating histories, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than we have. We expect to face competition
from these and other competitors, including:
- companies addressing segments of our market including Agile Software
Corporation, BackWeb Technologies Ltd., Documentum, Inc., Hummingbird
Communications Ltd., Marimba, Inc., Open Text Corporation, TIBCO Software
Inc. and Verity, Inc.;
- intranet and groupware companies including IBM and its subsidiary, Lotus
Development Corporation, Microsoft and Novell; and
- in-house development efforts by our customers and potential customers or
partners.
We believe that we may face additional competition from operating system
vendors, online service providers, client/server applications and tools vendors
and enterprise information portal companies. If any of our competitors were to
become the industry standard or were to enter into or expand relationships with
significantly larger companies through mergers, acquisitions or other similar
transactions, our business could be seriously harmed. In addition, potential
competitors may bundle their products or incorporate functionality into existing
products in a manner that discourages users from purchasing our products.
We believe that the principal competitive factors in the e-business content
and collaboration management market are:
- product performance, features, functionality and reliability;
- price/performance characteristics;
- timeliness of new product introductions;
- adoption of emerging industry standards;
- brand name; and
- access to customers.
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<PAGE> 46
We believe we compete favorably with our competitors on each of the above
factors. However, because many of our existing and potential competitors have
greater name recognition, longer operating histories, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources, they may have stronger brand names and access
to more customers than we do. These competitors may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and make
more attractive offers to distribution partners than we can. To remain
competitive, we believe we must invest significant resources in enhancing our
current products and developing new ones, and maintain customer satisfaction. If
we fail to do so, our products will not compete favorably with those of our
competitors and our business will be significantly harmed.
We expect that competition will continue to increase and that our primary
competitors may not have entered the market yet. Increased competition could
result in price reductions, fewer customer orders, reduced gross margin and loss
of market share, any of which could cause our operating results to suffer.
INTELLECTUAL PROPERTY
We believe that our success and ability to compete is dependent on our
ability to develop and protect our technology. To protect our proprietary
technology, we rely primarily on patent, trademark, service mark, trade secret
and copyright laws and contractual restrictions.
Most of our customers' use of our software is governed by shrink-wrap or
signed written license agreements. We also enter into written agreements with
each of our channel partners for the distribution of our products. In addition,
we seek to avoid disclosure of our trade secrets by requiring each of our
employees and others with access to our proprietary information to execute
confidentiality agreements with us. We protect our software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection.
We currently have no issued U.S. patents, we have applied for one U.S.
patent and we have two pending foreign patent applications. It is possible that
no patents will be issued from our currently pending patent applications and
that our potential future patents may be found invalid or unenforceable, or may
be successfully challenged. It is also possible that any patent issued to us may
not provide us with any competitive advantages or that we may not develop future
proprietary products or technologies that are patentable. Additionally, we have
not performed any comprehensive analysis of patents of others that may limit our
ability to do business.
Despite our efforts to protect our proprietary rights, we may be unable to
prevent others from infringing upon or misappropriating our intellectual
property. Any steps we take to protect our intellectual property may be
inadequate, time consuming and expensive. In addition, the laws of some foreign
countries do not protect our proprietary rights to as great an extent as the
laws of the United States.
Substantial litigation regarding intellectual property rights exists in the
software industry. To date, we have not been notified that our technologies
infringe the proprietary rights of anyone. We cannot assure you that others will
not claim that we have infringed proprietary rights relating to past, current or
future technologies. We expect that we could become subject to intellectual
property infringement claims as the number of our competitors grows and our
services overlap with competitive offerings. These claims, even if without
merit, could be expensive, time-consuming to defend, divert management's
attention from the operation of iManage and cause product shipment delays. If we
become liable for infringing intellectual property rights, we would be required
to pay a substantial damage award and to develop non-infringing technology,
obtain a license or cease selling
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<PAGE> 47
the products that contain the infringing intellectual property. We may be unable
to develop non-infringing technology or obtain a license on commercially
reasonable terms, if at all.
We license indexing and searching technologies from third parties. We
cannot assure you that these technology licenses will not infringe the
proprietary rights of others or will continue to be available to us on
commercially reasonable terms, if at all. We license Search '97 from Verity,
Inc. for search functionality in the iManage infoCommerce Server. This agreement
expires in January 2003 and is renewable with the written agreement of the
parties. Either party may terminate the agreement for cause before the
expiration date with 90 days written notice. In addition, we license Outside In
Viewer Technology and Outside In HTML Export from INSO Corporation for file-
viewing functionality in our solution. This agreement expires in December 2001
and is renewable with the written consent of the parties. Either party may
terminate the agreement for cause before the expiration date. If we cannot renew
these licenses, shipments of our products could be delayed until equivalent
software could be developed or licensed and integrated into our products. These
types of delays could seriously harm our business.
EMPLOYEES
As of September 30, 1999, we had 93 full-time employees. Of these
employees, 27 were in product development, 32 in sales, marketing and business
development, 19 in customer support and training and 15 in finance and
administration. None of our employees is subject to a collective bargaining
agreement. We believe our relations with our employees are good. Our future
success depends on our ability to attract, motivate and retain highly qualified
technical and management personnel. From time to time we also employ independent
contractors to support our product development, sales, marketing and business
development organizations.
FACILITIES
Our principal offices are located in a leased facility in San Mateo,
California and consists of approximately 12,000 square feet under a three-year
lease that expires in 2001. We are in the process of securing an additional
12,000 square feet in this facility, which we expect to finalize in the fourth
quarter of 1999. Our engineering and customer support personnel and our training
facility are located in a leased facility in Chicago, Illinois. This facility
consists of approximately 14,000 square feet and our lease is non-cancelable
through 2004 and expires in 2009. We exercised an option to lease approximately
7,000 additional square feet in this facility. We believe that our existing
facilities are adequate for our current needs and that suitable additional or
alternative space will be available in the future on commercially reasonable
terms.
LEGAL PROCEEDINGS
We are not presently involved in any legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning directors and executive
officers of iManage as of September 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mahmood Panjwani........................ 40 President, Chief Executive Officer and
Chairman of the Board of Directors
Owen Carton............................. 34 Vice President, Marketing and Strategic
Planning
Mark Culhane............................ 39 Chief Financial Officer and Secretary
Rafiq Mohammadi......................... 39 Chief Technology Officer, Vice
President, Engineering and Director
Shamshad Rashid......................... 39 Vice President, Business Development
Philip Uchno............................ 44 Vice President, Worldwide Sales
Mark Perry.............................. 56 Director(1)(2)
Moez Virani............................. 44 Director(1)(2)
DuWayne Peterson........................ 67 Director(1)(2)
</TABLE>
- -------------------------
(1) Member of audit committee
(2) Member of compensation committee
Mahmood Panjwani is a co-founder of iManage and has served as our
president, chief executive officer and chairman of our board of directors since
October 1995. In August 1988, Mr. Panjwani founded Q-Image Corporation, a
consulting services company, and served as its president and chairman of the
board of directors until December 1997.
Owen Carton has served as our vice president, marketing and strategic
planning since July 1998. Before joining iManage, from November 1996 to June
1998, Mr. Carton was vice president, marketing at FrontOffice Technologies,
Inc., a messaging and knowledge management software company. From 1993 to 1996,
Mr. Carton was vice president, marketing for Timeline Inc., a financial
analysis, budgeting and reporting systems company. From 1985 to 1993, Mr. Carton
held various senior level product marketing positions for Microsoft Corporation.
Mark Culhane has served as our chief financial officer and secretary since
September 1998. From June 1992 to December 1997, Mr. Culhane held various
positions at SciClone Pharmaceuticals, a publicly-held life science company, his
last position being that of SciClone's chief financial officer, vice president,
finance and administration and secretary from May 1994 through December 1997.
From 1982 to the time that Mr. Culhane joined SciClone, he held various
positions at Price Waterhouse LLP, now known as PricewaterhouseCoopers LLP, most
recently as senior manager. Mr. Culhane is a certified public accountant.
Rafiq Mohammadi is a co-founder of iManage and has served as our chief
technology officer and director since October 1995. Between 1985 and 1995, Mr.
Mohammadi co-founded and served as president of M/H Manage, a company that
developed and distributed software that converted documents between different
platforms and formats.
Shamshad Rashid is a co-founder of iManage and has served as our vice
president, business development since October 1995. Ms. Rashid served as vice
president, operations at Q-Image, and has served as its president since December
1997.
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Philip Uchno has served as our vice president, worldwide sales since May
1999. From 1989 to the time he joined iManage, Mr. Uchno was employed by Silicon
Graphics, Inc. where he began as a regional sales manager and then director,
telecommunications marketing. In July 1997, Mr. Uchno became Silicon Graphics'
vice-president, Asia-Pacific field operations and held that position until July
1998 when he was appointed vice president, manufacturing industry marketing.
Mark Perry has been one of our directors since September 1998. From October
1995 to May 1996, Mr. Perry was a consultant to New Enterprise Associates, a
venture capital firm and one of our major stockholders. Mr. Perry is currently
serving as a general partner at New Enterprise Associates, a position he has
held since June 1996. From May 1994 to December 1995, Mr. Perry was president
and chief executive officer of ViewStar Corporation, a client/server software
company. From 1985 to April 1994, Mr. Perry worked at Silicon Graphics where he
last held the position of vice-chairman. Mr. Perry serves on the boards of
directors of Exabyte Corporation, a network storage and backup company, and
Hyperion Solutions Corporation, an analytic application software company, as
well as on the boards of directors of several private companies.
Moez Virani has been one of our directors since December 1996. Mr. Virani
has been a partner at Mohr Davidow Ventures, a venture capital firm, since July
1999. From January 1998 to June 1999, Mr. Virani served as the chief financial
officer of Ziff-Davis Events, Inc., a media company. From February 1995 to
December 1998, Mr. Virani was the chief financial officer and chief operating
officer of SOFTBANK Forums, Inc., a wholly-owned subsidiary of SOFTBANK, Inc.
From 1984 to 1995, Mr. Virani worked for Sun Microsystems in a variety of
domestic and international finance positions.
DuWayne Peterson has been one of our directors since September 1999. Mr.
Peterson is currently serving as president of DuWayne Peterson Associates, a
consulting and advisory firm specializing in information technology. From June
1986 to June 1991, Mr. Peterson served as executive vice president and chief
information officer for Merrill Lynch. From March 1977 to June 1986 he served as
executive vice president of Security Pacific Corporation and chairman and chief
executive officer of Security Pacific Automation Company. He has also held
senior information technology management positions at Citibank and RCA. Mr.
Peterson serves on the board of directors of IFS International, an electronic
banking software company, as well as on the boards of directors of several
private companies.
BOARD COMPOSITION
Effective upon the closing of this offering, our certificate of
incorporation and bylaws will provide for a board of directors that is divided
into three classes:
- Class I, whose term will expire at the annual meeting of stockholders
expected to be held in April 2000;
- Class II, whose term will expire at the annual meeting of stockholders
expected to be held in April 2001; and
- Class III, whose term will expire at the annual meeting of stockholders
expected to be held in April 2002.
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<PAGE> 50
As a result, only one class of directors will be elected at each annual
meeting of stockholders, with the other classes continuing for the remainder of
their terms. Effective upon the closing of this offering, the following
individuals will serve as our directors:
- Rafiq Mohammadi and Moez Virani will be our Class I directors;
- Mahmood Panjwani and DuWayne Peterson will be our Class II directors; and
- Mark Perry will be our Class III director.
BOARD COMPENSATION
Our directors do not receive cash compensation for their services as
directors and do not currently receive any reimbursement for expenses incurred
in attending board and board committee meetings.
Our amended 1997 option plan will provide that upon each nonemployee
director's initial election or appointment, he will automatically receive a
nonstatutory stock option to purchase 30,000 shares of common stock. As long as
the director continues to serve on the board, one-third of the option shares
will vest after one year and the remaining two-thirds will vest in equal monthly
increments over the following two years. In addition, beginning with our annual
stockholders meeting in 2001, when a nonemployee director is reelected to the
board, the director will automatically be granted a nonstatutory stock option to
purchase shares of common stock equal to (a) 10,000 multiplied by (b) the number
of years of the director's elected term. For example, if a director is reelected
to a three year term, the size of the option grant would be 30,000 shares.
Similarly, an option grant would be for 20,000 shares for a director reelected
to a two year term and 10,000 shares for a director reelected to a one year
term. Each of these additional options will vest in equal monthly increments
over the director's elected term. A director will not receive an additional
option if at the time of the director's reelection to the board, the director
has served on the board for less than one year. Each option granted to a
nonemployee director will have a per share exercise price equal to the fair
market value of a share of common stock on the grant date. Each option granted
to a nonemployee director will have a term of 10 years. Vesting of nonemployee
director options will accelerate in full if a change in control occurs before
the option becomes fully vested.
BOARD COMMITTEES
Our board of directors has an audit committee and a compensation committee.
AUDIT COMMITTEE. The audit committee reviews the results and scope of the
annual audit and meets with our independent auditors to review our internal
accounting policies and procedures.
COMPENSATION COMMITTEE. The compensation committee reviews and makes
recommendations to our board of directors on our general and specific
compensation policies and practices and administers our amended 1997 stock
option plan and 1999 employee stock purchase plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee has at any time since our
formation been one of our officers or employees. None of our executive officers
currently serves, or in the past has served, as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on our board of directors or compensation committee. Before the
creation of our compensation committee, all compensation decisions were made by
our full board of
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<PAGE> 51
directors. Neither Mr. Panjwani nor Mr. Mohammadi participated in discussions by
our board of directors regarding his own compensation.
EXECUTIVE COMPENSATION
The following table presents the compensation paid to or earned by our
chief executive officer and our other four most highly compensated executive
officers whose salary and bonus for the fiscal year ended December 31, 1998
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ---------------------
------------------ SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)
--------------------------- ---- -------- ------- ---------------------
<S> <C> <C> <C> <C>
Mahmood Panjwani.............................. 1998 $120,000 $84,066 --
President and Chief Executive Officer
Owen Carton(1)................................ 1998 67,708 15,000 305,000
Vice President, Marketing and
Strategic Planning
Mark Culhane(2)............................... 1998 35,000 10,000 180,000
Chief Financial Officer and Secretary
Rafiq Mohammadi............................... 1998 120,000 -- --
Vice President, Engineering and Chief
Technology Officer
Shamshad Rashid............................... 1998 100,000 -- --
Vice President, Business Development
</TABLE>
- -------------------------
(1) Mr. Carton joined us in July 1998. His annual salary is $150,000.
(2) Mr. Culhane joined us in September 1998. His annual salary is $140,000.
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table presents the grants of stock options under and outside
of our amended 1997 stock option plan during 1998 to our chief executive officer
and our other four most highly compensated executive officers. The options
granted to the individuals listed below are immediately exercisable and are
either incentive stock options or nonqualified stock options. We have a right to
repurchase these shares upon termination of the individual's employment with us.
Our repurchase right generally lapses on 25% of the shares subject to the option
one year from the date of grant and on 2.083% of the shares subject to the
option for each following month. In November 1998, our board of directors
approved acceleration of vesting for options granted to Mark Culhane, our chief
financial officer, upon a change of control of iManage. Options expire ten years
from the date of grant. Options were granted at an exercise price equal to the
fair market value of our common stock, as determined by our board of directors,
on the date of grant. The following table is based on the grant of options to
purchase a total of 1,147,325 shares of our common stock during 1998.
The 5% and 10% assumed annual rates of stock price appreciation are
required by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of future common stock prices. Unless the
market price of the common stock appreciates over the option term, no value will
be realized from the option grants made to the executive officers. Actual gains,
if any,
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<PAGE> 52
on stock option exercises will be dependent on the future performance of our
common stock. The assumed 5% and 10% rates of stock appreciation are based on
the assumed offering price of $9.00 per share.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF POTENTIAL REALIZABLE VALUE
SECURITIES TOTAL AT ASSUMED ANNUAL RATES
UNDERLYING OPTIONS OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
GRANTED EMPLOYEES IN OR BASE EXPIRATION ---------------------------
NAME (#) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($)
---- ---------- ------------ ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mahmood Panjwani..... -- -- -- --
Owen Carton.......... 305,000 26.6% $0.30 07/27/08 $4,379,815 $7,028,323
Mark Culhane......... 180,000 15.7 0.40 10/13/08 2,566,809 4,129,862
Rafiq Mohammadi...... -- -- -- --
Shamshad Rashid...... -- -- -- --
</TABLE>
OPTION EXERCISES AND HOLDINGS
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during 1998 and the number of shares of
common stock subject to vested and unvested stock options held as of December
31, 1998 by our chief executive officer and our other four most highly
compensated executive officers. Also presented are values of in-the-money
options, which represent the positive difference between the exercise price of
each outstanding stock option and a fair market value on December 31, 1998 of
$0.40 per share.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS AT
SHARES FY-END (#) FY-END ($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mahmood Panjwani..... -- -- -- -- -- --
Owen Carton.......... -- $ -- 305,000 -- $ 91,500 --
Mark Culhane......... 180,000 0 -- -- -- --
Rafiq Mohammadi...... -- -- -- -- -- --
Shamshad Rashid...... -- -- -- -- -- --
</TABLE>
CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS
In July 1998, we entered into a letter agreement with Owen Carton that
provides that if he is terminated by us without cause, Mr. Carton will be
entitled to receive six months of his base salary, which amount is consistent
with our normal payroll practices.
In September 1998, we entered into a letter agreement with Mark Culhane
that provides that if, within 12 months following a transfer of control of
iManage, he is constructively terminated, Mr. Culhane will be entitled to
receive six months of his base salary to be paid under our normal payroll
practices. In addition, Mr. Culhane's options will immediately accelerate in an
amount equal to the lesser of (A) 60% of the total number of his shares subject
to options as of the date of the
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<PAGE> 53
constructive termination or (B) the number of his remaining unvested shares
subject to options as of the date of the constructive termination.
In May 1999, we entered into a letter agreement with Philip Uchno that
provides that if, within 12 months following a transfer of control of iManage,
he is constructively terminated, Mr. Uchno's options will immediately accelerate
in an amount equal to 50% of his remaining unvested options as of the date of
the constructive termination. If at any time on or before May 5, 2000 we
terminate Mr. Uchno without cause, his options will vest based on the number of
full months of service he has provided to iManage as of the date of his
termination. If at any time on or before May 5, 2000 Mr. Uchno terminates his
employment with us for any reason, or if we terminate his employment for cause,
we will have the right to repurchase his vested options at the original option
price.
STOCK OPTION PLANS
AMENDED 1997 STOCK OPTION PLAN
Our amended 1997 stock option plan was adopted by our board of directors in
June 1997 and approved by our stockholders in June 1997 and has been amended
from time to time. A total of 6,000,000 shares of common stock have been
reserved for issuance under the amended 1997 stock option plan. The share
reserve will automatically be increased on the first day of each fiscal year
beginning on and after December 31, 2000 by the lesser of:
- 1,200,000 shares;
- 5% of the number of shares of our common stock that was issued and
outstanding on the last day of the immediately preceding fiscal year; or
- a lesser number of shares as determined by our board of directors or a
committee of our board of directors.
Under the amended 1997 stock option plan, all of our employees or employees
of a subsidiary, all directors who are not our employees or employees of a
subsidiary and any independent contractor or advisor who performs services for
us or a subsidiary are eligible to receive nonstatutory stock options. Employees
are also eligible to receive incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code of 1986. The amended 1997 stock option
plan is administered by our board of directors, which selects the persons who
will receive options, determines the number of shares in each option and
prescribes other terms and conditions, including the type of consideration to be
paid to us upon exercise and vesting schedules, in connection with each option.
However, this responsibility may be delegated to a committee at the option of
our board of directors.
The exercise price of nonstatutory stock options granted under the amended
1997 stock option plan must be at least 85% of the fair market value of our
common stock on the date of grant. The exercise price under incentive stock
options cannot be lower than 100% of the fair market value of our common stock
on the date of grant and, in the case of incentive stock options granted to 10%
stockholders, not less than 110% of the fair market value. The term of an option
cannot exceed ten years, and the term of an incentive stock option granted to a
10% stockholder cannot exceed five years. An individual's options generally
expire not later than 30 days following a termination of employment or six
months following the individual's termination date if the termination was due to
his death or disability.
Options granted under the amendment 1997 stock option plan generally vest
over four years, although the board or committee may specify a different vesting
schedule for a particular grant. Options granted under the amended 1997 stock
option plan are generally nontransferable other than
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<PAGE> 54
by will or the laws of descent and distribution, although the board or committee
may grant nonstatutory stock options which allow for limited transferability.
In the event of a change in control of iManage, the acquiring or successor
corporation may assume or substitute for the outstanding options granted under
the amended 1997 stock option plan. The outstanding options will terminate if
these options are not exercised or assumed or substituted for by the acquiring
or successor corporation.
Under our amended 1997 stock option plan, as of September 30, 1999, there
were outstanding options to purchase 1,079,439 shares of common stock at
exercise prices ranging from $0.20 to $4.50 per share, or a weighted average
exercise price per share of $1.02. Options to acquire 3,343,594 shares have been
exercised. As of September 30, 1999, a total of 1,576,967 shares of common stock
were available for future option grants. If any option granted under the amended
1997 stock option plan expires, terminates or is canceled for any reason, or if
we repurchase shares of stock issued subject to a right of repurchase, the
shares allocable to the unexercised option or the repurchased shares will become
available for further issuance for grants under the amended 1997 stock option
plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 employee stock purchase plan was adopted by our board of directors
in August 1999 and approved by our stockholders in October 1999. This plan will
be effective upon the completion of this offering. Initially, a total of 500,000
shares of common stock will be reserved for issuance under the purchase plan,
none of which will be issued as of the effective date of this offering. The
share reserve will automatically increase on January 1, 2001, and on each
following January 1 until and including January 1, 2009, by an amount equal to
the lesser of:
- 500,000 shares;
- 2% of the number of shares of our common stock that was issued and
outstanding on the last day of the immediately preceding fiscal year; or
- a lesser number of shares as determined by our board of directors or a
committee of our board of directors.
The purchase plan, which is intended to qualify under Section 423 of the
Internal Revenue Code of 1986, will be administered by our board of directors or
by a committee of our board of directors. Employees, including our officers and
directors who are also employees, of iManage or any subsidiary designated by our
board of directors for participation in the purchase plan, will be eligible to
participate in the purchase plan if they are customarily employed for more than
20 hours per week and more than five months per year. Eligible employees will be
able to participate at the start of any offering period.
Each offering of common stock under the purchase plan is for a period of
six months. An offering period will generally commence on the first days of
August and February of each year and end on the last days of the following July
and January. However, the first offering period will commence on the date of
this prospectus and will end on the last day of January 2002. This initial
offering period will be comprised of six-month purchase periods, although the
first purchase period of the initial offering period will commence on the date
of this prospectus and end on July 31, 2000. Shares are purchased on the last
day of each purchase period of the initial offering period and on the last day
of each subsequent six-month offering period. The board may establish a
different term for one or more offerings or purchase periods or different
commencement or ending dates for an offering or a purchase period.
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<PAGE> 55
The purchase plan will permit eligible employees to purchase shares of
common stock through payroll deductions at a price equal to 85% of the lower of
the fair market value of our common stock on (a) the first day of the offering
period or (b) the purchase date. Participants generally may not purchase more
than 2,500 shares on any purchase date or purchase stock having a value,
measured at the beginning of the offering period, greater than $25,000 in any
calendar year. In the event of a change in control of iManage, our board of
directors may adjust the last day of the then current offering period to a date
on or before the change in control, or the acquiring corporation may assume or
replace the outstanding purchase rights under the purchase plan.
401(k) Plan
We sponsor a tax-qualified employee savings and retirement plan intended to
qualify under Section 401 of the Internal Revenue Code, or a 401(k) plan.
Employees who are at least 21 years old and who performed at least one hour of
service for us are generally eligible to participate and may enter the plan as
of the first day of any calendar quarter. Participants may make pre-tax
contributions to the plan of up to 20% of their eligible compensation, subject
to a statutorily prescribed annual limit, which was $10,000 in calendar year
1998. Each participant is fully vested in his contributions and the investment
earnings on these contributions at all times. The 401(k) plan does not currently
permit us to make matching contributions on behalf of participants.
Contributions by the participants or us to the plan, and the income earned on
these contributions, are generally not taxable to the participants until
withdrawn. Contributions are generally deductible by us when made. The 401(k)
plan assets are held in trust. The trustee of the 401(k) plan invests the assets
of the plan in various investment options as directed by the participants.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation, which the
Delaware General Corporation Law permits, which provide that our directors shall
not be personally liable to us or our stockholders for monetary damages
resulting from a violation of the directors' duty to act with care and in the
best interests of the stockholders, except for liability:
- for acts or omissions that are not in good faith, are deliberately
improper or are known to be illegal;
- under Section 174 of the Delaware General Corporation Law relating to
improper dividends or distributions; or
- for any transaction from which the director obtained an improper personal
benefit.
This limitation of liability does not affect the availability of equitable
remedies, including injunctive relief or rescission.
Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the extent permitted by the Delaware General Corporation Law. Section
145 of the Delaware General Corporation Law empowers us to enter into
indemnification agreements with our officers, directors, employees and agents.
Before the completion of this offering, we intend to enter into separate
indemnification agreements with each of our current directors and executive
officers which may, in some cases, be broader than the specific indemnification
provisions allowed by the Delaware General Corporation Law. The indemnification
agreements will require us to indemnify the executive officers and directors
against liabilities that may arise by reason of status or service as directors
or executive officers and to
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<PAGE> 56
advance expenses they spend as a result of any proceeding against them for which
they could be indemnified to the fully extent permitted by the Delaware General
Corporation Law.
We intend to obtain liability insurance for our directors and officers and
intend to obtain a rider to extend that coverage for public securities matters.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of iManage where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling
iManage, we have been informed that in the opinion of the Securities and
Exchange Commission this indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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<PAGE> 57
RELATED PARTY TRANSACTIONS
Since our inception in October 1995, there has not been, nor is there
currently planned, any transaction or series of similar transactions to which
iManage was or is a party in which the amount involved exceeds $60,000 and in
which any director, executive officer or holder of more than 5% of iManage's
capital stock or any member of their immediate family had or will have a direct
or indirect material interest other than agreements which are described under
the caption "Management" and the transactions described below.
SALE OF STOCK TO INSIDERS
The following directors, executive officers, holders of more than 5% of a
class of voting securities and members of these persons' immediate families
purchased shares of our series A preferred stock, series B preferred stock,
series C preferred stock or common stock:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
STOCKHOLDER PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Anthelion Capital LLC............ 352,113 -- -- 75,000
Neil Araujo...................... -- -- -- 750,000
Zia Bhatti and related
individuals(1)................. -- -- -- 748,000
Owen Carton and related
individuals(2)................. -- -- -- 305,000
Mark Culhane and related
entities(3).................... -- -- -- 180,000
Entities and individuals
affiliated with Louis Leitz
Digital Systems
GmbH & Co...................... -- 1,273,885 -- 20,000
Rafiq Mohammadi and related
individuals(4)................. -- -- -- 3,000,000
Entities associated with New
Enterprise Associates.......... -- 1,034,401 1,705,599 --
Entities and individuals
affiliated with
Mahmood Panjwani and Shamshad
Rashid(5)...................... 64,506 -- -- 3,354,875
Raj-Dak Investments LLC and
related entities............... 281,690 -- -- 50,000
Iqbal Sadruddin.................. 257,434 -- -- 70,567
Philip Uchno..................... -- -- -- 230,000
Entities and individuals
affiliated with C.E. Unterberg,
Towbin, L.P., formerly know as
Unterberg Harris, L.P.......... 1,267,605 764,326 -- --
Entities and individuals
affiliated with Moez Virani.... 206,417 -- -- 123,513
</TABLE>
- -------------------------
(1) Includes:
(a) 706,000 shares of common stock held jointly by Zia Bhatti and Rabia Z.
Bhatti;
(b) 10,000 shares of common stock held by Aadil Zia Bhatti, Mr. Bhatti's
son;
(c) 4,000 shares of common stock held by Barkatulla Bhatti, Mr. Bhatti's
father;
(d) 4,000 shares of common stock held by Mahmooda Bhatti, Mr. Bhatti's
mother;
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<PAGE> 58
(e) 2,000 shares of common stock held by Sana Ullah Bhatti, Mr. Bhatti's
brother;
(f) 2,000 shares of common stock held by Zaka Ullah Bhatti, Mr. Bhatti's
brother;
(g) 2,000 shares of common stock held by Ata Ullah Bhatti, Mr. Bhatti's
brother;
(h) 2,000 shares of common stock held by Khalikd Naeem Khwaja; Mr. Bhatti's
cousin;
(i) 4,000 shares of common stock held by Azhar Pirzada, Ms. Bhatti's
father;
(j) 4,000 shares of common stock held by Aarifa Pirzada, Ms. Bhatti's
mother;
(k) 2,000 shares of common stock held by Aisha Nadeem, Ms. Bhatti's sister;
(l) 2,000 shares of common stock held by Asad Pirzada, Ms. Bhatti's
brother;
(m) 2,000 shares of common stock held by Faisal Pirzada, Ms. Bhatti's
brother; and
(n) 2,000 shares of common stock held by Fatima Pirzada, Ms. Bhatti's
sister.
(2) Includes:
(a) 800 shares of common stock held jointly by Rafael E. Blanco and Ligia
J. Serrano. the brother-in-law and sister-in-law of Mr. Carton; and
(b) 280 shares of common stock held jointly by Louis F. Blanco and Irene M.
Blanco, a nephew and niece of Mr. Carton.
(3) Includes:
(a) 5,000 shares held by Mark and Michele Culhane as trustees of the
Michael D. Culhane 1999 Irrevocable Trust;
(b) 5,000 shares held by Mark and Michele Culhane as trustees of the
Maxwell A. Culhane 1999 Irrevocable Trust; and
(c) 5,000 shares held by Mark and Michele Culhane as trustees of the Monica
G. Culhane 1999 Irrevocable Trust.
(4) Includes:
(a) 10,000 shares of common stock held by Razak Habib, Mr. Muhammadi's
father;
(b) 10,000 shares of common stock held by Noorbanu Razak, Mr. Mohammadi's
mother;
(c) 10,000 shares of common stock held by Razaali Razak, Mr. Mohammadi's
brother;
(d) 5,000 shares of common stock held by Kimberli Ann Brison, Mr.
Mohammadi's sister-in-law;
(e) 2,500 shares of common stock held by Jeffery Morgan Brooke, Mr.
Mohammadi's brother-in-law;
(f) 10,000 shares of common stock held by Judith Anne Brooke, Mr.
Mohammadi's mother-in-law;
(g) 2,500 shares of common stock held by Allen Frederick Brooke, Mr.
Mohammadi's brother-in-law;
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<PAGE> 59
(h) 5,000 shares of common stock held by Julie Marie Miner, Mr.
Mohammadi's sister-in-law; and
(i) 5,000 shares of common stock held by Sherri Stephanie Brooke, Mr.
Mohammadi's sister-in-law.
(5) Includes:
(a) 29,295 shares of series A preferred stock held jointly by Akber
Panjwani and Karim Panjwani, both brothers of Mr. Panjwani;
(b) 6,000 shares of common stock held by Akber Panjwani and his spouse as
custodians for their children;
(c) 21,000 shares of common stock held jointly by Akber Panjwani and his
spouse;
(d) 9,000 shares of common stock held by Karim Panjwani and his spouse as
custodians for their children;
(e) 6,000 shares of common stock held jointly by Karim Panjwani and his
spouse;
(f) 53,000 shares of common stock held by Sherbanu Panjwani, Mr.
Panjwani's mother;
(g) 174,875 shares of common stock held by Samia Rashid, the sister of Ms.
Shamshad Rashid;
(h) 3,000 shares of common stock held by Samia Rashid's husband;
(i) 9,000 shares of common stock held by Aftab Rashid, the brother of Ms.
Shamshad Rashid, and his spouse as custodians for their children;
(j) 6,000 shares of common stock held jointly by Aftab Rashid and his
spouse;
(k) 9,000 shares of common stock held by Altaf Rashid, the brother of Ms.
Shamshad Rashid, and his spouse as custodians for their children;
(l) 6,000 shares of common stock held jointly by Altaf Rashid and his
spouse;
(m) 6,000 shares of common stock held by Naushad Rashid, the brother of Ms.
Shamshad Rashid, and his spouse as custodians for their children;
(n) 6,000 shares of common stock held jointly by Naushad Rashid and his
spouse;
(o) 35,211 shares of series A preferred stock held by Naushad Rashid;
(p) 6,000 shares of common stock held by Yasmeen Rashid, the sister of Ms.
Shamshad Rashid; and
(q) 56,000 shares of common stock held by Zohra and Noor Ali Rashid, the
mother and father of Ms. Shamshad Rashid.
The following is a summary of sales of our preferred and common stock that
are presented in the table above:
Series A financing. Between December 27, 1996 and August 28, 1997, we sold
a total of 2,853,708 shares of series A preferred stock at a price of $0.71 per
share.
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<PAGE> 60
Series B financing. Between December 15, 1997 and July 31, 1998, we sold a
total of 3,200,000 shares of series B preferred stock at a price of $1.57 per
share.
Series C financing. Between September 28, 1998 and November 30, 1998, we
sold a total of 1,979,409 shares of our series C preferred stock at a price of
$2.10 per share. 100,000 of these shares were issued for $210,000 in pre-paid
rent for our San Mateo facility. Immediately before the closing of this
offering, all outstanding shares of series A preferred stock, series B preferred
stock and series C preferred stock will automatically convert into shares of
common stock on a one-for-one basis.
Sales of Common Stock.
- On October 10, 1995, we sold to each of Mahmood Panjwani and Rafiq
Mohammadi 3,000,000 shares of common stock at a price of $0.000165 per
share.
- On December 27, 1996, we sold a total of 291,080 shares of common stock
at a price of $0.071 per share.
- In February 1998, Mr. Araujo and Mr. Bhatti each exercised an option to
acquire 750,000 shares of common stock at a price of $0.20 per share.
- Of the 75,000 shares of common stock shown as held by Anthelion Capital
LLC, 50,000 shares are owned by Amit Shah and 25,000 shares are owned by
Amit Parikh, both principals of Anthelion Capital LLC.
- Messrs. Shah and Parikh each acquired their shares upon exercise of
options granted at a price of $0.20 per share.
- The 20,000 shares of common stock shown as held by Louis Leitz Digital
Systems GmbH & Co. are owned by Harold Raetzsch, acquired upon exercise
of an option granted at $0.30 per share.
- All other holders of common stock listed in the table above acquired
their shares upon exercise of stock options as described below.
OPTION GRANTS TO DIRECTORS AND EXECUTIVE OFFICERS
In November 1997, we granted to Moez Virani, one of our directors, an
option to purchase a total of 50,000 shares of common stock at an exercise price
of $0.20 per share. In March 1999, we granted Mr. Virani an additional option to
purchase 25,000 shares of common stock at an exercise of $0.60 per share. Mr.
Virani has exercised both options.
In July 1998, we granted to Owen Carton, our vice president, marketing and
strategic planning, an option to purchase 305,000 shares of common stock at an
exercise price of $0.30 per share. Mr. Carton exercised options to purchase
177,917 shares in April 1999 and 127,083 shares in May 1999 with funds we loaned
him under two full recourse promissory notes approved by our board of directors.
The April 1999 promissory note accrues interest at 4.71% and is due on March 31,
2003. The May 1999 promissory note accrues interest at 4.83% and is due on May
30, 2003.
In September 1998, we granted to Mark Perry, one of our directors, an
option to purchase 100,000 shares of common stock at an exercise price of $0.40
per share. Mr. Perry has not exercised the option.
In October 1998, we granted to Mark Culhane, our chief financial officer
and secretary, options to purchase 180,000 shares of common stock at an exercise
price of $0.40 per share. In November 1998, Mr. Culhane exercised the option in
full with funds we loaned him under a full recourse
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<PAGE> 61
promissory note approved by our board of directors. The promissory note accrues
interest at the rate of 4.51% per year and is due on November 12, 2002.
In May 1999, we granted to Philip Uchno, our vice president, worldwide
sales, an option to purchase 230,000 shares of common stock at an exercise price
of $0.90 per share. In July 1999, Mr. Uchno exercised the option in full with
funds we loaned him under a full recourse promissory note approved by our board
of directors. The promissory note accrues interest at the rate of 5.22% per year
and is due on July 31, 2003.
In June 1999, we granted to Shamshad Rashid, our vice president, business
development, an option to purchase 180,000 shares of common at an exercise price
of $1.65 per share. In July 1999, Ms. Rashid exercised the option in full with
funds we loaned her under a full recourse promissory note approved by our board
of directors. The promissory note accrues interest at the rate of 4.9% per year
and is due on July 26, 2001.
OTHER INSIDER ARRANGEMENTS
Before founding iManage, Mahmood Panjwani, our president and chief
executive officer, and Shamshad Rashid, our vice president, business development
and Mr. Panjwani's spouse, operated Q-Image Corporation, a consulting services
company founded by Mr. Panjwani. Mr. Panjwani served as president of Q-Image
from August 1988 to December 1997. Ms. Rashid has continued her involvement with
Q-Image where she has served as president since December 1997. Ms. Rashid
estimates that she dedicates approximately 95% of her time to iManage.
Currently, Mr. Panjwani and Ms. Rashid jointly hold a 90% ownership in Q-Image.
From 1995 until late 1998, we subleased office space in Sunnyvale,
California from Q-Image. During 1998, we paid a total of $54,000 in rent to
Q-Image. In November 1998, we moved to our current location in San Mateo,
California and we terminated our sublease arrangement with Q-Image for the
Sunnyvale facility. Q-Image now subleases office space from us in our San Mateo
facility for $84,600 per year for 1999 and $91,650 per year for 2000 under a
written sublease agreement.
Since 1997, we have engaged Q-Image for personnel recruiting services under
an arrangement where we pay Q-Image a placement fee amounting to 25% of the base
salary of the candidates we hire. During 1998, we paid a total of $101,575 in
placement fees to Q-Image under the terms of a written agreement. Although this
written agreement expired in August 1999, we are currently negotiating with
Q-Image to renew the agreement. During the nine month period ended September 30,
1999, we paid a total of $155,250 in placement fees to Q-Image.
We are presently utilizing the services of several full-time consultants
who were referred to us by Q-Image. Under our current arrangement with Q-Image,
we pay fees to Q-Image equivalent to the salaries and incentive pay of these
consultants. We also pay additional fees to Q-Image to cover the cost of
employee benefits provided by Q-Image to these individuals. We have in the past,
and may in the future, hire consultants from Q-Image as full-time iManage
employees. During 1998 we paid Q-Image $365,826 for the services of these
consultants and $461,141 for the nine month period ended September 30, 1999.
Mahmood Panjwani loaned us $25,000 on November 14, 1996, $10,000 on
December 12, 1996 and $15,000 on December 19, 1996. Each loan accrued interest
at the rate of 10% per year and was repaid in full on September 14, 1998.
Rafiq Mohammadi loaned us $24,010 on October 10, 1995 and $5,000 on June
25, 1996. Each loan accrued interest at the rate of 10% per year. Mr. Mohammadi
was repaid $10,000 of this loan in
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<PAGE> 62
two installments of $7,000 in May 1997 and $3,000 in August 1997, and the
balance was repaid in full on September 14, 1998.
On November 4, 1999, we repurchased 166,666 shares of common stock from Mr.
Mohammadi at a price of $4.50 per share for a total repurchase price of
$749,997.00. The number of shares repurchased represents less than 10% of the
shares held by Mr. Mohammadi immediately before the repurchase.
All of the transactions described above were approved by disinterested
directors of the board of directors. As a result, we believe those transactions
were made on terms no less favorable to us than could have been obtained from
unaffiliated third parties. We intend that all future transactions, including
the agreements with Q-Image and loans between us and our officers, directors and
principal stockholders and their affiliates, will be approved by a majority of
the board of directors. In addition, we intend that all of these future
transactions will take place on terms no less favorable to us than could be
obtained from unaffiliated third parties.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with each of our
directors and officers. These agreements will require us to indemnify these
individuals to the fullest extent permitted by the Delaware General Corporation
Law.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table presents information concerning the beneficial
ownership of the shares of our common stock as of September 30, 1999, and as
adjusted to reflect the sale of shares of common stock in this offering assuming
(a) 17,847,791 shares of common stock outstanding as of September 30, 1999 and
21,447,791 shares outstanding immediately following the completion of this
offering, (b) conversion of all of iManage's outstanding shares of convertible
preferred stock into common stock and (c) no exercise of the underwriters'
over-allotment option, by:
- each person we know to be the beneficial owner of 5% or more of the
outstanding shares of common stock;
- each executive officer listed in the summary compensation table above;
- each of our directors; and
- all executive officers and directors of iManage as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power over
securities. Except in cases where community property laws apply or as indicated
in the footnotes to this table, we believe that each stockholder identified in
the table possesses sole voting and investment power over all shares of common
stock shown as beneficially owned by the stockholder. Shares of common stock
subject to options that are currently exercisable or exercisable within 60 days
of September 30, 1999 are considered outstanding and beneficially owned by the
person holding the options 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. Unless indicated below, the
address of each individual listed below is 2121 South El Camino Real, Suite 400,
San Mateo, California 94403.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
-------------------------
NUMBER OF SHARES BEFORE AFTER THE
NAME AND ADDRESS BENEFICIALLY OWNED THE OFFERING OFFERING
---------------- ------------------ ------------ ---------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Rafiq Mohammadi(1)................................. 2,940,000 16.5% 13.7%
Mahmood Panjwani(2)................................ 2,978,000 16.7 13.9
Shamshad Rashid(3)................................. 2,978,000 16.7 13.9
Mark Perry(4)...................................... 2,840,000 15.8 13.2
c/o New Enterprise Associates
2490 Sand Hill Road
Menlo Park, CA 94025
Moez Virani(5)..................................... 329,930 1.9 1.5
c/o Mohr Davidow Ventures
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025
Owen Carton(6)..................................... 303,920 1.7 1.4
Mark Culhane(7).................................... 180,000 1.0 *
OTHER 5% STOCKHOLDERS
New Enterprise Associates(8)....................... 2,740,000 15.4 12.8
Attn: Mark Perry
2490 Sand Hill Road
Menlo Park, CA 94025
Entities and individuals associated with C.E.
Unterberg, Towbin, L.P.(9)....................... 2,031,931 11.4 9.5
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
Entities and individuals associated with Louis
Leitz Digital Systems GmbH & Co.(10)............. 1,293,885 7.2 6.0
Seimenstrasse 64,
70469 Stuttgart Germany
All executive officers and directors as a group (8
persons)(11)..................................... 9,801,850 54.6 45.5
</TABLE>
- ------------------------
* Less than 1%
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<PAGE> 64
(1) Includes:
(a) 10,000 shares of common stock held by Razak Habib, Mr. Mohammadi's
father;
(b) 10,000 shares of common stock held by Noorbanu Razaak, Mr. Mohammadi's
mother;
(c) 10,000 shares of common stock held by Razaali Razak, Mr. Mohammadi's
(d) 5,000 shares of common stock held by Kimberly Ann Brison, Mr.
Mohammadi's sister-in-law;
(e) 2,500 shares of common stock held by Jeffery Morgan Brooke, Mr.
Mohammadi's brother-in-law;
(f) 10,000 shares of common stock held by Judith Anne Brooke, Mr.
Mohammadi's mother-in-law;
(g) 2,500 shares of common stock held by Allen Frederick Brooke, Mr.
Mohammadi's brother-in-law;
(h) 5,000 shares of common stock held by Julie Marie Miner, Mr. Mohammadi's
sister-in-law; and
(i) 5,000 shares of common stock held by Sherri Stephanie Brooke, Mr.
Mohammadi's sister-in-law.
(2) Includes:
(a) 2,648,000 shares held in joint tenancy with Ms. Rashid, Mr. Panjwani's
wife;
(b) 50,000 shares held by Mr. Panjwani and Ms. Rashid as the trustees of
the Danyal M. Panjwani Trust;
(c) 100,000 shares held by Mr. Panjwani and Ms. Rashid as the trustees of
the Panjwani Irrevocable Trust dated December 31, 1998; and
(d) 82,500 shares subject to a right of repurchase in favor of iManage
which lapses over time.
(3) Includes:
(a) 2,648,000 shares held in joint tenancy with Mr. Panjwani, Ms. Rashid's
husband;
(b) 50,000 shares registered held by Mr. Panjwani and Ms. Rashid as the
trustees of the Danyal M. Panjwani Trust;
(c) 100,000 shares held by Mr. Panjwani and Ms. Rashid as the trustees of
the Panjwani Irrevocable Trust dated December 31, 1998; and
(d) 82,500 shares subject to a right of repurchase in favor of iManage
which lapses over time.
(4) Includes:
(a) 100,000 shares subject to options held by Mark Perry that are
exercisable within 60 days of September 30, 1999, all of which are
subject to a right of repurchase in favor of iManage which lapses over
time;
(b) 2,783 shares held by NEA Ventures 1998, Limited Partnership;
(c) 27,828 shares held by NEA Presidents Fund, L.P.; and
(d) 2,709,389 shares held by New Enterprise Associates VIII, Limited
Partnership.
Mr. Perry is a general partner of New Enterprise Associates and a director
of iManage. Mr. Perry disclaims beneficial ownership of shares held by
these entities, except for his proportional interest arising from his
partnership interest in New Enterprise Associates.
(5) Includes 254,930 shares registered in the name of the Moez R. Virani and
Vivienne Virani, TTEES of the Virani Fam 93 Rev Tr Dtd 11/24/93.
(6) Includes:
(a) 111,198 shares subject to a right of repurchase in favor of iManage
which lapses over time;
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<PAGE> 65
(b) 800 shares of common stock held jointly by Rafael E. Blanco and Ligia
J. Serrano; the brother-in-law and sister-in-law of Mr. Carton; and
(c) 280 shares of common stock held jointly by Louis F. Blanco and Irene M.
Blanco, as nephew and niece of Mr. Carton.
(7) Includes:
(a) 142,500 shares subject to a right of repurchase in favor of iManage
which lapses over time;
(b) 5,000 shares held by Mark and Michele Culhane as trustees of the
Michael D. Culhane 1999 Irrevocable Trust;
(c) 5,000 shares held by Mark and Michele Culhane as trustees of the
Maxwell A. Culhane 1999 Irrevocable Trust; and
(d) 5,000 shares held by Mark and Michele Culhane as trustees of the Monica
G. Culhane 1999 Irrevocable Trust.
(8) Includes:
(a) 2,783 shares held by NEA Ventures 1998, Limited Partnership;
(b) 27,828 shares held by NEA Presidents Fund, L.P.; and
(c) 2,709,389 shares held by New Enterprise Associates VIII, Limited
Partnership.
Mr. Perry is a general partner of New Enterprise Associates and has
dispositive and voting power for these shares.
(9) Includes:
(a) 127,388 shares held by C.E. Unterberg, Towbin LLC;
(b) 1,016,786 shares held by Unterberg Harris Private Equity Partners,
L.P.;
(c) 323,940 shares held by C.E. Unterberg, Towbin, L.P.;
(d) 217,177 shares held by Unterberg Harris Private Equity Partners, C.V.;
(e) 63,694 shares held by A. Robert Towbin, a managing director of C.E.
Unterberg, Towbin L.P.; and
(f) an aggregate of 282,946 shares held by seven trusts and two 401(k)
profit sharing accounts, all of which have beneficiaries or trustees
who are affiliated with C.E. Unterberg, Towbin L.P. or the principals
of C.E. Unterberg, Towbin L.P.
(10) Includes 20,000 shares held by Harold Raetzsch, a former executive officer
of Louis Leitz Digital Systems GmbH & Co.'s U.S. subsidiary.
(11) Includes:
(a) 766,041 shares subject to a right of repurchase in favor of iManage
which lapses over time; and
(b) 100,000 shares subject to options that are exercisable within 60 days
of September 30, 1999.
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<PAGE> 66
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 2,000,000 shares of
preferred stock. As of September 30, 1999, and assuming the conversion of all
outstanding preferred stock into common stock upon the closing of this offering,
there were outstanding 17,847,791 shares of common stock held of record by
approximately 165 stockholders and options to purchase 1,079,439 shares of
common stock.
Immediately before the closing of this offering, we intend to amend and
restate our certificate of incorporation and our bylaws. Our certificate of
incorporation, bylaws and rights agreement, including all of its amendments,
described below, are included as exhibits to the registration statement of which
this prospectus forms a part.
COMMON STOCK
Dividend Rights. 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
at the times and in the amounts as our board of directors may from time to time
determine.
Voting Rights. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in 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.
No Preemptive or Similar Rights. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to Receive Liquidation Distributions. Upon our liquidation,
dissolution or winding-up, the assets legally available for distribution to our
stockholders are distributable ratably among the holders of our 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, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of series A
preferred stock, series B preferred stock and series C preferred stock will be
converted into one share of common stock. See note 6 to our financial statements
for a description of the preferred stock.
Following the offering, we will be authorized, subject to the limits
imposed by the Delaware General Corporation Law, to issue 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 wholly unissued series and any of its qualifications, limitations
or restrictions. Our board of directors can also increase or decrease the number
of shares of any series, but not below the number of shares of that series then
outstanding, without any further vote or action by the stockholders.
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 our 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 iManage and may cause the market price of our
common stock to decline or impair the voting and other rights of the holders of
our common stock. We have no current plans to issue any shares of preferred
stock.
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<PAGE> 67
REGISTRATION RIGHTS
The holders of approximately 8,033,117 shares of preferred stock have the
right to require us to register their shares with the Securities and Exchange
Commission so that those shares may be publicly resold or to include their
shares in any registration statement we file.
Demand registration rights
- At any time after December 31, 2001, stockholders with registration
rights can request that we file a registration statement so that they can
publicly sell their shares. The underwriters of any underwritten offering
will have the right to limit the number of shares to be included in the
filed registration statement.
- At any time six months after the closing of this offering, the holders of
at least 30% of the shares having registration rights have the right to
demand that we file a registration statement on a form other than Form
S-3, as long as the aggregate amount of securities to be sold under the
registration statement exceeds $7.5 million.
- If we are eligible to file a registration statement on Form S-3, the
holders of at least 10% of the shares having registration rights have the
right to demand that we file a registration statement on Form S-3, as
long as the amount of securities to be sold under the registration
statement exceeds $500,000.
We will be required to file two registration statements on a form other
than Form S-3 for the holders of at least 30% of shares having registration
rights. If we are eligible to file a registration statement on Form S-3, we are
not required to file more than one registration statement during any 12-month
period. We may postpone the filing of a registration statement for up to 60 days
once in a 12-month period if we determine that the filing would be seriously
detrimental to us or our stockholders.
Piggyback registration rights
If we register any securities for public sale, stockholders with
registration rights will have the right to include their shares in the
registration statement. The underwriters of any underwritten offering will have
the right to limit the number of shares to be included in the registration
statement.
Expenses of registration
We will pay all expenses relating to any demand or piggyback registration.
However, we will not pay for the expenses of any demand registration if the
request is subsequently withdrawn by the holders of a majority of the shares
having registration rights, subject to very limited exceptions.
Expiration of registration rights
The registration rights described above will expire six years after this
offering is completed. The registration rights will terminate earlier for a
particular stockholder if that holder can resell all of its securities in a
three-month period under Rule 144 of the Securities Act and we are subject to
the reporting requirements of the Securities Exchange Act of 1934.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
The provisions of the Delaware General Corporation Law, our certificate of
incorporation and our bylaws described below may have the effect of delaying,
deferring or discouraging another person from acquiring control of us.
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<PAGE> 68
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents Delaware
corporations from engaging, under limited circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets, with any interested stockholder, which is a stockholder
who owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of stockholders, for three years following the date
that the stockholder became an interested stockholder unless:
- the transaction is approved by the board before the date the interested
stockholder attained that status;
- upon the closing of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or after the date the business combination is approved by the board
and authorized at an annual or special meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. This provision of the Delaware
General Corporation Law could prohibit or delay mergers or other takeover or
change-in-control attempts and may discourage attempts to acquire us.
CHARTER AND BYLAWS
Charter
Upon the closing of this offering, our certificate of incorporation will
provide that all stockholder actions must be effected at a duly-called annual or
special meeting and not by a consent in writing. Our certificate of
incorporation will also require the approval of our board of directors to adopt,
amend or repeal our bylaws. In addition, our certificate of incorporation will
permit the stockholders to adopt, amend or repeal our bylaws only upon the
affirmative vote of the holders of at least two-thirds of the voting power of
all then outstanding shares of stock entitled to vote.
Directors will be removable for cause only by stockholders holding a
majority of the then outstanding shares of stock entitled to vote. Vacancies on
the board of directors resulting from death, resignation, removal or other
reason may be filled by a majority of the directors then in office, even if less
than a quorum. Vacancies from newly created directorships must be filled by a
majority of the directors then in office. Lastly, the provisions in the
certificate of incorporation described above and other provisions pertaining to
the limitation of liability and indemnification of directors will be able to be
amended or repealed only with the affirmative vote of the holders of at least
two-thirds of the voting power of all then outstanding shares of stock entitled
to vote.
These provisions may have the effect of deterring hostile takeovers or
delaying changes in the control or management of iManage, which could have an
adverse effect on the market price of our common stock.
Bylaws
Upon the closing of this offering, our bylaws will also contain many of the
provisions in our certificate of incorporation described above. Our bylaws will
not permit stockholders to call a special meeting. In addition, our bylaws will
establish an advance notice procedure for matters to be brought before an annual
or special meeting of our stockholders, including the election of directors.
Business
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<PAGE> 69
permitted to be conducted at any annual meeting or special meeting of
stockholders will be limited to business properly brought before the meeting.
Our bylaws will also provide that we will indemnify officers and directors
against losses that they may incur in investigations and legal proceedings
resulting from their services to us, which may include services in connection
with takeover defense measures. These provisions may have the effect of
preventing changes in our management.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
our certificate of incorporation and bylaws provide that we will indemnify our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. We intend to enter into separate indemnification agreements
with our directors and executive officers that provide them indemnification
protection if our certificate of incorporation is subsequently amended.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
The address of our transfer agent and registrar is 150 Royall Street, Canton, MA
02021, and its telephone number at this location is (781) 575-2469.
LISTING
We have applied for our common stock to be quoted on the Nasdaq National
Market under the trading name IMAN.
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock, including shares issued
upon exercise of outstanding options, in the public market after this offering
could adversely affect market prices prevailing from time to time. Furthermore,
as described below, no shares currently outstanding will be available for sale
immediately after this offering due to contractual and legal restrictions on
resale. Nevertheless, 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 the closing of this offering, we will have outstanding an aggregate
of approximately shares of common stock, assuming conversion of all
outstanding preferred stock and based on common stock outstanding as of
September 30, 1999, and assuming no exercise of the underwriters'
over-allotment option or exercise of outstanding options.
- Of these shares, the shares of common stock to be sold in this offering
will be freely tradable without restriction or further registration under
the Securities Act, unless the shares are held by affiliates of iManage,
defined as persons who directly or indirectly control or are controlled
by or are under common control with iManage.
All remaining shares held by our existing stockholders were issued and sold
by iManage in private transactions and are eligible for public sale as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES
DATE THAT MAY BE SOLD COMMENT
---- ---------------- -------
<S> <C> <C>
Date of this prospectus..................... 0 Freely tradable shares
181 days after the date of this 14,324,197 Restricted securities held for
prospectus.................................. at least one year may be sold
under Rule 144
</TABLE>
LOCK-UP AGREEMENTS
All of our officers and directors and substantially all of our security
holders have signed lock-up agreements under which they agreed not to sell,
dispose of, loan, pledge or grant any rights to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of BancBoston Robertson Stephens
for a period of 180 days after the date of this prospectus.
BancBoston Robertson Stephens may choose to release some of these shares
from these restrictions before the expiration of this 180-day period, although
it has no current intention to do so.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 214,478 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 on Form 144 for the sale.
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<PAGE> 71
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 has not 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, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, shares that have been held by a non-affiliate for at least two years
may be sold in the open market immediately after the lock-up agreements expire.
RULE 701
Any employee, officer or director of, or consultant to, us who purchased
his shares under a written compensatory plan or contract may be entitled to sell
his shares in reliance on Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling those shares. However, all shares issued under
Rule 701 are subject to lock-up agreements and will only become eligible for
sale when the 180-day lock-up agreements expire.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 8,033,117 shares of common
stock, or their transferees, will have the right, exercisable under specific
circumstances, to register those shares under the Securities Act. If these
shares are registered, they will be freely tradable without restriction under
the Securities Act.
STOCK OPTIONS
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register approximately 3,156,406 shares of common stock issued
under our stock option and employee stock purchase plans. These registration
statements are expected to be filed soon after the date of this prospectus and
will automatically become effective upon filing. Shares registered under these
registration statements will be available for sale in the open market, unless
the shares are subject to vesting restrictions with iManage or the lock-up
restrictions described above.
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<PAGE> 72
UNDERWRITING
The underwriters named below have entered into an underwriting agreement
with us to purchase the number of shares of common stock listed opposite their
names below. The underwriters are obligated to purchase and pay for all the
shares listed below if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
U.S. Bancorp Piper Jaffray Inc..............................
C.E. Unterberg, Towbin......................................
E*TRADE Securities, Inc. ...................................
--------
Total............................................. 3,600,000
========
</TABLE>
The underwriters initially propose to offer the shares of common stock
directly to the public at the initial public offering price presented on the
cover page of this prospectus. Any shares sold by the underwriters to securities
dealers may be sold at a discount of up to per share from the initial
public offering price. The underwriters may allow, and the dealers may re-allow,
to other dealers a discount of up to $ per share from the initial public
offering price. After the initial offering of the common stock, the public
offering price and other selling terms may be changed by the representatives of
the underwriters at any time without notice. The underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 540,000 additional shares of common stock at the same price per
share as we will receive for the 3,600,000 shares that the underwriters have
agreed to purchase. To the extent this option is exercised, each of the
underwriters will become obligated, subject to various conditions, to purchase
approximately the same percentage of these additional shares that the number of
shares of common stock to be purchased by it shown in the above table represents
as a percentage of the 3,600,000 shares in this offering. If purchased, these
additional shares will be sold by the underwriters on the same terms as those on
which the 3,600,000 shares are being sold.
Qualified Independent Underwriter. The offering is being conducted under
Rule 2720 of the National Association of Securities Dealers, Inc. which provides
that when an NASD member firm participates in the offering of equity securities
of a company with whom the member has a conflict of interest, the initial public
offering price can be no higher than that recommended by a qualified independent
underwriter. C.E. Unterberg, Towbin is considered to have a conflict of interest
because some entities affiliated with C.E. Unterberg, Towbin own more than 10%
of our capital stock. BancBoston Robertson Stephens is serving as the qualified
independent underwriter in the offering and will recommend a price in compliance
with the requirements of Rule 2720. BancBoston Robertson Stephens has performed
due diligence investigations and reviewed and participated in the preparation of
the prospectus and the registration statement of which this prospectus forms a
part. BancBoston Robertson Stephens will receive no additional compensation in
its capacity as the qualified independent underwriter.
Indemnification. The underwriting agreement contains covenants of indemnity
among the underwriters and us against specified civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreement. Each of our officers, directors and substantially all
security holders have agreed with the representatives and us, for a period of
180 days after the effective date of this prospectus, not to dispose of or hedge
any shares of common stock, or securities convertible into or exchangeable for
shares of common stock, now owned or later acquired by them without the prior
written consent of BancBoston Robertson Stephens. BancBoston Robertson Stephens
may, in its sole
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<PAGE> 73
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. All of the shares of common stock
subject to the lock-up agreements will be eligible for sale in the public market
upon the expiration of the lock-up agreements, subject to holding period, volume
limitations and other conditions of Rule 144.
Future Sales. In addition, we have agreed that for 180 days following the
effective date of this prospectus, we will not, without the prior written
consent of BancBoston Robertson Stephens, dispose of or hedge any shares of
common stock, or any securities convertible into, exercisable for or
exchangeable for shares of common stock. However, the following are examples of
exceptions to this agreement:
- sale of shares in this offering;
- the issuance of common stock upon the exercise of outstanding options;
- our issuance of options or shares under existing stock option or stock
purchase plans; and
- issuances of stock in connection with acquisitions.
No Prior Public Market. Before this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock in this offering will be determined through negotiations among
us and the representatives of the underwriters. The factors to be considered in
these negotiations include prevailing market conditions, our financial
information, the market valuation of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential and the business potential of the industry in which we compete, an
assessment of our management, our past and present operation and the prospects
for our future revenues.
Stabilization. The representatives have advised us that, based on
Regulation M under the Exchange Act, some persons participating in this offering
may engage in any of the following transactions:
- stabilizing bid, a bid for or the purchase of common stock on behalf of
the underwriters that is intended to fix or maintain the price of the
common stock;
- syndicate covering transaction, a bid for the purchase of common stock on
behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering; and
- penalty bid, an arrangement that permits the representatives to reclaim
the selling concession otherwise accruing to an underwriter or syndicate
member in connection with the offering if the common stock originally
sold by the underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction, and has therefore
not been effectively placed by this underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market and, if
commenced, may be discontinued at any time.
Internet Distribution. A copy of the prospectus in electronic format will
be made available on the internet web site hosted by E*TRADE Securities, Inc.
E*TRADE will accept conditional offers to purchase shares from all of its
customers that pass and complete an online eligibility profile. If the demand
for shares from the customers of E*TRADE exceeds the amount of shares allocated
to it, E*TRADE will use a random allocation methodology to distribute shares in
even lots of 100 shares/customer. E*TRADE will provide customers a period after
effectiveness and pricing during which they will continue to have the right to
cancel their conditional offers. E*TRADE will cancel its existing book of
conditional offers and resolicit new conditional offers or have customers
reconfirm their existing conditional offers if the offering is priced outside
the anticipated price range indicated in the preliminary prospectus.
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<PAGE> 74
Directed Shares. The underwriters have reserved for sale at the initial
public offering price up to 5% of the common stock in this offering for
individuals designated by us who have expressed an interest in purchasing shares
of common stock in this offering. The number of shares available for sale to the
general public will be reduced to the extent these persons purchase the reserved
shares. The underwriters will offer any reserved shares not so purchased to the
general public on the same basis as other shares in this offering described
above.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Various
legal matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California. As of
September 30, 1999, an investment partnership and an associate attorney at Gray
Cary Ware & Freidenrich LLP beneficially owned an aggregate of 61,402 shares of
our common stock. Gary Cary is one of our customers.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act that registers the shares of our common stock to be sold in this
offering. The registration statement, including the attached exhibits and
schedules, contain additional relevant information about us and our capital
stock. The rules and regulations of the SEC allow us to omit various information
included in the registration statement from this document.
In addition, upon completion of this offering, we will become subject to
the reporting and information requirements of the Exchange Act and, as a result,
will file periodic reports, proxy statements and other information with the SEC.
You may read and copy this information at the following public reference rooms
of the SEC:
<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the public
reference section of the SEC, 450 Fifth St., N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. You may obtain information on the operation of the
public reference rooms by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet website that contains reports, proxy
statements and other information about issuers, like iManage, who file
electronically with the SEC. The address of that website is http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
audited financial statements, and make available to our stockholders quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
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<PAGE> 75
IMANAGE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 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
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of iManage, Inc. (formerly NetRight Technologies, Inc.)
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of iManage, Inc. (formerly NetRight
Technologies, Inc.) at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
August 20, 1999, except as to
Note 10, which is as of August 30, 1999
F-2
<PAGE> 77
IMANAGE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------ SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
------- ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,789 $ 7,617 $ 9,587
Short-term investments.................................... -- -- 5,492
Trade accounts receivable, net of allowance for doubtful
accounts of $75 in 1997, $175 in 1998 and $193 at
September 30, 1999...................................... 1,124 4,194 3,916
Other current assets...................................... 101 443 200
------- ------- -------
Total current assets................................ 3,014 12,254 19,196
Property and equipment, net................................. 237 483 1,479
Other assets................................................ 9 758 875
------- ------- -------
Total assets........................................ $ 3,260 $13,495 $21,550
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 188 $ 595 $ 859
Accrued liabilities....................................... 347 2,190 1,882
Advances from stockholders................................ 69 -- --
Equipment line of credit, current portion................. -- -- 194
Deferred revenue.......................................... 670 3,350 8,855
------- ------- -------
Total current liabilities........................... 1,274 6,135 11,790
Equipment line of credit, less current portion.............. -- -- 1,806
------- ------- -------
Total liabilities................................... 1,274 6,135 13,596
------- ------- -------
Commitments (Note 4)
Stockholders' Equity:
Preferred stock; $0.001 par value; authorized: 8,154
shares; issued and outstanding: 4,128 shares in 1997,
8,033 shares in 1998, 8,033 shares at September 30, 1999
and zero shares pro forma (Liquidation value:
$11,207)................................................ 4 8 8 $ --
Common stock, $0.001 par value; authorized: 20,000,000
shares; issued and outstanding: 6,516 shares in 1997,
8,198 shares in 1998, 9,815 shares at September 30, 1999
and 17,848 shares pro forma............................. 6 7 10 18
Additional paid-in capital................................ 6,810 15,679 22,497 22,497
Deferred stock-based compensation......................... (482) (770) (3,934) (3,934)
Notes receivable for common stock......................... -- (372) (1,002) (1,002)
Accumulated deficit....................................... (4,352) (7,192) (9,625) (9,625)
------- ------- ------- -------
Total stockholders' equity.......................... 1,986 7,360 7,954 $ 7,954
------- ------- ------- -------
Total liabilities and stockholders' equity.......... $ 3,260 $13,495 $21,550
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 78
IMANAGE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------- --------------------
1996 1997 1998 1998 1999
------ ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses.................................. $ 70 $ 1,172 $ 6,509 $ 4,079 $ 9,750
Support and services.................... 4 358 1,232 731 2,954
------ ------- ------- ------- -------
Total revenues....................... 74 1,530 7,741 4,810 12,704
------ ------- ------- ------- -------
Cost of revenues:
Licenses................................ 4 136 414 $ 261 $ 538
Support and services.................... 38 163 1,213 789 1,858
------ ------- ------- ------- -------
Total cost of revenues............... 42 299 1,627 1,050 2,396
------ ------- ------- ------- -------
Gross profit.............................. 32 1,231 6,114 3,760 10,308
Operating expenses:
Sales and marketing..................... 335 1,120 4,393 3,010 5,818
Research and development................ 113 935 2,351 1,653 2,931
General and administrative.............. 272 706 1,295 908 1,527
Stock-based compensation................ -- 2,079 1,054 812 2,768
------ ------- ------- ------- -------
Total operating expenses............. 720 4,840 9,093 6,383 13,044
------ ------- ------- ------- -------
Loss from operations...................... (688) (3,609) (2,979) (2,623) (2,736)
Interest income........................... -- 22 153 61 332
Interest expense.......................... (4) (9) (14)
------ ------- ------- ------- -------
Loss before provision for income taxes.... (692) (3,596) (2,840) (2,562) (2,404)
------ ------- ------- ------- -------
Provision for income taxes................ -- -- -- -- 29
------ ------- ------- ------- -------
Net loss.................................. $ (692) $(3,596) $(2,840) $(2,562) $(2,433)
====== ======= ======= ======= =======
Net loss per share -- basic and diluted... $(0.12) $ (0.57) $ (0.38) $ (0.35) $ (0.29)
====== ======= ======= ======= =======
Shares used in net loss per share -- basic
and diluted............................. 6,004 6,292 7,455 7,363 8,386
====== ======= ======= ======= =======
Pro forma net loss per share -- basic and
diluted (unaudited)..................... $ (0.21) $ (0.15)
======= =======
Shares used in pro forma net loss per
share -- basic and diluted
(unaudited)............................. 13,489 16,419
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 79
iMANAGE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED FOR
--------------- --------------- PAID-IN STOCK-BASED COMMON ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION STOCK DEFICIT TOTAL
------ ------ ------ ------ ---------- ------------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996.... -- $ -- 6,000 $ 6 $ 75 $ -- $ -- $ (64) $ 17
Issuance of Series A
preferred stock, net of
issuance costs of $5......... 886 1 -- -- 624 -- -- -- 625
Issuance of common stock..... -- -- 291 -- 20 -- -- -- 20
Capital contributed from
stockholders................ -- -- -- -- 120 -- -- -- 120
Net loss..................... -- -- -- -- -- -- -- (692) (692)
----- ---- ----- --- ------- ------- ------- ------- -------
Balances, December 31,
1996........................ 886 1 6,291 6 839 -- -- (756) 90
Issuance of Series A
preferred stock, net of
issuance costs of $17....... 1,968 2 -- -- 1,377 -- -- -- 1,379
Issuance of Series B
preferred stock, net of
issuance costs of $11....... 1,274 1 -- -- 1,988 -- -- -- 1,989
Exercise of common stock
options..................... -- -- 225 -- 45 -- -- -- 45
Options issued in exchange
for services................ -- -- -- -- 47 -- -- -- 47
Deferred stock-based
compensation................ -- -- -- -- 2,368 (2,368) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- -- -- 1,951 -- -- 1,951
Deferred non-employee
stock-based compensation.... -- -- -- -- 146 (146) -- -- --
Amortization of non-employee
stock-based compensation.... -- -- -- -- -- 81 -- -- 81
Net loss..................... -- -- -- -- -- -- -- (3,596) (3,596)
----- ---- ----- --- ------- ------- ------- ------- -------
Balances, December 31,
1997........................ 4,128 4 6,516 6 6,810 (482) -- (4,352) 1,986
Issuance of Series B
Preferred Stock, net of
issuance costs of $17....... 1,926 2 -- -- 3,005 -- -- -- 3,007
Issuance of Series C
preferred stock, net of
issuance costs of $4........ 1,879 2 -- -- 3,941 -- -- -- 3,943
Issuance of Series C
preferred stock to prepay
rent........................ 100 -- -- -- 210 -- -- -- 210
Exercise of common stock
options..................... -- -- 1,682 1 371 -- (372) -- --
Options issued in exchange
for services................ -- -- -- -- 89 -- -- -- 89
Deferred stock-based
compensation................ -- -- -- -- 1,204 (1,204) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- -- -- 866 -- -- 866
Deferred non-employee
stock-based compensation.... -- -- -- -- 49 (49) -- -- --
Amortization of non-employee
stock-based compensation.... -- -- -- -- -- 99 -- -- 99
Net loss..................... -- -- -- -- -- -- -- (2,840) (2,840)
----- ---- ----- --- ------- ------- ------- ------- -------
Balances, December 31,
1998........................ 8,033 8 8,198 7 15,679 (770) (372) (7,192) 7,360
Exercise of common stock
options..................... -- -- 1,617 3 886 -- (630) -- 259
Options issued in exchange
for services................ -- -- -- -- 208 -- -- -- 208
Deferred stock-based
compensation................ -- -- -- -- 5,710 (5,710) -- -- --
Amortization of deferred
stock-based compensation.... -- -- -- -- -- 2,532 -- -- 2,532
Deferred non-employee
stock-based compensation.... -- -- -- -- 14 (14) -- -- --
Amortization of non-employee
stock-based compensation.... -- -- -- -- -- 28 -- -- 28
Net loss..................... -- -- -- -- -- -- -- (2,433) (2,433)
----- ---- ----- --- ------- ------- ------- ------- -------
Balances, September 30,
1999........................ 8,033 $ 8 9,815 $10 $22,497 $(3,934) $(1,002) $(9,625) $ 7,954
===== ==== ===== === ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 80
IMANAGE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1996 1997 1998 1998 1999
----- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(692) $(3,596) $(2,840) $(2,562) $(2,433)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 19 61 313 127 366
Amortization of prepaid rent............................ -- -- 12 -- 212
Amortization of deferred stock-based compensation....... -- 2,032 965 766 2,560
Stock issued for services............................... -- 47 89 47 208
Provision for doubtful accounts......................... 10 65 100 124 18
Changes in operating assets and liabilities:
Trade accounts receivable............................. (79) (1,170) (3,195) (4,760) 259
Accounts payable...................................... 178 6 407 241 264
Accrued liabilities................................... 80 284 1,868 1,310 (307)
Deferred revenue...................................... 81 589 2,680 3,870 5,505
Other assets.......................................... (9) (99) (1,021) (103) (87)
----- ------- ------- ------- -------
Net cash (used in) provided by operating
activities....................................... (412) (1,781) (622) (941) 6,565
----- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (59) (192) (431) (359) (1,362)
Purchases of short-term investments....................... -- -- -- -- (5,492)
----- ------- ------- ------- -------
Net cash used in investing activities.............. (59) (192) (431) (359) (6,854)
----- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) advances and loans from
stockholders............................................ 55 (10) (69) (69) --
Proceeds from equipment line of credit.................... -- -- -- -- 2,000
Contributed capital....................................... 120 -- -- -- --
Issuance of common stock, net............................. 20 45 -- -- 259
Issuance of preferred stock, net.......................... 625 3,368 6,950 6,950 --
----- ------- ------- ------- -------
Net cash provided by financing activities.......... 820 3,403 6,881 6,881 2,259
----- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 349 1,430 5,828 5,581 1,970
Cash and cash equivalents at beginning of period............ 10 359 1,789 1,789 7,617
----- ------- ------- ------- -------
Cash and cash equivalents at end of period.................. $ 359 $ 1,789 $ 7,617 $ 7,370 $ 9,587
===== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ -- $ 2 $ 17
===== ======= =======
Cash paid for income taxes................................ $ $ 3 $ 2
===== ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of common stock in exchange for notes
receivable.............................................. $ -- $ -- $ 372 $ 300 $ 630
===== ======= ======= ======= =======
Issuance of Series C preferred stock to prepay rent....... $ -- $ -- $ 210 $ -- --
===== ======= ======= ======= =======
Deferred stock based compensation......................... $ -- $ 2,514 $ 1,253 $ 933 $ 5,724
===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 81
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND NATURE OF OPERATIONS:
NATURE OF OPERATIONS
iManage, Inc. (formerly NetRight Technologies, Inc.) (the "Company")
supplies e-business content and collaboration management software that provides
organizations with a web-based unified content platform that enables them to
manage, organize and deliver information in a centralized manner throughout the
extended enterprise. The Company markets and sells its software and services
primarily through its direct sales organization, resellers and system
integrators in the United States and Canada and through distributors in the
United Kingdom and Australia. In 1996, 1997, 1998 and the nine month period
ended September 30, 1999, 87%, 58%, 55%, and 69% of revenues, respectively, were
through resellers. The Company's license and support and services revenues to
date have substantially been derived from the sale of iManage's suite of
products, including iManage infoCommerce Server, iManage infoLink, iManage
infoLook and iManage infoRite, to customers primarily located in the United
States.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM RESULTS
The accompanying interim financial statements for the nine month period
ended September 30, 1998 and 1999, together with the related notes, are
unaudited. The unaudited interim financial statements have been prepared on the
same basis as the financial statements for 1996, 1997 and 1998 and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position at September 30, 1999 and its results of operations and its cash flows
for the nine month period ended September 30, 1998 and 1999 and its changes in
stockholders' equity for the nine month period ended September 30, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
Cash equivalents represent commercial paper, money market funds, cash and
time deposits with original or remaining maturities at the date of purchase of
three months or less. The carrying amounts reported for cash and cash
equivalents are considered to approximate fair values based upon the short
maturities of those financial instruments.
Short-term investments are classified as available for sale and have
maturities of one year or less as of the date of the balance sheet. The carrying
amount of the Company's short term investments, which comprise commercial paper
and corporate debt obligations, approximates fair value. Realized gains and
losses on short-term investments are calculated using the specific
identification method. There were no realized gains and losses in 1998 and no
unrealized holding gains and losses at December 31, 1998. Realized gains and
losses in the nine month period ended September 30, 1999 and unrealized holding
gains and losses at September 30, 1999 were not significant.
F-7
<PAGE> 82
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The carrying amounts of certain of the Company's other financial
instruments including accounts receivable, accounts payable and accrued expenses
approximate fair value due to their short maturities. The carrying amounts of
notes payable under the equipment line of credit approximates fair value based
on the terms of similar borrowing arrangements available to the Company.
CERTAIN RISKS AND CONCENTRATIONS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and accounts receivable. The Company maintains
substantially all of its cash and cash equivalent balances and short-term
investments with two major financial institutions domiciled in the United
States. The Company performs ongoing credit evaluations of its customers,
generally does not require collateral of its customers and maintains allowances
for potential credit losses.
Three customers accounted for 40% of trade accounts receivable at December
31, 1997. Two different customers accounted for 33% of trade accounts receivable
at December 31, 1998. A sixth customer accounted for 16% of trade accounts
receivable at September 30, 1999. Four customers accounted for 67% of the
Company's total revenues for 1996. There were no customers that accounted for
more than 10% of revenues for 1997 and 1998 or for the nine month period ended
September 30, 1999, respectively. Additionally, 58%, 84%, 89% and 94% of the
Company's revenues for the years ended December 31, 1996, 1997 and 1998 and the
nine month period ended September 30, 1999 were derived from law firms.
The Company relies on software licensed from third parties, including
software that is integrated with internally developed software and used in the
Company's products to perform key functions. The functionality of the Company's
products, therefore, depends on its ability to integrate these third party
technologies into its products.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of three years. Depreciation
for leasehold improvements is recorded using the straight-line method over the
lesser of the estimated useful lives of the assets or the lease term, generally
three years. Upon sale or retirement of assets, cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations.
LONG-LIVED ASSETS
The Company reviews property and equipment for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability is measured by comparison of its carrying
amount to future net cash flows the assets are expected to generate. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
projected discounted future cash flows arising from the asset.
SOFTWARE DEVELOPMENT COSTS
Costs related to research and development of new software products are
charged to research and development expenses as incurred. Software development
costs are capitalized beginning when a product's technological feasibility has
been established, which to date has been when the Company
F-8
<PAGE> 83
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
has a working model of the software, and ending, when a product is available for
general release to customers. Substantially all development costs are incurred
prior to establishing a working model. As a result, the Company has not
capitalized any software development costs since such costs have not been
significant.
REVENUE RECOGNITION
The Company's revenues are derived from two sources as follows: (i)
software license revenue, derived primarily from product sales on a per server
and per user basis, including software modules, to end users, resellers, systems
integrators and distributors and (ii) support and services revenue, derived
primarily from providing customer support and software updates and training and
consulting services to end users. The Company adopted the provisions of
Statement of Position 97-2, or SOP 97-2, "Software Revenue Recognition," as
amended by Statement of Position 98-4, "Deferral of the Effective Date of
Certain Provisions of SOP 97-2," effective January 1, 1998. SOP 97-2 supersedes
Statement of Position 91-1, "Software Revenue Recognition," and delineates the
accounting for software license and support and services revenues. Under SOP
97-2, the Company recognizes license revenues upon shipment of a product master,
which allows the customer to make the number of copies specified in the contract
if a signed contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns are reasonably estimable
and, if applicable, acceptance criteria have been met. Provisions for estimated
warranty costs and sales returns are recorded at the time of shipment.
For contracts with multiple obligations (e.g. deliverable and undeliverable
products, support and other services), the Company allocates revenues to the
undelivered element of the contract based on objective evidence of its fair
value. This objective evidence is the sales price of the element when sold
separately by the Company. The Company generally does not allow the right of
return but has accepted returns in isolated instances when resellers, system
integrators and distributors have incorrectly ordered product. The Company
recognizes revenues allocated to undelivered products when the criteria for
license revenues set forth above are met. The Company recognizes support and
services revenues, including amounts allocated from contracts with multiple
obligations and for ongoing customer support, ratably over the period of the
support contract. The Company's support and service arrangements entitle
customers to telephone support and unspecified upgrades and enhancements.
Payments for support and services are generally made in advance and are
non-refundable. For revenues allocated to training and consulting services or
derived from the separate sales of these services, the Company recognizes
revenues as the related services are performed.
Through 1997, the Company recognized license revenues upon shipment if
remaining obligations were insignificant, collection of the resulting receivable
was probable and if applicable, acceptance criteria were met. Provisions for
estimated warranty costs, estimated sales returns and insignificant vendor
obligations were recorded at the time products were shipped. Service and support
revenues, including revenues allocated from contracts including software
licenses, were recognized ratably over the period of the service and support
agreements. Training and consulting revenues were recognized as the related
services were performed.
As of December 31, 1998 and September 30, 1999, deferred revenue included
advance payments received for support and services and license revenues received
or due under the terms of the contracts for which customer acceptance had not
been received or vendor specific objective evidence was not available for
elements of the contracts.
F-9
<PAGE> 84
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
Income taxes are accounted for using the liability method under which
deferred tax assets and liabilities are determined based on differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the period in which the differences are expected to
affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
From October 10, 1995 to December 26, 1996, the Company was organized as a
S corporation, which is a conduit entity for income tax purposes. Subsequent to
December 26, 1996, the Company was organized as a C corporation and was
therefore liable for income taxes.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25 or APB 25,
"Accounting for Stock Issued to Employees" and has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, or SFAS 123, "Accounting for Stock-Based Compensation."
ADVERTISING
The Company expenses advertising costs as incurred. During 1996, 1997 and
1998, the Company incurred $83,000, $88,000 and $286,000 of advertising cost,
respectively.
SEGMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, or SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company operates in one disclosable
segment, using one measurement of profitability for its business. Although the
Company has sales outside the United States, such sales are not significant. All
long-lived assets are maintained in the United States.
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. There were no differences between net loss for 1996,
1997 and 1998 and the nine month period ended September 30, 1998 and 1999 and
comprehensive loss for each of these periods.
INTERNAL USE SOFTWARE COSTS
Effective January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Through September 30, 1999, the Company has not incurred any
costs which would be required to be capitalized under the provisions of this
standard.
START-UP COSTS
Effective January 1, 1999, the Company adopted the provisions of Statement
of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up Activities."
The adoption of SOP 98-5 had no
F-10
<PAGE> 85
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
impact on the Company's financial statements as the Company has expensed all
costs of start-up activities and organizational costs as incurred.
NET LOSS PER SHARE
Basic net loss per share is computed based on the weighted average number
of shares outstanding during the period. Diluted net loss per share is also
computed based on the weighted average number of shares outstanding during the
period. Diluted net loss per share does not include the weighted average effect
of dilutive potential common shares including convertible preferred stock,
options to purchase common stock and common stock subject to repurchase in any
period presented because the effect is antidilutive.
The following table presents information necessary to reconcile basic and
diluted net loss per common and common equivalent share (in thousands):
<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED SEPTEMBER 30,
-------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss................................................... $ (692) $(3,596) $(2,840) $(2,562) $(2,433)
Shares used in net loss per share -- basic and diluted..... 6,004 6,292 7,455 7,363 8,386
------- ------- ------- ------- -------
Net loss per share -- basic and diluted.................... $ (0.12) $ (0.57) $ (0.38) $ (0.35) $ (0.29)
======= ======= ======= ======= =======
Anti-Dilutive Securities:
Convertible preferred stock.............................. 886 4,128 8,033 7,933 8,033
Options to purchase common stock......................... -- 2,174 1,602 1,572 1,079
Common stock subject to repurchase....................... -- 150 346 347 251
------- ------- ------- ------- -------
886 6,452 9,999 9,852 9,363
======= ======= ======= ======= =======
</TABLE>
PRO FORMA NET LOSS PER SHARE AND PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Pro forma basic and diluted net loss per common share has been computed as
described above and also gives effect to weighted average common equivalent
shares from preferred stock that will automatically convert upon the closing of
the Company's initial public offering using the as-if-converted method for 1998
and the nine month period ended September 30, 1999.
A reconciliation of the numerator and denominator used in the calculation
of pro forma basic and diluted net loss per common share follows (in thousands
except per share data):
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
SEPTEMBER 30,
1998 1999
------- -------------
<S> <C> <C>
Net loss.................................................... $(2,840) $(2,433)
------- -------
Shares used in net loss per common share, basic and
diluted..................................................... 7,455 8,386
Adjustments to reflect the effect of the assumed conversion
of the preferred stock.................................... 6,034 8,033
------- -------
Shares used in pro forma net loss per common share, basic
and diluted............................................... 13,489 16,419
------- -------
Pro forma net loss per common share, basic and diluted...... $ (0.21) $ (0.15)
======= =======
</TABLE>
F-11
<PAGE> 86
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
If the offering contemplated by this prospectus is consummated, all of the
convertible preferred stock outstanding as of the closing date will
automatically be converted into an aggregate of approximately 8,033,000 shares
of common stock, based on the shares of convertible preferred stock outstanding
at September 30, 1999. Unaudited pro forma stockholders' equity at September 30,
1999, as adjusted for the conversion of convertible preferred stock, is
disclosed on the balance sheet.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP
97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is no
vendor-specific objective evidence ("VSOE") of the fair values of all the
undelivered elements that are not accounted for by means of long-term contract
accounting, (2) VSOE of fair value does not exist for one or more of the
delivered elements, and (3) all revenue recognition criteria of SOP 97-2 (other
than the requirement for VSOE of the fair value of each delivered element) are
satisfied. The provisions of SOP No. 98-9 that extend the deferral of certain
paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of
SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into
in fiscal years beginning after March 15, 1999. Retroactive application is
prohibited. The Company is currently evaluating the impact of the requirements
of SOP 98-9 and the effects, if any, on its current revenue recognition
policies.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. In July, 1999, the
Financial Accounting Standard Boards issued SFAS No. 137, or "SFAS 137,"
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133." SFAS 137 deferred the effective date of SFAS
133 until the first fiscal quarter beginning after June 15, 2000. The Company
does not currently hold derivative instruments or engage in hedging activities.
The Company is continuing to evaluate the impact of the requirements of SFAS No.
133 and SFAS No. 137 will have on its financial statements and related
disclosures.
F-12
<PAGE> 87
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- BALANCE SHEET ACCOUNTS:
FINANCIAL INSTRUMENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1998
-------------------- --------------------
COST FAIR VALUE COST FAIR VALUE
------ ----------- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS
Cash................................................ $ -- $ -- $ 57 $ 57
Time deposits....................................... 1,789 1,789 4,842 4,842
Money market........................................ -- -- 2,718 2,718
Commercial paper.................................... -- -- -- --
------ ------ ------ ------
$1,789 $1,789 $7,617 $7,617
====== ====== ====== ======
SHORT-TERM INVESTMENTS
Federal government obligations...................... $ -- $ -- $ -- $ --
Commercial paper.................................... -- -- -- --
------ ------ ------ ------
$ -- $ -- $ -- $ --
====== ====== ====== ======
</TABLE>
PROPERTY AND EQUIPMENT, NET:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
----- -----
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures...................................... $ 64 $198
Computer software and equipment............................. 253 550
Leasehold improvements...................................... -- --
---- ----
317 748
Less accumulated depreciation............................... 80 265
---- ----
$237 $483
==== ====
</TABLE>
Depreciation expense was $19,000, $60,000 and $185,000 for 1996, 1997 and
1998, respectively.
OTHER ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
----- -----
(IN THOUSANDS)
<S> <C> <C>
Technology licenses......................................... $-- $725
Less accumulated amortization............................... -- (128)
-- ----
-- 597
-- ----
Other assets................................................ 9 161
-- ----
$9 $758
== ====
</TABLE>
In 1998, the Company entered into technology license agreements including
non-cancelable minimum payments. The present value of payments under these
agreements is recorded as an asset
F-13
<PAGE> 88
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
and amortized over the terms of the agreements (generally three years) as the
technological feasibility had been established for the product, which included
the technology.
ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ------
(IN THOUSANDS)
<S> <C> <C>
Technology licenses......................................... $ 50 $ 425
Payroll and related......................................... 198 1,276
Other....................................................... 99 489
---- ------
$347 $2,190
==== ======
</TABLE>
NOTE 4 -- COMMITMENTS:
The Company leases its office facilities in San Mateo, California and
Chicago, Illinois under non-cancelable operating leases which expire on December
31, 2001 and April 30, 2004, respectively.
Under the terms of the San Mateo lease, the Company issued 100,000 shares
of series C preferred stock in lieu of future rental payments (see Note 6). In
addition, the lease has two one year options to extend upon six months written
notice to the landlord.
Under the terms of the Chicago lease, there is an option to extend the term
of the lease for 5 years.
Future minimum payments under the non-cancelable operating leases as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
---------
<S> <C>
YEAR
1999........................................................ $ 556
2000...................................................... 546
2001...................................................... 567
2002...................................................... 145
2003...................................................... 153
and thereafter............................................ 425
------
$2,392
======
</TABLE>
Rent expense was $30,000, $111,000 and $216,000 for 1996, 1997 and 1998,
respectively. See Note 8 for sublease income received.
NOTE 5 -- LINE OF CREDIT AGREEMENT:
In March 1999, the Company entered into a line of credit agreement with a
bank, comprised of a revolving line of credit and an equipment line of credit.
The line of credit agreement, which is collateralized by substantially all of
the Company's assets, intangible assets and intellectual property, includes
covenant restrictions requiring the Company to maintain certain minimum
financial ratios and profitability levels and limits the Company's ability to
declare and pay dividends. The Company was in violation of the profitability
covenant at June 30, 1999 and received a waiver and an
F-14
<PAGE> 89
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
amendment of certain covenants from its bank. The Company was in compliance with
these covenants at September 30, 1999.
The revolving line of credit provides for borrowings of up to $5,000,000,
which can be used at the discretion of the Company through March 31, 2000.
Borrowings are limited to the lesser of 80% of eligible accounts receivable or
$5,000,000, bear interest at prime plus 0.25% and are due at March 31, 2000. At
September 30, 1999, no amounts have been drawn against this facility.
The equipment line of credit, which bears interest at prime plus 0.50%,
provides for borrowings of up to $2,000,000 to finance the Company's purchases
of property and equipment. At September 30, 1999, $2,000,000 has been drawn
against this facility. Principal repayment begins in February 2000 and continues
through February 2002 in equal monthly installments of principal and interest.
Principal payments due under the facility as of September 30, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
THREE MONTH PERIOD ENDING DECEMBER 31, 1999................. $ --
YEAR ENDING DECEMBER 31,
2000...................................................... 612
2001...................................................... 666
2002...................................................... 666
2003...................................................... 56
------
$2,000
======
</TABLE>
NOTE 6 -- STOCKHOLDERS' EQUITY:
CONVERTIBLE PREFERRED STOCK
At December 31, 1998 and September 30, 1999, the amounts, terms and value
of series A convertible ("series A"), series B convertible ("series B") and
series C convertible ("series C") preferred stock are as follows (in thousands):
<TABLE>
<CAPTION>
COMMON
STOCK
ISSUED AND NET RESERVED FOR
SERIES AUTHORIZED OUTSTANDING PROCEEDS CONVERSION
------ ---------- ----------- -------- ------------
<S> <C> <C> <C> <C>
A........................ 2,853 2,854 $ 2,004 2,854
B....................... 3,200 3,200 4,996 3,200
C....................... 2,100 1,979 4,153 1,979
----- ----- ------- -----
8,154 8,033 $11,153 8,033
===== ===== ======= =====
</TABLE>
Other rights, privileges and preferences of series A, series B and series C
preferred stock are as follows:
VOTING RIGHTS
Holders of series A, series B and series C preferred stock are entitled to
one vote for each share of common stock into which each share of preferred stock
could be converted. The holders of the outstanding shares of series A, series B
and series C preferred stock shall vote with the holders of the
F-15
<PAGE> 90
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
common stock upon the election of directors. The consent of the holders of a
majority of the preferred stock, voting together as a single class, shall be
required for any action that (i) amends or repeals any provision of the
Company's Certificate of Incorporation if such action would materially and
adversely change the rights, preferences or privileges of a class of preferred
stock; (ii) authorizes or issues shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity with
a class of the preferred stock; (iii) pays or declares any dividends on any
junior securities; (iv) authorizes a merger, sale of substantially all the
assets of the Company, recapitalization or reorganization of the Company.
DIVIDENDS
The holders of series A, series B and series C preferred stock are entitled
to receive noncumulative dividends as and when declared by the Board of
Directors, prior and in preference to any declaration or payment of any dividend
on the common stock of the Company. The dividends shall be at the rate of 10% of
the series A, series B and series C preferred stock per share liquidation
preference per annum. No dividends have been declared as of December 31, 1998
and September 30, 1999.
CONVERSION RIGHTS
Shares of series A, series B and series C preferred stock are convertible
into common stock at the option of the holder, or automatically upon a public
offering with proceeds of at least $12,000,000 and at an offering price of at
least $5.00 per share, or upon the election of the holders of a majority of the
then outstanding shares of series A, series B and series C preferred stock
voting together or separately as a class. Each share of preferred stock shall be
convertible into the number of fully paid and non-assessable shares of common
stock, which results from dividing the purchase price per share for each series
of preferred stock into the per share conversion price applicable to each series
at the time of conversion. The conversion price per share is subject to
adjustments for the issuance of additional shares to other than employees,
contractors or members of the Board of Directors at a price less than the
conversion price. The purchase price and initial conversion price per share of
series A, series B and series C preferred stock is $0.71, $1.57 and $2.10,
respectively. As of December 31, 1998 and September 30, 1999, each outstanding
share of preferred stock is convertible into one share of common stock.
LIQUIDATION
In the event of liquidation or sale of the Company, holders of shares of
series A, series B and series C preferred stock are entitled to receive in
preference over common stockholders, an amount of $0.71, $1.57 and $2.10, per
share, respectively, including any declared but unpaid dividends. After the
payment of the applicable liquidation preference to the holders of the series A,
series B and series C preferred stock, the remaining assets are to be
distributed to the holders of series A and series C preferred and common stock,
until the series A preferred stockholders have received an additional amount
equal to $1.42 per share and the series C preferred stockholders have received
an additional amount equal to $1.05 per share. Thereafter, any remaining assets
shall be distributed ratably to the holders of common stock.
OTHER RIGHTS
The holders of series A, series B and series C preferred stock have certain
piggy-back and demand registration rights which terminate six years after an
initial public offering by the Company.
F-16
<PAGE> 91
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The holders of preferred stock have the right in the event the Company proposes
to offer equity securities to any person to purchase a portion of the shares so
as to maintain their percentage ownership of preferred stock. The holders of
preferred stock also have the right of first refusal on a pro rata basis with
respect to sales by the founders of shares of the Company's common stock. These
rights terminate upon an initial public offering by the Company.
ISSUANCE OF PREFERRED STOCK IN EXCHANGE FOR RENT
In November 1998, the Company issued 100,000 shares of series C preferred
stock in conjunction with an office lease agreement. The Company determined the
fair value of the stock was $210,000, which was the price paid per share by the
third party investors for the series C preferred stock in November 1998
multiplied by the number of shares issued. This amount has been recorded as
prepaid rent and is being amortized on a straight-line basis over the term of
the lease. As of December 31, 1998 and September 30, 1999, approximately
$216,000 and zero, respectively, representing the unamortized portion of prepaid
rent, are included in other current assets.
COMMON STOCK
Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to prior rights
of holders of all classes of stock outstanding having priority rights as to
dividends. No dividends have been declared or paid on the Company's common stock
as of December 31, 1998 or September 30, 1999.
At December 31, 1997 and 1998 and September 30, 1999, 150,000, 428,000 and
251,000 outstanding shares of common stock were subject to the Company's right
of repurchase at the shares original issuance price, respectively. Weighted
average original issuance price of these shares was $0.20 per share and the
Company's right to repurchase these shares lapses ratably over periods through
September 2003.
STOCK OPTION PLAN
The Company has reserved 5,000,000 shares of common stock for issuance
under the 1997 Stock Incentive Plan (the "Plan"). Under the Plan, the Board of
Directors may issue incentive stock options to employees and nonqualified stock
options to consultants or nonemployee directors of the Company, and stock
purchase rights to employees or nonemployee directors of, or consultants to, the
Company. The Board of Directors has the authority to determine to whom options
will be granted, the number of shares, the term and exercise price, which cannot
be less than fair market value at date of grant for incentive stock options or
85% of fair market value for nonqualified stock options. If an employee owns
stock representing more than 10% of the outstanding shares, the price of each
share shall be at least 110% of fair market value, as determined by the Board of
Directors. The options vest and are exercisable at times and increments as
specified by the Board of Directors, and expire ten years from date of grant.
Options granted under the Plan generally vest and become exercisable 25% one
year after the date of the optionholders' date of employment and thereafter
ratably over three years.
F-17
<PAGE> 92
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Activity under the Plan does not include options to purchase 180,000 shares
of common stock granted outside the plan in 1998 and is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER OF EXERCISE EXERCISE
FOR GRANT SHARES PRICE PRICE
--------- --------- ------------- --------
<S> <C> <C> <C> <C>
Shares reserved at plan inception.............. 3,600
Options granted................................ (2,401) 2,401 $ 0.20 $0.20
Options exercised.............................. (225) 0.20 0.20
Options canceled............................... 2 (2) 0.20 0.20
------ ------
Balances, December 31, 1997.................... 1,201 2,174 0.20 0.20
Additional shares reserved..................... 400 -- -- --
Options granted................................ (967) 967 0.30 - 0.40 0.32
Options exercised.............................. -- (1,502) 0.20 0.20
Options canceled............................... 19 (19) 0.20 - 0.30 0.28
------ ------
Balances, December 31, 1998.................... 653 1,620 0.20 - 0.40 0.27
Additional shares reserved..................... 2,000 -- -- --
Options granted................................ (1,127) 1,127 0.60 - 4.50 1.40
Options exercised.............................. -- (1,617) 0.20 - 1.65 0.54
Options canceled............................... 51 (51) 0.30 - 1.50 0.81
------ ------
Balances, September 30, 1999................... 1,577 1,079 $0.20 - $4.50 $1.02
====== ====== ============= =====
</TABLE>
The options outstanding and currently exercisable by exercise price at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS CURRENTLY
- ------------------------------------------------ EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
- -------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.20 668,000 8.5 $0.20 465,000 $0.20
$0.30 759,000 9.5 $0.30 233,000 $0.30
$0.40 193,000 9.9 $0.40 77,000 $0.40
--------- -------
1,620,000 9.1 $0.27 775,000 $0.24
========= =======
</TABLE>
At December 31, 1997, options to purchase 1,152,000 shares of the Company's
common stock were exercisable at a weighted average exercise price of $0.20 per
share.
During 1998, the Company granted options to purchase 180,000 shares of the
Company's common stock at an exercise price of $0.40 per share to an officer of
the Company, which were issued outside the terms of the Plan and were
immediately exercisable. The weighted average fair value of these options was
$1.80 per common stock option. Shares issued upon exercise of these options,
however, are subject to the Company's right of repurchase, which lapse as to 25%
of the shares one and two years from the date of grant for 150,000 and 30,000
shares, respectively and thereafter, ratably over three years. The options
expire ten years from the date of grant. During
F-18
<PAGE> 93
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 1998 and as permitted by the option agreement, these options were
exercised in exchange for a full recourse note receivable from the officer
totaling $72,000 due November 12, 2002.
In September 1998, two other non-officer employees exercised options issued
under the Plan to purchase 1,500,000 shares of the Company's common stock at
$0.20 per share in exchange for full recourse notes receivable totaling $300,000
that are payable in equal installments through September 1, 2001. These notes
receivable bear interest at 4.5% to 4.83% per annum.
In April and May 1999, an officer of the Company exercised options to
purchase approximately 178,000 and 127,000 common shares, respectively, in
exchange for two full recourse notes receivable of approximately $53,000 and
$39,000, respectively. These notes receivable are due in March and May 2003 and
bear interest at 4.71% and 4.83%, respectively.
In March 1999, a non-officer of the Company exercised options to purchase
172,000 common shares in exchange for a full recourse note receivable of
approximately $34,000, which is due in March 2003 and bears interest at 4.57%.
Subsequent to June 30, 1999, two officers of the Company exercised options
to purchase 230,000 and 180,000 shares of common stock, respectively, in
exchange for full recourse notes receivable of approximately $207,000 and
$297,000, respectively. These notes receivable are due in July 2003 and July
2001 and bear interest at 5.22% and 4.90%, respectively. Additionally, three
non-officers exercised options to purchase common shares in exchange for full
recourse notes receivable totaling approximately $100,000. These notes
receivable are due in July through August 2003 and bear interest at rates
ranging between 5.22% and 5.37%.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provision of SFAS 123. Had
compensation cost been determined for options issued under the Plan and outside
the Plan based on the fair value of the options at the grant date for awards in
1997 and 1998 consistent with the provisions of SFAS 123, the Company's net loss
would have been increased to the pro forma amounts indicated below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Net loss:
As reported................................................. $(3,596) $(2,840)
======= =======
Pro forma................................................. $(3,686) $(2,882)
======= =======
Net loss per share -- basic and diluted as reported......... $ (0.57) $ (0.38)
======= =======
Net loss per share -- basic and diluted pro-forma........... $ (0.59) $ (0.39)
======= =======
</TABLE>
As the provisions of SFAS 123 have only been applied to stock options
granted since the Plan's inception in 1997, the impact of the pro forma stock
compensation cost will likely continue to increase as the vesting period for the
Company's options and the period over which the stock compensation is charged to
expense is generally four to five years.
F-19
<PAGE> 94
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The estimated weighted average minimum value of options granted during 1997
and 1998 was $0.05 and $0.06 per share, respectively. The minimum value of each
option grant is estimated on the date of grant using the minimum value method
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Expected life of option..................................... 5 years 5 years
Risk-free interest rate..................................... 5.66% 4.96%
Dividend yield.............................................. 0% 0%
</TABLE>
DEFERRED STOCK COMPENSATION
During 1997 and 1998 and the nine month period ended September 30, 1999,
the Company issued options to purchase its common stock to certain employees
totaling 2,401,000, 967,000 and 1,127,000, respectively under the Plan and
outside the Plan with weighted average exercise prices of $0.20, $0.32 and $1.40
per share, respectively, which are below the deemed fair value of the Company's
common stock at the date of grant. The weighted average deemed fair value of the
underlying common stock was $1.26, $1.47 and $6.61 in 1997 and 1998, and the
nine month period ended September 30, 1999, respectively. In accordance with the
requirements of APB 25, the Company has recorded deferred stock based
compensation for the difference between the exercise price of the stock options
and the deemed fair value of the Company's stock at the date of grant. This
deferred compensation is amortized to expense over the period during which the
Company's right to repurchase the stock lapses or options become exercisable,
generally four or five years consistent with the method described in FASB
Interpretation No. 28. At December 31, 1998, the Company had recorded deferred
compensation related to these options in an amount of $3,572,000, of which
$1,951,000 and $866,000 had been amortized to expense during 1997 and 1998,
respectively. In the nine month period ended September 30, 1999, an additional
$5,710,000 in deferred compensation was recorded for continuing option grants to
employees with exercise prices below the deemed fair value. Also during this
period, the Company amortized $2,532,000 of this deferred stock based
compensation.
Future compensation expense from options granted through September 30, 1999
is estimated to be $828,000, $2,000,000, $830,000, $304,000 and $21,000 for the
remainder of 1999, 2000, 2001, 2002 and 2003, respectively.
DEFERRED NON-EMPLOYEE STOCK-BASED COMPENSATION
In November 1997, the Company granted 165,000 options to purchase common
stock at an exercise price of $0.20 per share to various non-employee engineers
for consulting services, when the deemed fair market value of the Company's
common stock was $1.26 per share. Approximately 40,000 of these options were
100% vested upon grant and were valued at $47,000 using the Black-Scholes
pricing model with the following assumptions: 10 year term, 55% volatility,
5.73% discount rate and 0% dividend rate. This $47,000 was expensed immediately
as these options related to services provided prior to the grant date. The
remaining options were 50% vested at the grant date with the other 50% vesting
monthly over the next two years. Accordingly, these shares were valued under the
Black-Scholes pricing model with the same assumptions as those above at
$146,000, which was amortized in accordance with the vesting terms. Subsequent
to the initial valuation, these remaining options have been accounted for under
variable accounting, which requires that the fair value of the options be
remeasured at each balance sheet date using the Black-Scholes pricing model.
F-20
<PAGE> 95
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
An additional $10,000 and $3,000 in deferred compensation has been recorded in
1998 and the nine month period ended September 30, 1999, respectively, related
to these options.
In 1998, the Company granted approximately 76,000 options to purchase
common stock at exercise prices ranging between $0.30 and $0.40 per share to
various non-employee engineers for consulting services, when the deemed fair
market value of the Company's common stock ranged from $1.30 to $1.90 per share.
Approximately 51,000 of these options were 100% vested upon grant and were
valued at a total of $89,000 using the Black-Scholes pricing model with the
following assumptions: 5 - 10 year terms, 55% volatility, 5.73% discount rate
and 0% dividend rate. This $89,000 was expensed immediately as these options
related to services provided prior to the grant date. The remaining options were
50% vested at the grant date with the other 50% vesting monthly over the next
two years. Accordingly, these shares were valued under the Black-Scholes pricing
model with the same assumptions as those above at $39,000, which was amortized
in accordance with the vesting terms. Subsequent to the initial valuation, these
remaining options have been accounted for under variable accounting, which
requires their fair value to be remeasured at each balance sheet date using the
Black-Scholes pricing model. An additional $11,000 in deferred compensation has
been recorded in the nine month period ended September 30, 1999 related to these
options.
In the first nine months of 1999, the Company granted options to purchase
common stock at exercise prices ranging from $0.60 to $1.50 per share to various
non-employee engineers for consulting services, when the deemed fair market
value of the Company's common stock ranged from $4.29 to $7.41 per share. These
options were 100% vested upon grant and were valued at a total of $208,000 using
the Black-Scholes pricing model with the following assumptions: 10 year terms,
55% volatility, 5.73% discount rate and 0% dividend rate. This $208,000 was
expensed immediately as these options related to services provided prior to the
grant date.
NOTE 7 -- INCOME TAXES:
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets are as followed (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1998
----- -------
<S> <C> <C>
Net operating loss carryforwards............................ $ 521 $ 991
Deferred compensation....................................... 53 140
Depreciation................................................ 5 64
Allowance for doubtful accounts............................. 47 87
Accrued liabilities......................................... 23 265
Research and development credit............................. 62 195
----- -------
Total deferred tax assets................................... 711 1,742
Less valuation allowance.................................... (711) (1,742)
----- -------
Net deferred tax asset.................................... $ -- $ --
===== =======
</TABLE>
The valuation allowance increased by $683,000 and $1,031,000 for 1997 and
1998, respectively.
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its deferred tax assets. At such time as it is determined that it is
more likely than not that the deferred tax assets are realizable, the valuation
allowance will be reduced.
F-21
<PAGE> 96
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The principal items accounting for the difference between income tax
benefit at the U.S. statutory rate and the provision for income taxes reflected
in the statement of operations are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 34% 34% 34%
State taxes................................................. 6 6 5
Tax credits................................................. -- 2 5
Other....................................................... -- -- 4
Deferred compensation....................................... -- (22) (12)
Net operating losses and tax credits, not benefited......... (40) (20) (36)
--- --- ---
--% --% --%
=== === ===
</TABLE>
At December 31, 1998, the Company has federal and state net operating loss
carryforwards of approximately $2,579,000 and $2,276,000 available to reduce
future taxable income, which expire through 2002 and 2018, respectively. In
addition, the Company has research and development tax credit carryforwards of
approximately $136,000 for federal income tax purposes and $88,000 for Illinois
purposes at December 31, 1998, which expire in 2012 to 2018.
Pursuant to the provisions of Section 382 of the Internal Revenue Code,
utilization of the NOLs are subject to annual limitations due to a greater than
50% change in the ownership of the Company which occurred during 1997 and 1998.
NOTE 8 -- RELATED PARTY TRANSACTIONS:
In 1995 and 1996, the Company borrowed a total of $29,000 from one of its
stockholders for working capital purposes at a 10% interest rate and received
advances from another stockholder totaling $50,000. Such notes and advances and
the related accrued interest were repaid $10,000 in 1997 and $69,000 in 1998.
One of the founders and shareholders of the Company is the owner of a
consulting company which subleased space to the Company and provided other
services including accounting and payroll assistance and employee recruitment in
1997 and 1998. In addition, Company reimbursed the consulting company for
certain travel expenses and janitorial services incurred on its behalf and for
the use of certain assets in 1997 and 1998.
In 1999, the Company subleased office space to this consulting company.
Additionally, the Company hired certain of the consulting company's consultants
to provide software development services in 1999.
Amounts included in net loss which were paid, received or due to or from
this related party are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Sublease rent expense....................................... $18 $ 45 $ 54
Sublease rent income........................................ -- -- --
Consulting and other service expense........................ 70 284 467
</TABLE>
F-22
<PAGE> 97
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The total amounts of related party receivable and payables in other assets
and accounts payable at period end are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
Receivables................................................. $-- $--
Payables.................................................... 27 --
</TABLE>
NOTE 9 -- 401(k) PLAN
The Company sponsors an employee savings and retirement plan intended to
qualify under section 401(k) of the Internal Revenue Code. Eligible employees,
at least 21 years old and having completed 1 hour of service, may contribute up
to 20% of eligible compensation, subject to annual limitations, and are fully
vested in their own contributions. The Company is not permitted to make matching
contributions, but can make discretionary contributions. To date, no such
discretionary contributions have been made by the Company.
NOTE 10 -- SUBSEQUENT EVENTS
On August 30, 1999 the Board of Directors approved the initial public
offering of the Company's Common Stock resulting in gross proceeds of up to
$40,000,000. Additionally, the Board approved a change in the authorized shares
of common stock and preferred stock to 100,000,000 and 2,000,000, respectively.
This change is to be effective immediately prior to the effective date of the
contemplated public offering and after the anticipated conversion to common
stock of the outstanding preferred shares.
The Board also approved, subject to stockholder approval, an increase in
the number of authorized shares under the 1997 Stock Option Plan to 6,000,000,
with automatic annual increases beginning in 2001 of the lesser of (i) 1,200,000
shares, (ii) 5% of the outstanding common stock of the Company at the last day
of the preceding year, or (iii) a lesser amount as determined by the Board.
Additionally, automatic grants for non-employee directors were approved as
follows: (i) initial grants of options to purchase common shares to vest over
three years for any newly elected directors following the initial public
offering, and (ii) annual grants of options to purchase common stock to be
granted at the Company's annual meeting which will vest over one year.
Finally, the Board approved, subject to stockholder approval, the 1999
Employee Stock Purchase Plan ("Purchase Plan"). A total of 500,000 shares of
common stock has been reserved for issuance under the Purchase Plan, which is
subject to annual increases. The Purchase Plan allows for eligible employees to
purchase a limited number of shares of the Company's common stock at 85% of the
fair market value during certain plan-defined periods.
UNAUDITED SUBSEQUENT EVENTS
In November 1999, the Company purchased approximately 167,000 shares of
outstanding common stock back from an officer of the Company for approximately
$750,000. These shares will be recorded as treasury shares by the Company.
F-23
<PAGE> 98
Description of Graphics
INSIDE FRONT COVER:
There is a large yellow letter "i" centered in the middle of the page against a
white background. The word "iManage" appears on the bottom right corner of the
page.
GATEFOLD:
On the left side of the page are the words "unified content." Below these words
is a large circle which contains within it a picture of a telephone positioned
at twelve o'clock, a group of people positioned at three o'clock, a stack of
documents positioned at six o'clock and an envelope with the letter "e" coming
out of it positioned at nine o'clock. Around the circle are the words
"voicemail," "new media," "collaboration," "documents," "faxes" and "e-mail."
The large circle is the dot on a large letter "i." To the right of the large
circle are the words "on demand," and "scalable." Two lines connect the large
circle to a smaller circle which contains within it a picture of a telephone
positioned at twelve o'clock, a group of people positioned at three o'clock, a
stack of documents positioned at six o'clock and an envelope with the letter "e"
coming out of it positioned at nine o'clock. The smaller circle is connected by
a line to other smaller circles containing the same four pictures within them.
The other smaller circles are connected by a line to additional circles. There
are a total of twenty-two smaller circles. Each of these twenty-two circles sits
atop a high rise office building. Some of the lines connecting the circles have
words printed on them. The following words appear on some of the lines:
"www.europe.com," "www.support.com," "www.department.com," "www.customer.com,"
"www.supplier.com" and "www.division.com." Above the buildings and circles are
the words "Extended Enterprise" and below the buildings and the circles are the
words "e-business content and collaboration management."
9
<PAGE> 99
LOGO
<PAGE> 100
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND WE ARE NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1999.
LOGO
3,600,000 SHARES
COMMON STOCK
This is our initial public offering and no public market currently exists
for our shares. We have applied for approval for quotation of our common stock
on the Nasdaq National Market under the symbol IMAN. We anticipate that the
initial public offering price will be between $8.00 and $10.00 per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 4.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to iManage......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
iManage has granted the underwriters a 30-day option to purchase up to an
additional 540,000 shares of common stock to cover any over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 1999.
-------------------------
ROBERTSON STEPHENS INTERNATIONAL
U.S. BANCORP PIPER JAFFRAY
C.E. UNTERBERG, TOWBIN
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 101
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR
COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND IN CONNECTION WITH
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Special Note Regarding 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.................................................... 32
Management.................................................. 44
Related Party Transactions.................................. 53
Principal Stockholders...................................... 58
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 65
Underwriting................................................ 71
Legal Matters............................................... 74
Experts..................................................... 74
Where You Can Find Additional Information................... 74
Index to Financial Statements............................... F-1
</TABLE>
i
<PAGE> 102
UNDERWRITING
The underwriters named below have entered into an underwriting agreement
with us to purchase the number of shares of common stock listed opposite their
names below. The underwriters are obligated to purchase and pay for all the
shares listed below if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
----------------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
U.S. Bancorp Piper Jaffray Inc..............................
C.E. Unterberg, Towbin......................................
E*TRADE Securities, Inc. ...................................
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITERS
--------------------------
<S> <C>
BancBoston Robertson Stephens International Ltd. ...........
U.S. Bancorp Piper Jaffray Inc. ............................
C.E. Unterberg, Towbin......................................
E*TRADE Securities, Inc. ...................................
Total....................................................... 3,600,000
=========
</TABLE>
The underwriters initially propose to offer the shares of common stock
directly to the public at the initial public offering price presented on the
cover page of this prospectus. Any shares sold by the underwriters to securities
dealers may be sold at a discount of up to per share from the initial
public offering price. The underwriters may allow, and the dealers may re-allow,
to other dealers a discount of up to $ per share from the initial public
offering price. After the initial offering of the common stock, the public
offering price and other selling terms may be changed by the representatives of
the underwriters at any time without notice. The underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 540,000 additional shares of common stock at the same price per
share as we will receive for the 3,600,000 shares that the underwriters have
agreed to purchase. To the extent this option is exercised, each of the
underwriters will become obligated, subject to various conditions, to purchase
approximately the same percentage of these additional shares that the number of
shares of common stock to be purchased by it shown in the above table represents
as a percentage of the 3,600,000 shares in this offering. If purchased, these
additional shares will be sold by the underwriters on the same terms as those on
which the 3,600,000 shares are being sold.
Qualified Independent Underwriter. The offering is being conducted under
Rule 2720 of the National Association of Securities Dealers, Inc. which provides
that when an NASD member firm participates in the offering of equity securities
of a company with whom the member has a conflict of interest, the initial public
offering price can be no higher than that recommended by a qualified independent
underwriter. C.E. Unterberg, Towbin is considered to have a conflict of interest
because some entities affiliated with C.E. Unterberg, Towbin own more than 10%
of our capital stock. BancBoston Robertson Stephens is serving as the qualified
independent underwriter in the offering and will recommend a price in compliance
with the requirements of Rule 2720. BancBoston Robertson Stephens has performed
due diligence investigations and reviewed and participated in the preparation of
the prospectus and the registration statement of which this prospectus forms a
part. BancBoston Robertson Stephens will receive no additional compensation in
its capacity as the qualified independent underwriter.
Indemnification. The underwriting agreement contains covenants of indemnity
among the underwriters and us against specified civil liabilities, including
liabilities under the Securities Act and
71
<PAGE> 103
liabilities arising from breaches of representations and warranties contained in
the underwriting agreement.
Lock-Up Agreement. Each of our officers, directors and substantially all
security holders have agreed with the representatives and us, for a period of
180 days after the effective date of this prospectus, not to dispose of or hedge
any shares of common stock, or securities convertible into or exchangeable for
shares of common stock, now owned or later acquired by them without the prior
written consent of BancBoston Robertson Stephens. BancBoston Robertson Stephens
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. All of the shares of
common stock subject to the lock-up agreements will be eligible for sale in the
public market upon the expiration of the lock-up agreements, subject to holding
period, volume limitations and other conditions of Rule 144.
Future Sales. In addition, we have agreed that for 180 days following the
effective date of this prospectus, we will not, without the prior written
consent of BancBoston Robertson Stephens, dispose of or hedge any shares of
common stock, or any securities convertible into, exercisable for or
exchangeable for shares of common stock. However, the following are examples of
exceptions to this agreement:
- sales of shares in this offering;
- the issuance of common stock upon the exercise of outstanding options;
- our issuance of options or shares under existing stock option or stock
purchase plans; and
- issuances of stock in connection with acquisitions.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
No Prior Public Market. Before this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock in this offering has been determined through negotiations among
us and the representatives of the underwriters. The factors considered in these
negotiations included prevailing market conditions, our financial information,
the market valuation of other companies that we and the representatives believe
to be comparable to us, estimates of our business potential and the business
potential of the industry in which we compete, an assessment of our management,
our past and present operation and the prospects for our future revenues.
Stabilization. The representatives have advised us that, based on
Regulation M under the Exchange Act, some persons participating in this offering
may engage in any of the following transactions:
- Stabilizing bid, a bid for or the purchase of common stock on behalf of
the underwriters that is intended to fix or maintain the price of the
common stock;
- Syndicate covering transaction, a bid for the purchase of common stock on
behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering; and
- Penalty bid, an arrangement that permits the representatives to reclaim
the selling concession otherwise accruing to an underwriter or syndicate
member in connection with the offering if the common stock originally
sold by the underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction, and has therefore
not been effectively placed by this underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market and, if
commenced, may be discontinued at any time.
72
<PAGE> 104
Internet Distribution. A copy of the prospectus in electronic format will
be made available on the internet web site hosted by E*TRADE Securities, Inc.
E*TRADE will accept conditional offers to purchase shares from all of its
customers that pass and complete an online eligibility profile. If the demand
for shares from the customers of E*TRADE exceeds the amount of shares allocated
to it, E*TRADE will use a random allocation methodology to distribute shares in
even lots of 100 shares/customer. E*TRADE will provide customers a period after
effectiveness and pricing during which they will continue to have the right to
cancel their conditional offers. E*TRADE will cancel its existing book of
conditional offers and resolicit new conditional offers or have customers
reconfirm their existing conditional offers if the offering is priced outside
the anticipated price range indicated in the preliminary prospectus.
Directed Shares. The underwriters have reserved for sale at the initial
public offering price up to 5% of the common stock in this offering for
individuals designated by us who have expressed an interest in purchasing shares
of common stock in this offering. The number of shares available for sale to the
general public will be reduced to the extent these persons purchase the reserved
shares. The underwriters will offer any reserved shares not so purchased to the
general public on the same basis as other shares in this offering described
above. The underwriters will offer any reserved shares not so purchased to the
general public on the same basis as other shares in this offering described
above.
73
<PAGE> 105
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Various
legal matters in connection with this offering will be passed upon for the
underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California. As of
September 30, 1999, an investment partnership and an associate attorney at Gray
Cary Ware & Freidenrich LLP beneficially owned an aggregate of 61,402 shares of
our common stock. Gary Cary is one of our customers.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act that registers the shares of our common stock to be sold in this
offering. The registration statement, including the attached exhibits and
schedules, contain additional relevant information about us and our capital
stock. The rules and regulations of the SEC allow us to omit various information
included in the registration statement from this document.
In addition, upon completion of this offering, we will become subject to
the reporting and information requirements of the Exchange Act and, as a result,
will file periodic reports, proxy statements and other information with the SEC.
You may read and copy this information at the following public reference rooms
of the SEC:
<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the public
reference section of the SEC, 450 Fifth St., N.W., Room 1024, Washington, D.C.
20549, at prescribed rates. You may obtain information on the operation of the
public reference rooms by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an internet website that contains reports, proxy
statements and other information about issuers, like iManage, who file
electronically with the SEC. The address of that website is http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
audited financial statements, and make available to our stockholders quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
74
<PAGE> 106
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, to be paid by the Registrant in connection with the
sale of the Common Stock being registered. All amounts shown are estimates
except for the registration fee, the NASD filing fee and the Nasdaq National
Market fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 11,510
NASD filing fee............................................. 4,500
Nasdaq National Market fee.................................. 1,000
Blue sky qualification fees and expenses.................... 5,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 350,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 17,990
----------
Total............................................. $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's certificate of
incorporation and bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary under the Delaware General
Corporation Law. In addition, the Registrant has entered into separate
indemnification agreements with its directors and executive officers which
require the Registrant, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service, other than
liabilities arising from acts or omissions not in good faith or willful
misconduct.
These indemnification provisions and the indemnification agreements entered
into between the Registrant and its executive officers and directors may be
sufficiently broad to permit indemnification of the Registrant's executive
officers and directors for liabilities, including reimbursement of expenses
incurred, arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since inception, we have issued and sold the following unregistered
securities:
(a) Through September 30, 1999, we granted stock options to purchase
4,797,825 shares of our common stock at exercise prices ranging from $0.20
to $4.50 per share to our employees, consultants and directors under our
amended 1997 stock option plan.
II-1
<PAGE> 107
(b) On October 13, 1998, we granted Mark Culhane options to purchase
180,000 shares of our common stock outside of our amended 1997 stock option
plan at an exercise price of $0.40 per share.
(c) Through September 30, 1999, we issued and sold an aggregate of
3,343,594 shares of our common stock to employees, consultants and
directors at prices ranging from $0.20 to $4.50 per share under exercises
of options granted under our amended 1997 stock option plan.
(d) On November 12, 1998, we issued and sold 180,000 shares of our
common stock to Mark Culhane at a price of $0.40 per share under an
exercise of options granted outside of our amended 1997 stock option plan.
(e) On October 10, 1995, we issued and sold an aggregate of 6,000,000
shares of our common stock to Mahmood Panjwani and Rafiq Mohammadi at a
price of $0.000165 per share.
(f) Between December 27, 1996 and August 28, 1997, we issued and sold
an aggregate of 2,853,708 shares of series A preferred stock at a price of
$0.71 per share.
(g) On December 27, 1996, we issued and sold 291,080 shares of common
stock at a price of $0.071 per share.
(h) Between December 15, 1997 and July 31, 1998, we issued and sold an
aggregate of 3,200,000 shares of series B preferred stock at a price of
$1.57 per share.
(i) On September 28, 1998, we issued and sold 1,879,409 shares of
series C preferred stock at a price of $2.10 per share.
(j) On November 30, 1998, we issued 100,000 shares of series C
preferred stock at a price of $2.10 per share to Cornerstone Properties I,
LLC in lieu of rent on office space in San Mateo, California.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
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
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 Registrant that the shares were being acquired for investment.
II-2
<PAGE> 108
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Restated Certificate of Incorporation of the Company.
3.2+ Amended and Restated Bylaws of the Company.
4.1+ Rights Agreement dated December 27, 1996, as amended to
date.
4.2+ Right of First Refusal and Co-Sale Agreement dated December
27, 1996, as amended to date.
4.3 Specimen Common Stock Certificate.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1* Form of Indemnification Agreement for directors and
executive officers.
10.2+ 1997 Stock Option Plan and forms of Incentive Stock Option
Agreement and Nonstatutory Stock Option Agreement
thereunder.
10.3+ 1999 Employee Stock Purchase Plan and form of subscription
agreement thereunder.
10.4 Loan and Security Agreement dated March 31, 1999 between
Silicon Valley Bank and the Company, as amended to date.
10.5 Office Lease for 2121 S. El Camino Real, San Mateo,
California between Cornerstone Properties I, LLC and the
Company dated November 30, 1998.
10.6 Office Building Lease for 55 East Monroe Street between TST
55 East Monroe, LLC and the Company dated January 1999, as
amended to date.
10.7 Sublease between the Company and Q-Image Corporation dated
December 5, 1998.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed with the Registrant's Registration Statement on Form S-1
(File No. 333-86353) on September 1, 1999.
+ Previously filed with Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (File No. 333-86353) on October 8, 1999.
(b) Financial Statement Schedules.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders
of iManage, Inc. (formerly NetRight Technologies, Inc.)
Our audits of the financial statements referred to in our report dated August
20, 1999, except as to Note 10, which is as of August 30, 1999 appearing in this
prospectus of iManage, Inc. also included an audit of the financial statement
schedule listed in Item 16(b) of this Form S-1. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements.
PricewaterhouseCoopers LLP
San Jose, California
August 20, 1999
II-3
<PAGE> 109
RULE 12-09 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
DEFERRED
SALES ALLOWANCE TAX ASSET
RETURNS FOR DOUBTFUL VALUATION
RESERVE ACCOUNTS ACCOUNT
--------- ------------ ----------
<S> <C> <C> <C>
Balance, December 31, 1995................. $ -- $ -- $ --
Increase to allowance...................... -- 10,000 28,000
Decrease to allowance.................... -- -- --
--------- --------- ----------
Balance, December 31, 1996................. -- 10,000 28,000
Increase to allowance.................... 40,000 65,000 683,000
Decrease to allowance.................... -- -- --
--------- --------- ----------
Balance, December 31, 1997................. 40,000 75,000 711,000
Increase to allowance.................... 122,000 100,000 1,031,000
Decrease to allowance.................... (87,000) -- --
--------- --------- ----------
Balance, December 31, 1998................. $ 75,000 $ 175,000 $1,742,000
========= ========= ==========
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth in those schedules are not applicable or are not shown
in the financial statements or notes related to the statements.
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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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, employee or agent of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, employee or agent in connection with the securities being
registered hereunder, 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; and
(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-4
<PAGE> 110
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Palo
Alto, County of Santa Clara, State of California, on the 12th day of November,
1999.
iMANAGE, INC.
By: /s/ MAHMOOD PANJWANI
------------------------------------
Mahmood Panjwani
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Act, this Amendment No. 4 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MAHMOOD PANJWANI President, Chief Executive November 12, 1999
- ------------------------------------------ Officer and Chairman of the Board
Mahmood Panjwani (Principal Executive Officer)
/s/ MARK CULHANE Chief Financial Officer and November 12, 1999
- ------------------------------------------ Secretary (Principal Financial
Mark Culhane and Accounting Officer)
/s/ RAFIQ MOHAMMADI* Chief Technology Officer, Vice November 12, 1999
- ------------------------------------------ President, Engineering and
Rafiq Mohammadi Director
/s/ MARK PERRY* Director November 12, 1999
- ------------------------------------------
Mark Perry
/s/ MOEZ VIRANI* Director November 12, 1999
- ------------------------------------------
Moez Virani
/s/ DUWAYNE PETERSON* Director November 12, 1999
- ------------------------------------------
DuWayne Peterson
*By /s/ MARK CULHANE
-------------------------------------
Mark Culhane
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 111
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1+ Restated Certificate of Incorporation of the Company.
3.2+ Amended and Restated Bylaws of the Company.
4.1+ Rights Agreement dated December 27, 1996, as amended to
date.
4.2+ Right of First Refusal and Co-Sale Agreement dated December
27, 1996, as amended to date.
4.3 Specimen Common Stock Certificate.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1* Form of Indemnification Agreement for directors and
executive officers.
10.2+ 1997 Stock Option Plan and forms of Incentive Stock Option
Agreement and Nonstatutory Stock Option Agreement
thereunder.
10.3+ 1999 Employee Stock Purchase Plan and form of subscription
agreement thereunder.
10.4 Loan and Security Agreement dated March 31, 1999 between
Silicon Valley Bank and the Company, as amended to date.
10.5 Office Lease for 2121 S. El Camino Real, San Mateo,
California between Cornerstone Properties I, LLC and the
Company dated November 30, 1998.
10.6 Office Building Lease for 55 East Monroe Street between TST
55 East Monroe, LLC and the Company dated January 1999, as
amended to date.
10.7 Sublease between the Company and Q-Image Corporation dated
December 5, 1998.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed with the Registrant's Registration Statement on Form S-1
(File No. 333-86353) on September 1, 1999.
+ Previously filed with Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (File No. 333-86353) on October 8, 1999.
<PAGE> 1
EXHIBIT 1.1
UNDERWRITING AGREEMENT
Date
BancBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
C.E. Unterberg Towbin
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. iManage, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several underwriters named in Schedule A (the
"Underwriters") an aggregate of [___] shares (the "Firm Shares") of its Common
Stock, par value $0.001 per share (the "Common Shares"). In addition, the
Company has granted to the Underwriters an option to purchase up to an
additional [___] Common Shares (the "Option Shares") as provided in Section 2.
The Firm Shares and, if and to the extent such option is exercised, the Option
Shares, are collectively called the "Shares". BancBoston Robertson Stephens
Inc., U.S. Bancorp Piper Jaffray Inc. and C.E. Unterberg Towbin have agreed to
act as representatives of the several Underwriters (in such capacity, the
"Representatives") in connection with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933, as amended and the rules and regulations promulgated
thereunder (collectively, the "Securities Act"), including any information
deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A
or Rule 434 under the Securities Act, is called the "Registration Statement".
Any registration statement filed by the Company pursuant to Rule 462(b) under
the Securities Act is called the "Rule 462(b) Registration Statement", and from
and after the date and time of filing of the Rule 462(b) Registration Statement
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of BancBoston Robertson Stephens Inc., elected
to rely upon Rule 434 under the Securities Act,
<PAGE> 2
the term "Prospectus" shall mean the Company's prospectus subject to completion
(each, a "preliminary prospectus") dated [___] (such preliminary prospectus is
called the "Rule 434 preliminary prospectus"), together with the applicable term
sheet (the "Term Sheet") prepared and filed by the Company with the Commission
under Rules 434 and 424(b) under the Securities Act and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
All references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall include
any copy thereof filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the best knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed complied in all
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each Representative one complete conformed copy of the Registration
Statement and of each consent and certificate of experts filed as a part
thereof, and conformed copies of the Registration Statement (without exhibits)
and preliminary prospectuses and the Prospectus, as amended or supplemented, in
such quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
2
<PAGE> 3
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition (financial or otherwise),
earnings, business or operations, whether or not arising from transactions in
the ordinary course of business, of the Company and its subsidiaries, considered
as one entity (any such change or effect, where the context so requires, is
called a "Material Adverse Change" or a "Material Adverse Effect"); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.
(h) Independent Accountants. PricewaterhouseCoopers LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the financial position of the Company as of and
at the dates indicated and the results of their operations and cash flows for
the periods specified. The supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. Such
financial statements and supporting schedules have been prepared in conformity
with generally accepted accounting principles as applied in the United States
applied on a consistent basis
3
<PAGE> 4
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Summary--Summary Selected Financial
Data", "Selected Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.
(j) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles as applied in the United States and to maintain accountability for
assets; (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 existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity.
(l) Incorporation and Good Standing of the Company. The Company has been
duly organized and is validly existing as a corporation in good standing under
the laws of the jurisdiction in which it is incorporated with full corporate
power and authority to own its properties and conduct its business as described
in the Prospectus, and is duly qualified to do business as a foreign
corporation, except for qualification in jurisdictions in which the failure to
qualify as a foreign corporation could not reasonably be expected to result in a
Material Adverse Effect, and is in good standing under the laws of each
jurisdiction which requires such qualification.
(m) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" (other than for subsequent issuances, if any,
pursuant to employee benefit plans described in the Prospectus or upon exercise
of outstanding options or warrants described in the Prospectus). The Common
Shares (including the Shares) conform in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding Common Shares have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance with federal and
state securities laws. None of the outstanding Common Shares were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company other
than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(n) Stock Exchange Listing. The Shares have been approved for inclusion on
the Nasdaq National Market, subject only to official notice of issuance.
4
<PAGE> 5
(o) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(p) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof will
conflict with, result in a breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company pursuant to, (i) the
charter or by-laws of the Company, (ii) the terms of any indenture, contract,
lease, mortgage, deed of trust, note agreement, loan agreement or other
agreement, obligation, condition, covenant or instrument to which the Company is
a party or bound or to which its property is subject or (iii) any statute, law,
rule, regulation, judgment, order or decree applicable to the Company of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or any of its properties,
except any such conflict, breach, violation, lien, charge or encumbrance which
would not, singly or in the aggregate, result in a Material Adverse Effect,
except as otherwise disclosed in the Prospectus.
(q) No Defaults or Violations. The Company is not in violation or default
of (i) any provision of its charter or by-laws, (ii) the terms of any material
indenture, contract, lease, mortgage, deed of trust, note agreement, loan
agreement or other agreement, obligation, condition, covenant or instrument to
which it is a party or bound or to which its property is subject or (iii) any
statute, law, rule, regulation, judgment, order or decree of any court,
regulatory body, administrative agency, governmental body, arbitrator or other
authority having jurisdiction over the Company or any of its properties, except
any such violation or default which would not, singly or in the aggregate,
result in a Material Adverse Change except as otherwise disclosed in the
Prospectus.
(r) No Actions, Suits or Proceedings. Except to the extent described in
the Prospectus, no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
or its property is pending or, to the best knowledge of the Company, threatened
that (i) could reasonably be expected to have a Material Adverse Effect on the
performance of this Agreement or the consummation of any of the transactions
contemplated hereby or (ii) could reasonably be expected to result in a Material
Adverse Effect.
(s) All Necessary Permits, Etc. Except to the extent described in the
Prospectus, the Company possesses such valid and current certificates,
authorizations or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct their respective businesses,
and the Company has not received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could result in a Material Adverse
Change.
(t) Title to Properties. Except to the extent described in the Prospectus,
the Company has good and marketable title to all the properties and assets
reflected as owned in the financial statements referred to in Section 1(i) above
(or elsewhere in the Prospectus), in
5
<PAGE> 6
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company. The real property, improvements, equipment and personal property held
under lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company.
(u) Tax Law Compliance. The Company has filed all necessary federal, state
and foreign income and franchise tax returns or has properly requested
extensions thereof and has paid all taxes required to be paid by it, and, if due
and payable, any related or similar assessment, fine or penalty levied against
it, except as may be being contested in good faith and by appropriate
proceedings. The Company has made adequate charges, accruals and reserves in the
applicable financial statements referred to in Section 1(i) above in respect of
all federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company has not been finally determined. The
Company is not aware of any tax deficiency that has been or could reasonably be
expected to be asserted or threatened against the Company that could result in a
Material Adverse Change.
(v) Intellectual Property Rights. Except as otherwise described in the
Prospectus, the Company owns or possesses adequate rights to use all patents,
patent rights or licenses, inventions, collaborative research agreements, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus; the expiration of any patents, patent rights, trade
secrets, trademarks, service marks, trade names or copyrights would not result
in a Material Adverse Change that is not otherwise disclosed in the Prospectus;
except to the extent described in the Prospectus, the Company has not received
any notice of, and has no knowledge of, any infringement of or conflict with
asserted rights of the Company by others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, might
have a Material Adverse Change. There is no claim being made against the Company
regarding patents, patent rights or licenses, inventions, collaborative
research, trade secrets, know-how, trademarks, service marks, trade names or
copyrights. Except as otherwise described in the Prospectus, the Company does
not in the conduct of its business as described in the Prospectus infringe or
conflict with any right or patent of any third party, or any discovery,
invention, product or process which is the subject of a patent application filed
by any third party, known to the Company, which such infringement or conflict is
reasonably likely to result in a Material Adverse Change.
(w) Year 2000 Preparedness. There are no issues related to the Company's
preparedness for the Year 2000 that are of a character required to be described
or referred to in the Registration Statement or Prospectus by the Securities Act
which have not been accurately described in the Registration Statement or
Prospectus. Except as otherwise described in the Prospectus, there are no issues
related to the Company's preparedness for the Year 2000 that might reasonably be
expected to result in any Material Adverse Change or that might materially
affect its properties, assets or rights. Except to the extent described in the
Prospectus, all internal computer systems and each Constituent Component (as
defined below) of those
6
<PAGE> 7
systems and all computer-related products and each Constituent Component (as
defined below) of those products of the Company fully comply with Year 2000
Qualification Requirements. "Year 2000 Qualifications Requirements" means that
the internal computer systems and each Constituent Component (as defined below)
of those systems and all computer-related products and each Constituent
Component (as defined below) of those products of the Company (i) have been
reviewed to confirm that they store, process (including sorting and performing
mathematical operations, calculations and computations), input and output data
containing date and information correctly regardless of whether the date
contains dates and times before, on or after January 1, 2000, (ii) have been
designated to ensure date and time entry recognition and calculations, and date
data interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas and
multi-century formulas, and will not cause an abnormal ending scenario within
the application or generate incorrect values or invalid results involving such
dates, (iv) accurately process any date rollover, and (v) accept and respond to
two-digit year date input in a manner that resolves any ambiguities as to the
century. "Constituent Component" means all software (including operating
systems, programs, packages and utilities), firmware, hardware, networking
components, and peripherals provided as part of the configuration. Except as
otherwise described in the Prospectus, the Company has inquired of material
vendors as to their preparedness for the Year 2000 and has disclosed in the
Registration Statement or Prospectus any issues that might reasonably be
expected to result in any Material Adverse Change.
(x) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the Shares.
(y) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares will not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(z) Insurance. The Company is insured by recognized, financially sound and
reputable institutions with policies in such amounts and with such deductibles
and covering such risks as are generally deemed adequate and customary for its
business in its industry. The Company has no reason to believe that it will not
be able (i) to renew its existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted and at a cost
that would not result in a Material Adverse Change. The Company has not been
denied any insurance coverage which it has sought or for which it has applied.
(aa) Labor Matters. To the best of the Company's knowledge, no material
labor disturbance by the employees of the Company exists or is imminent; and the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers, resellers, subcontractors,
authorized dealers or distributors that might reasonably be expected to result
in a Material Adverse Change.
(bb) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause
7
<PAGE> 8
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(cc) Lock-Up Agreements. Each officer and director of the Company and each
beneficial owner of one or more percent of the outstanding issued share capital
of the Company has agreed to sign an agreement substantially in the form
attached hereto as Exhibit A (the "Lock-up Agreements"). The Company has
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants and agrees
that it will not release any of its officers, directors or other securityholders
from any Lock-up Agreements currently existing or hereafter effected without the
prior written consent of BancBoston Robertson Stephens Inc.
(dd) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any other person required to
be described in the Prospectus which have not been described as required.
(ee) No Unlawful Contributions or Other Payments. The Company has not, nor,
to the best of the Company's knowledge, has any employee or agent of the
Company, made any contribution or other payment to any official of, or candidate
for, any federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(ff) Environmental Laws. (i) The Company is in compliance with all rules,
laws and regulations relating to the use, treatment, storage and disposal of
toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to the best of its knowledge, the Company
will not be required to make future material capital expenditures to comply with
Environmental Laws and (iv) no property which is owned, leased or occupied by
the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. ss. 9601, et seq.), or otherwise designated as a contaminated site under
applicable state or local law.
(gg) ERISA Compliance. The Company and any "employee benefit plan" (as
defined under the Employee Retirement Income Security Act of 1974, as amended,
and the regulations and published interpretations thereunder (collectively,
"ERISA")) established or maintained by the Company or its "ERISA Affiliates" (as
defined below) are in compliance in all material respects with ERISA. "ERISA
Affiliate" means, with respect to the Company, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company is a member. No
"reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company or any of its ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company or any of its ERISA Affiliates,
if such "employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the Company nor
any of its ERISA Affiliates has incurred or reasonably expects to incur any
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975
8
<PAGE> 9
or 4980B of the Code. Each "employee benefit plan" established or maintained by
the Company or any of its ERISA Affiliates 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, which would cause the loss of such
qualification.
(hh) Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters in connection with the
First Closing or the Second Closing shall be deemed to be a representation and
warranty by the Company to each Underwriter as to the matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price per
Firm Share to be paid by the several Underwriters to the Company shall be $[___]
per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Gray Cary
Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, CA 94301 (or at such
other place as may be agreed upon among the Representatives and the Company),
(i) on the third (3rd) full business day following the first day that Shares are
traded, (ii) if this Agreement is executed and delivered after 1:30 P.M., San
Francisco time, the fourth (4th) full business day following the day that this
Agreement is executed and delivered or (iii) at such other time and date not
later that seven (7) full business days following the first day that Shares are
traded as the Representatives and the Company may determine (or at such time and
date to which payment and delivery shall have been postponed pursuant to Section
8 hereof), such time and date of payment and delivery being herein called the
"Closing Date;" provided, however, that if the Company has not made available to
the Representatives copies of the Prospectus within the time provided in Section
2(g) and 3(e) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later than two (2) full business days
following delivery of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of [___] Option Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise. If any Option Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Option Shares
(subject to such
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adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Option Shares to be
purchased as the number of Firm Shares set forth on Schedule A opposite the name
of such Underwriter bears to the total number of Firm Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized, for their
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Shares and
any Option Shares the Underwriters have agreed to purchase. BancBoston Robertson
Stephens Inc., individually and not as a Representative of the Underwriters, may
(but shall not be obligated to) make payment for any Shares to be purchased by
any Underwriter whose funds shall not have been received by the Representatives
by the First Closing Date or the Second Closing Date, as the case may be, for
the account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered, a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective
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<PAGE> 11
simultaneously with the Registration Statement, (ii) use its best efforts to
cause the Registration Statement to become effective or, if the procedure in
Rule 430A of the Securities Act is followed, to prepare and timely file with the
Commission under Rule 424(b) under the Securities Act a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Securities Act and (iii) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Securities Act. If the Company elects to rely on Rule 462(b)
under the Securities Act, the Company shall file a Rule 462(b) Registration
Statement with the Commission in compliance with Rule 462(b) under the
Securities Act prior to the time confirmations are sent or given, as specified
by Rule 462(b)(2) under the Securities Act, and shall pay the applicable fees in
accordance with Rule 111 under the Securities Act.
(b) Securities Act Compliance. The Company will advise the Representatives
promptly (i) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. 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 the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the Representatives or counsel for the Underwriters, it becomes necessary to
amend or supplement the Prospectus in order to make the statements therein, in
the light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Prospectus to comply with any law, the Company promptly will
prepare and file with the Commission, and furnish at its own expense to the
Underwriters and to dealers, an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so amended
or supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
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(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall obtain Directors and Officers liability
insurance in the minimum amount of $10 million which shall apply to the offering
contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90) 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 of the Company Shares 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 and subject to the Company's right to
preserve the attorney client privilege, 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.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its expense,
a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [the date of the end of the first quarter ending one year following the
effective date] that satisfies the provisions of Section 11(a) of the Securities
Act.
(k) Periodic Reporting Obligations. During the Prospectus Delivery Period,
the Company shall file, on a timely basis, with the Commission and the Nasdaq
National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company will
not, without the prior written consent of BancBoston Robertson Stephens Inc.,
for a period of 180 days following the date of the Prospectus, offer, sell or
contract to sell, or otherwise dispose of or enter into any transaction which is
designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan, stock purchase
plan or dividend reinvestment plan of the Company in effect at the date of the
Prospectus and described in the Prospectus so long as none of those shares may
be transferred during the
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period of 180 days from the date that the Registration Statement is declared
effective (the "Lock-Up Period") unless the transferee has executed a copy of
the lock-up agreement attached hereto as Exhibit A, and the Company shall enter
stop transfer instructions with its transfer agent and registrar against the
transfer of any such Common Shares and (ii) the Company may issue Common Shares
issuable upon the conversion of securities or the exercise of warrants
outstanding at the date of the Prospectus and described in the Prospectus.
(m) Future Reports to the Representatives. During the period of three
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, LLC. The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel; and the National Association of
Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
from that set forth in the Registration Statement or Prospectus, which, in your
sole judgment, is material and adverse and that makes
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<PAGE> 14
it, in your sole judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus;
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Gray Cary Ware & Freidenrich LLP counsel for the Company substantially in the
form of Exhibit B attached hereto, with such exceptions and qualifications as
are customary in opinions of the type contemplated by Exhibit B and acceptable
to you and your counsel dated the First Closing Date, or the Second Closing
Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as to
questions of law not involving the laws of the United States, the State of
California or general corporate laws of the State of Delaware upon opinions of
local counsel, and as to questions of fact upon representations or certificates
of officers of the Company, and of government officials, in which case their
opinion is to state that they are so relying and that they have no knowledge of
any material misstatement or inaccuracy in any such opinion, representation or
certificate. Copies of any opinion, representation or certificate so relied upon
shall be delivered to you, as Representatives of the Underwriters, and to
Underwriters' Counsel.
(e) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, substantially in the form of Exhibit
C hereto. The Company shall have furnished to such counsel such documents as
they may have requested for the purpose of enabling them to pass upon such
matters.
(f) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
PricewaterhouseCoopers LLP addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Securities Act and the applicable published Rules and
Regulations and based upon the procedures described in such 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 four (4) business
days prior to the First Closing Date or the Second Closing Date, as the case may
be, (i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the First Closing Date or the
Second Closing 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 such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from PricewaterhouseCoopers LLP shall be addressed to or for the
use of the Underwriters in form and substance satisfactory to the Underwriters
and shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the
Securities Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their examination of the consolidated
balance sheet of the Company as of June 30, 1999 and related consolidated
statements of
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<PAGE> 15
operations, stockholders' equity, and cash flows for the six (6) months ended
June 30, 1999, (iii) state that PricewaterhouseCoopers LLP has performed the
procedures set out in Statement on Auditing Standards No. 71 ("SAS 71") for a
review of interim financial information as and if such balances are included in
the filing, (iv) state that in the course of such review, nothing came to their
attention that leads them to believe that any material modifications need to be
made to any of the Quarterly Financial Statements in order for them to be in
compliance with generally accepted accounting principles consistently applied
across the periods presented, (v) address other matters agreed upon by
PricewaterhouseCoopers LLP and you. In addition, you shall have received from
PricewaterhouseCoopers LLP a letter addressed to the Company and made available
to you for the use of the Underwriters 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 of June 30, 1999, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(g) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the
First Closing Date or the Second Closing Date, as the case may
be, and the Company has complied with this agreement and
satisfied all the conditions on its part to be performed or
satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or, to his knowledge,
threatened under the Securities Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate,
the Registration Statement and the Prospectus, and any
amendments or supplements thereto contained all material
information required to be included therein by the Securities
Act and in all material respects conformed to the requirements
of the Securities Act; the Registration Statement and the
Prospectus, and any amendments or supplements thereto, did not
and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and,
since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has
not been (a) any Material Adverse Change, (b) any transaction
that is material to the Company, except transactions entered
into in the ordinary course of business, (c) any obligation,
direct or contingent, that is material to and incurred by the
Company, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding
indebtedness of the Company that is material to the Company, (e)
any dividend or distribution of any kind declared, paid or made
on the capital stock of the Company, or (f) any loss or damage
(whether or not insured) to the property of the Company which
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has been sustained or will have been sustained which has
resulted or is reasonably expected to result in a Material
Adverse Change or Material Adverse Effect.
(h) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
Company, and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
(i) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(j) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(k) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, as the case may be, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
legality of the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Shares (including all printing and engraving costs), (ii) all fees and expenses
of the registrar and transfer agent of the Common Shares, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and sale
of the Shares to the Underwriters, (iv) all fees and expenses of the Company's
counsel, independent public or certified public accountants and other advisors,
(v) all costs and expenses incurred in connection with the preparation,
printing, filing, shipping and distribution of the Registration Statement
(including financial statements, exhibits, schedules, consents and certificates
of experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, (vi) all filing fees, attorneys' fees and expenses
incurred by the Company or the Underwriters in connection with qualifying or
registering (or obtaining exemptions from the qualification or registration of)
all or any part of the Shares for offer and sale under the state securities or
blue sky laws or the provincial securities laws of Canada or any other country,
and, if requested by the Representatives, preparing and printing a "Blue Sky
Survey", an "International Blue Sky Survey" or other memorandum, and any
supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in
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<PAGE> 17
connection with, the National Association of Securities Dealers, LLC review and
approval of the Underwriters' participation in the offering and distribution of
the Common Shares, (viii) the fees and expenses associated with including the
Common Shares on the Nasdaq National Market, (ix) all costs and expenses
incident to the preparation and undertaking of "road show" preparations to be
made to prospective investors, and (x) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 5, Section 6, and Section 7 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 8, Section 9,
or if the sale to the Underwriters of the Shares on the First Closing Date is
not consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters. The Company shall indemnify and
hold harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company contained herein; or (iv) in whole or in part upon any failure of
the Company to perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or expense arising out of or based upon any
matter covered by clause (i), (ii), (iii) or (iv) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or expense resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each
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Underwriter and each such controlling person for any and all expenses (including
the reasonable fees and disbursements of counsel chosen by BancBoston Robertson
Stephens Inc.) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the extent, but only
to the extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or expense
purchased Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the Company may otherwise have. Notwithstanding
the foregoing, any amounts to be paid by an indemnifying party shall be offset
by any amounts paid to the indemnified parties pursuant to the insurance
described in Section 1(z).
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon (i) any untrue or alleged
untrue statement of a material fact contained in the Registration Statement or
any amendment thereto, including any information deemed to be a part thereof
pursuant to Rule 430A or Rule 434 under the Securities Act or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
preliminary prospectus, the Prospectus (or any amendment or supplement thereto),
in reliance upon and in conformity with information furnished to the Company by
the Representatives expressly for use therein; and to reimburse the Company, and
each such director, officer or controlling person for any legal and other
expense reasonably incurred by the Company, or any such director, officer, or
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
18
<PAGE> 19
action. The indemnity agreement set forth in this Section 7(b) shall be in
addition to any liabilities that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph, the second paragraph
and the ninth paragraph under the caption "Underwriting" in the Prospectus; and
the Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded on
advice of counsel that a conflict may arise between the positions of the
indemnifying party and the indemnified party in conducting the defense of any
such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of such indemnifying party's election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section 7 for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the preceding sentence (it
being understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with local counsel),
approved by the indemnifying party (BancBoston Robertson Stephens Inc. in the
case of Section 7(b) and Section 8), representing the indemnified parties who
are parties to such action), (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, or (iii)
the indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not be
liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
19
<PAGE> 20
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel as contemplated by Section 7(d) hereof, the indemnifying
party agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into more
than 30 days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement, compromise or consent to the entry of judgment in
any pending or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity was or could have
been sought hereunder by such indemnified party, unless such settlement,
compromise or consent includes (i) an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such action,
suit or proceeding and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(f) Contribution. If the indemnification provided for in this Section 7 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on one hand and the Underwriters on the other hand in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings 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 proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The 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 the Company on one hand or the Underwriters
on the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(f) were 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 account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) referred
to above in this Section 7(f) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim after taking into account
amounts paid pursuant to the insurance described in Section 1(z).
Notwithstanding the provisions of this subsection (f), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
20
<PAGE> 21
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 7(f) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in this
Section 7 and the representation and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase does not exceed 10% of the aggregate number of the Shares to
be purchased on such date, the other Underwriters shall be obligated, severally,
in the proportions that the number of Firm Shares set forth opposite their
respective names on Schedule A bears to the aggregate number of Firm Shares set
forth opposite the names of all such non-defaulting Underwriters, or in such
other proportions as may be specified by the Representatives with the consent of
the non-defaulting Underwriters, to purchase the Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date. If, on the First Closing Date or the Second Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
and the aggregate number of Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Shares to be purchased on such date, and
arrangements satisfactory to the Representatives and the Company for the
purchase of such Shares are not made within 48 hours after such default, this
Agreement shall terminate without liability of any party to any other party,
except that the provisions of Section 4 and Section 7 shall at all times be
effective and shall survive such termination. In any such case either the
Representatives or the Company shall have the right to postpone the First
Closing Date or the Second Closing Date, as the case may be, but in no event for
longer than seven days in order that the required changes,
21
<PAGE> 22
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York or California authorities; (iii) there
shall have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or any substantial change or development
involving a prospective change in United States' or international political,
financial or economic conditions, as in the judgment of the Representatives is
material and adverse and makes it impracticable or inadvisable to market the
Shares in the manner and on the terms described in the Prospectus or to enforce
contracts for the sale of securities; (iv) in the judgment of the
Representatives, there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Representatives may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 9 shall be without liability
on the part of (a) the Company to any Underwriter, except that the Company shall
be obligated to reimburse the expenses of the Representatives and the
Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the
Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
22
<PAGE> 23
If to the Company:
iManage, Inc.
2121 El Camino Real
San Mateo, CA 94403
Facsimile: (650) 327-8751
Attention: Chief Financial Officer
With a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Greg Gallo
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and no other person will have any right or obligation hereunder. The
term "successors" shall not include any purchaser of the Shares as such from any
of the Underwriters merely by reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of California applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California located in the City and County of San Francisco
(collectively, the "Specified Courts"), and each party irrevocably submits to
the exclusive jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related Judgment"), as to which
such jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other
23
<PAGE> 24
proceeding in the Specified Courts and irrevocably and unconditionally waive and
agree not to plead or claim in any such Specified Court that any such suit,
action or other proceeding brought in any such court has been brought in an
inconvenient forum. Each party not located in the United States irrevocably
appoints CT Corporation System, which currently maintains a San Francisco office
at 49 Stevenson Street, San Francisco, California 94105, United States of
America, as its agent to receive service of process or other legal summons for
purposes of any such suit, action or proceeding that may be instituted in any
Specified Court.
(c) Waiver of Immunity. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.
[The remainder of this page has been intentionally left blank.]
24
<PAGE> 25
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
IMANAGE, INC.
By:
--------------------------------------
President and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
U.S. BANCORP PIPER JAFFRAY INC.
C.E. UNTERBERG TOWBIN
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
By BANCBOSTON ROBERTSON STEPHENS INC.
By:
----------------------------------
Authorized Signatory
25
<PAGE> 26
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
- --------------------------------- ---------------------
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC................................[___]
U.S. BANCORP PIPER JAFFRAY INC...................................[___]
C.E. UNTERBERG TOWBIN............................................[___]
[___]............................................................[___]
Total...................................................[___]
</TABLE>
<PAGE> 27
EXHIBIT A
LOCK-UP AGREEMENT
A-1
<PAGE> 28
LOCK-UP AGREEMENT
__________________, 1999
BancBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
C.E. Unterberg Towbin
As Representatives of the Several Underwriters
555 California Street
San Francisco, CA 94104
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the several
underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with iManage, Inc. (the "Company")
providing for the initial public offering (the "Public Offering") by the
Underwriters, including yourselves, of Common Stock of the Company (the "Common
Stock") pursuant to the Company's Registration Statement on Form S-1 to be filed
with the Securities and Exchange Commission on or about [________], 1999 (the
"Registration Statement").
In consideration of the Underwriters' agreement to purchase and make the
Public Offering of the Common Stock, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned hereby
agrees, for a period of 180 days after the effective date of the Registration
Statement (the "Lock-Up Period"), not to offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "Securities"),
now owned or hereafter acquired directly by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree to be bound by this Lock-Up Agreement, (ii) as a distribution to
limited partners or shareholders of the undersigned, provided that the
distributees thereof agree in writing to be bound by the terms of this Lock-Up
Agreement or (iii) with the prior written consent of BancBoston Robertson
Stephens. The foregoing restriction is expressly agreed to preclude the holder
of the Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period even if such Securities would be disposed
of by someone other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including without
limitation any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Notwithstanding the foregoing, this Lock-Up Agreement does not
prohibit the sale of shares of the Common Stock by the undersigned to the
Underwriters in the Public Offering.
Furthermore, the undersigned hereby agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by the undersigned except in compliance with
this Lock-Up Agreement. In the event that
A-2
<PAGE> 29
the Registration Statement shall not have been declared effective on or before
December 31, 1999 this Lock-Up Agreement shall be of no further force or effect.
Very truly yours,
---------------------------------------------
(signature)
Name:
----------------------------------------
Address:
-------------------------------------
-------------------------------------
Accepted as of the date first set
forth above:
BancBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
C.E. Unterberg Towbin
As Representatives of the Several
Underwriters
BancBoston Robertson Stephens
By:
---------------------------------
Name:
-----------------------------
The Company requests that this Lock-Up Agreement be completed an delivered to
underwriters' counsel, Brobeck, Phleger & Harrison LLP, Attn: Anthony S. Wang.
A-3
<PAGE> 30
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company has been duly incorporated and is validly existing as
corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction, if any, in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified
or be in good standing would not have a Material Adverse Effect. To such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity;
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectus under the caption "Capitalization" as of
the dates stated therein, the issued and outstanding shares of capital
stock of the Company have been duly and validly issued and are fully
paid and nonassessable, and, to such counsel's knowledge, will not have
been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar
right;
(v) The Firm Shares or the Option Shares, as the case may be, to be issued
by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and
fully paid and nonassessable, and the issuance of the Firm Shares or the
Option Shares, as the case may be, will not be in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right other than such rights
that have been waived;
(vi) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares
to be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery by you, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally or by general equitable principles;
(viii) The Registration Statement has become effective under the Securities Act
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Securities Act;
(ix) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become
B-1
<PAGE> 31
effective under the Exchange Act; and the Firm Shares or the Option
Shares have been validly registered under the Securities Act and the
rules and regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(x) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which
such counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects
with the requirements of the Securities Act and the applicable rules and
regulations;
(xi) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or
legal conclusions, has been reviewed by such counsel and is a fair
summary of such matters and conclusions; and the form of certificate
evidencing the Common Stock and filed as an exhibit to the Registration
Statement comply with Delaware law;
(xii) The description in the Registration Statement and the Prospectus of the
charter and bylaws of the Company and of statutes are accurate and
fairly present the information required to be presented by the
Securities Act;
(xiii) To such counsel's knowledge, there are no agreements, contracts, leases
or documents to which the Company is a party of a character required to
be described or referred to in the Registration Statement or Prospectus
or to be filed as an exhibit to the Registration Statement which are not
described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the
Company's indemnification obligations hereunder, concerning which no
opinion need be expressed) will not (a) result in any violation of the
Company's charter or bylaws or (b) to such counsel's knowledge, result
in a material breach or violation of any of the terms and provisions of,
or constitute a default under, any agreement or document filed as an
Exhibit to the Registration Statement or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency or
body having jurisdiction over the Company or over any of its properties
or operations;
(xv) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction
over the Company or over any of its properties or operations is
necessary in connection with the consummation by the Company of the
transactions herein contemplated, except (i) such as have been obtained
under the Securities Act, (ii) such as may be required under state or
other securities or Blue Sky laws in connection with the purchase and
the distribution of the Shares by the Underwriters, (iii) such as may be
required by the National Association of Securities Dealers, LLC and (iv)
such as may be required under the federal or provincial laws of Canada
and other jurisdictions in which the Underwriters may sell the Shares;
(xvi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company of a character
required to be disclosed in
B-2
<PAGE> 32
the Registration Statement or the Prospectus by the Securities Act,
other than those described therein;
(xvii) To such counsel's knowledge, the Company is not presently (a) in
material violation of its charter or bylaws, or (b) in material breach
of any applicable statute, rule or regulation known to such counsel or,
to such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or over
any of its properties or operations;
(xviii) To such counsel's knowledge, except as set forth in the Registration
Statement and Prospectus no holders of Common Stock or other securities
of the Company have registration rights with respect to securities of
the Company and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights known
to such counsel to registration of such shares of Common Stock or other
securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby, 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;
(xix) The Company is not and, after giving effect to the offering and the sale
of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(xx) In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company,
the Representatives, Underwriters' Counsel and the independent certified
public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related
matters were discussed, and although they have not verified and do not
assume any responsibility for the accuracy or completeness of the
statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to
believe that, at the time the Registration Statement became effective
and at all times subsequent thereto up to and on the First Closing Date
or Second Closing Date, as the case may be, the Registration Statement
and any amendment or supplement thereto (other than the financial
statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need
express no comment) 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 at the First
Closing Date or the Second Closing Date, as the case may be, the
Registration Statement, the Prospectus and any amendment or supplement
thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
B-3
<PAGE> 33
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Firm Shares have been duly authorized and, upon issuance and
delivery and payment therefor in accordance with the terms of the
Underwriting Agreement, will be validly issued, fully paid and
non-assessable;
(ii) The Registration Statement complied as to form in all material respects
with the requirements of the Securities Act; the Registration Statement
has become effective under the Securities Act and, to such counsel's
knowledge, no stop order proceedings with respect thereto have been
instituted or threatened or are pending under the Securities Act;
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm
Shares or the Option Shares have been validly registered under the
Securities Act and the Rules and Regulations of the Exchange Act and the
applicable rules and regulations of the Commission thereunder; and
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from Gray Cary Ware & Freidenrich LLP, each
dated the date hereof, and furnished to you in accordance with the provisions of
the Underwriting Agreement. Such opinion appears on its face to be appropriately
responsive to the requirements of the Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) 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 at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
C-1
<PAGE> 1
IMANAGE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR CERTAIN DEFINITIONS
BOSTON, MA OR NEW YORK, NY CUSIP 45245Y 10 5
This Certifies that
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
- -------------------------------iMANAGE, 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 until 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/ Mark A. Culhane /s/ Mahmood Panjwani
- ------------------------------------- -------------------------------------
CHIEF FINANCIAL OFFICER AND SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ L.E. Seeley - Boger
AUTHORIZED SIGNATURE
<PAGE> 2
iMANAGE, INC.
The Corporation will furnish to any stockholder, upon request and without
charge, a statement of the powers, designations, preferences, and relative
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights, insofar as the same shall have been fixed, and of the
authority of the Board of Directors to designate any preferences, rights and
limitations of any wholly unissued series. Any such request should be directed
to the Secretary of the Corporation at the principal office of the Corporation.
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:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT___________ Custodian______________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_______________________________
in common (State)
UNIF TRF MIN ACT __________Custodian (until age____)
(Cust)
________________ under Uniform Transfers
(Minor)
to Minors Act_______________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPE 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(S) 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 OR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE GUARANTEE
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
[GRAY CARY WARE FREIDENRICH LLP LETTERHEAD]
November 12, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: IMANAGE, INC. REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
As counsel to iManage, Inc., a Delaware corporation (the "Company"), we
are rendering this opinion in connection with a proposed sale of those certain
shares of the Company's newly-issued Common Stock as set forth in the
Registration Statement on Form S-1 to which this opinion is being filed as
Exhibit 5.1 (the "Shares"). We have examined all instruments, documents and
records which we deemed relevant and necessary for the basis of our opinion
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies.
We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance, or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.
Based on such examination, we are of the opinion that the Shares
identified in the above-referenced Registration Statement will be, upon
effectiveness of the Registration Statement and receipt by the Company of
payment therefor, validly authorized, legally issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich LLP
GRAY CARY WARE & FREIDENRICH LLP
<PAGE> 1
EXHIBIT 10.4
This LOAN AND SECURITY AGREEMENT, dated as of March 31, 1999 (this "Agreement"),
is between SILICON VALLEY BANK ("Bank") and NETRIGHT TECHNOLOGIES, INC., a
Delaware corporation ("Borrower").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1. Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration (limited to audit fees), and
enforcement of the Loan Documents; and Bank's reasonable attorneys' fees and
expenses incurred in amending, enforcing or defending the Loan Documents,
(including fees and expenses of appeal or review, or those incurred in any
Insolvency Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such information
if such equipment is necessary for the review of such information.
"Borrowing Base" means an amount equal to 80% of Eligible
Accounts as determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
1
<PAGE> 2
"Collateral" means the property described on Exhibit A attached
hereto.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided that the
term "Contingent Obligation" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determined
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith;
provided that such amount shall not in any event exceed the maximum amount of
the obligations under the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Loans
due within twelve months from any applicable date made under this Agreement,
including all Indebtedness that is payable upon demand or within one year from
the date of determination thereof unless such Indebtedness is renewable or
extendable at the option of Borrower or any Subsidiary to a date more than one
year from the date of determination, but excluding Subordinated Debt and
deferred revenue.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
2
<PAGE> 3
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided that
standards of eligibility may be revised from time to time by Bank in Bank's
reasonable judgment effective upon 10 days prior notice to Borrower (no such
revision shall be retroactive, but shall apply only to requests for advances
made after such revision). Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within 90 days of invoice date;
(b) Accounts with respect to an account debtor, 50% of whose
Accounts the account debtor has failed to pay within 90 days of invoice date
(or, if approved by Bank, in the exercise of its absolute discretion, within 120
days of invoice date);
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed 25% of all Accounts, to
the extent such obligations exceed the aforementioned percentage, except as
approved in writing by Bank;
(d) Accounts with respect to which the account debtor does
not have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
3
<PAGE> 4
"Equipment" means all present and future machinery, computer
equipment, software, office equipment, tenant improvements, furniture, fixtures,
vehicles, tools, parts and attachments in which Borrower has any interest.
"Equipment Availability Date" has the meaning set forth in
Section 2.1.2.
"Equipment Commitment" means a credit extension of up to
$1,000,000.00.
"Equipment Loan" has the meaning set forth in Section 2.1.2.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Event of Default" has the meaning set forth in Section 8.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all right, title, and
interest of Borrower in any of the following, whether now existing or hereafter
acquired or created:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products;
(c) Any and all design rights;
(d) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
4
<PAGE> 5
(e) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance (or any agreement to grant any of the
foregoing, whether or not contingent on the happening of any future event).
"Loan" means a Revolving Loan or an Equipment Loan.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired;
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan
5
<PAGE> 6
Documents, (iii) the enforceability or binding effect of the Loan Documents, or
(iv) the attachment, perfection, or priority of Bank's security interests in the
Collateral or the value of the Collateral.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations- in-part of the same.
"Payment Date" means the last calendar day of each month.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Subordinated Debt;
(c) Indebtedness existing on the Closing Date and disclosed
in the Schedule;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness conforming with the requirements set forth
in the attached Schedule of Permitted Indebtedness; and
(g) Extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (c) through (f) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Direct obligations of the United States Treasury,
including bills, notes, and bonds;
6
<PAGE> 7
(b) Obligations issued or guaranteed by agencies or
instrumentalities of the United States government;
(c) Bank obligations, including certificates of deposit,
bank notes, and bankers acceptances. Investments in these securities are limited
to banks whose long term debt is rated "A" or higher by Moody's and Standard &
Poor's and whose short-term obligations are rated "P1" by Moody's and "A1" or
higher by Standard & Poor's;
(d) Corporate obligations, including intermediate-term notes
rated "A" or higher by Moody's and Standard & Poor's and commercial paper rated
"P1" or higher by Moody's and "A1" or higher by Standard & Poor's;
(e) Money market funds over $1,000,000,000 in assets, with
an historically constant dollar net asset value, consisting of acceptable
securities as described in clauses (a) through (d), above, as long as the fund's
manager has been in business over five years, has name recognition, and has
performance that is easily tracked; and
(f) United States and dollar-denominated international
corporate debt of all types, as long as the issuer meets credit rating and
marketability guidelines.
Derivative instruments are not Permitted Investments. This would cover all
investments where the value is based on an underlying variable causing the
coupon and/or the maturity value to be unknown for the life of the security. The
maximum maturity of individual securities in Borrower's portfolio may not exceed
twenty-four months. The average maturity of Borrower's portfolio may not exceed
twelve months. For securities that have put dates or reset dates, the put date
or reset date will be used, instead of the final maturity date, for maturity
guideline purposes. There is no limit to the percentage of Borrower's portfolio
which may be maintained in securities issued by the United States Treasury or by
its agencies and instrumentalities. No one issuer or group of issuers from the
same holding company is to exceed 15% of Borrower's portfolio at the time of
purchase, with the exception of Government securities. No investment will be
permitted in common stocks, preferred stocks, options (put or calls),
commodities, foreign securities, futures or mutual funds whose underlying
securities are not Permitted Investments.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are maintained on
Borrower's Books in accordance with GAAP, provided the same have no priority
over any of Bank's security interests;
7
<PAGE> 8
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Leases or subleases and [non-exclusive] licenses or
sublicenses granted to others in the ordinary course of Borrower's business not
interfering in any material respect with the business of Borrower and its
Subsidiaries taken as a whole, and any interest or title of a lessor, licensor
or under any lease or license provided that such leases, subleases, licenses and
sublicenses do not prohibit the grant of the security interest granted
hereunder; and
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(f) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting a Material Adverse Effect;
(g) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or bankers' Liens with
respect to amounts on deposit, whether arising by operation of law or by
contract, in connection with arrangements entered into with banks in the
ordinary course of business; and
(h) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a) and (c) above, provided that any extension, renewal or replacement
Lien shall be limited to the property encumbered by the existing Lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated unrestricted cash, cash equivalents, accounts receivable and
short-term investments with maturities of fewer than 90 days of Borrower
determined in accordance with GAAP.
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"Responsible Officer" means each of the Chief Executive Officer,
the President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Commitment" means a credit extension of up to
$5,000,000.00.
"Revolving Loan" means a loan advance under the Revolving
Commitment.
"Revolving Maturity Date" means the date that is the one year
anniversary of the Closing Date.
"Schedule" means the schedule of exceptions attached hereto, if
any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date as
of which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.
"UCC" means the California Uniform Commercial Code.
"Year 2000 Problem" means the inability of computers, as well as
embedded microchips in non-computing devices, to properly perform date-sensitive
functions with respect to certain dates prior to and after December 31, 1999.
1.2. Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include
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the notes and schedules thereto. In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each mean "to but excluding." Periods
of days referred to in this Agreement shall be counted in calendar days unless
otherwise stated. References to the plural include the singular and to the
singular include the plural, references to any gender include any other gender,
the part includes the whole, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Article, section, subsection,
clause, exhibit and schedule references are to this Agreement, unless otherwise
specified. All of the exhibits and schedules attached hereto shall be deemed
incorporated herein by reference. All terms contained in this Agreement which
are not otherwise specifically defined herein (including the term "good faith")
shall have the meanings provided by the UCC to the extent the same are used or
defined therein.
1.3. No Presumption Against Any Party. Neither this Agreement nor any
other Loan Document nor any uncertainty or ambiguity herein or therein shall be
construed or resolved using any presumption against any party hereto or thereto,
whether under any rule of construction or otherwise. On the contrary, this
Agreement and the other Loan Documents have been reviewed by each of the parties
and their counsel and, in the case of any ambiguity or uncertainty, shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.
2. LOAN AND TERMS OF PAYMENT
2.1. Loans. Borrower promises to pay to the order of Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Loans made by Bank to Borrower hereunder. Borrower shall also pay interest
on the unpaid principal amount of such Loans at rates in accordance with the
terms hereof.
2.1.1. (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Revolving Loans to Borrower in an aggregate
outstanding amount not to exceed the Revolving Commitment or the Borrowing Base,
whichever is less. Subject to the terms and conditions of this Agreement,
amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at
any time during the term of this Agreement.
(b) Whenever Borrower desires an Revolving Loan,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time, on the Business Day that such Revolving Loan is to be
made. Each such notification shall be promptly confirmed by a Payment/Loan Form
in substantially the form of Exhibit B hereto. Bank is authorized to make Loans
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Loans are necessary to meet Obligations which have become
due and remain unpaid. Bank shall be entitled to rely on any telephonic notice
given by a person who Bank reasonably believes to be a Responsible Officer or a
designee thereof, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance. Bank will credit
the amount of Loans made under this Section 2.1 to Borrower's deposit account.
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(c) Interest Rate. Except as set forth in Section
2.3(b), the outstanding principal amount of the Revolving Loans shall bear
interest, on the average daily balance thereof, at a per annum rate equal to
0.25 percentage point above the Prime Rate.
(d) The Revolving Commitment shall terminate on the
Revolving Maturity Date, at which time all Revolving Loans and accrued interest
thereon shall be immediately due and payable.
2.1.2. Equipment Loans.
(a) Subject to and upon the terms and conditions of
this Agreement, at any time from the date hereof through February 28, 2000, (the
"Equipment Availability End Date"), but no more frequently than once during each
calendar month, Bank agrees to make advances (each an "Equipment Loan") to
Borrower in an aggregate amount not to exceed the Equipment Commitment. Borrower
shall deliver to Bank, at the time of each Equipment Loan request, an invoice
for the equipment to be financed by such Equipment Loan. The Equipment Loans
shall be used only to purchase or refinance Equipment purchased on or after 90
days prior to the date hereof (provided, that the initial advance to Borrower
under this Section 2.1.2 may be utilized to refinance Equipment purchased by
Borrower at any time on or after January 1, 1998) and shall not exceed 100% of
the invoice amount of such equipment approved from time to time by Bank,
including sales taxes, freight, and installation expenses.
(b) Interest Rate. Except as set forth in Section
2.3(b), the outstanding principal amount of the Equipment Loans shall bear
interest, on the average daily balance thereof, at a per annum rate equal to
0.50 percentage points above the Prime Rate. Accrued interest on each Equipment
Loan shall be payable monthly on each Payment Date and on the date the final
instalment of principal on the Equipment Loans is due.
(c) Any Equipment Loans that are outstanding on the
Equipment Availability End Date will be payable in 36 equal monthly installments
of principal, on each Payment Date, beginning on the Payment Date of following
the Equipment Availability End Date and continuing until February [___], 2003,
when all Equipment Loans shall be immediately due and payable. Equipment Loans,
once repaid, may not be reborrowed.
(d) When Borrower desires to obtain an Equipment
Loan, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time one
Business Day before the day on which the Equipment Loan is to be made. Such
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice for the Equipment to be financed.
2.2. Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 and 2.1.2 of this
Agreement is greater than the lesser of (i) the Revolving Commitment or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3. Default Rates, Payments, and Calculations.
(a) Default Rate. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
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(b) Payments. Interest hereunder shall be due and payable on
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number _____________________ for
payments of principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which Bank
has made against Borrower's accounts. Any such debits against Borrower's
accounts in no way shall be deemed a set-off. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
(c) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a 360-day
year for the actual number of days elapsed.
2.4. Crediting Payments. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12:00 noon
Pacific time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5. Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to $15,000.00, which
fee shall be due on the Closing Date and shall be fully earned and
non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and reasonable out-of-pocket expenses for Bank's audits of
Borrower's Accounts, and for each appraisal of Collateral and financial analysis
and examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6. Additional Costs. In case of any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration thereof or
the compliance with any guideline or request of any central bank or other
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governmental authority (whether or not having the force of law) in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.7. Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect until the Loans and all interest thereon have
been fully and finally paid. Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Loans under this Agreement immediately
and without notice upon the occurrence and during the continuance of an Event of
Default.
3. CONDITIONS OF LOANS
3.1. Conditions Precedent to Initial Loan. The obligation of Bank to
make the initial Loan is subject to the condition precedent that Bank shall have
received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect
to articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an intellectual property security agreement;
(d) financing statements (Forms UCC-1) for filing in the
States of California and Illinois;
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof; and
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(g) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2. Conditions Precedent to all Loans. The obligation of Bank to
make each Loan, including the initial Loan, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Loan Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date of
such Payment/Loan Form and on the effective date of each Loan as though made at
and as of each such date (except to the extent they relate specifically to an
earlier date, in which case such representations and warranties shall continue
to have been true and accurate as of such date), and no Default shall have
occurred and be continuing, or would result from such Loan, The making of each
Loan shall be deemed to be a representation and warranty by Borrower on the date
of such Loan as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1. Grant of Security Interest. Borrower grants and pledges to Bank
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will, subject to Permitted
Liens, constitute a valid, first priority security interest in Collateral
acquired after the date hereof. Borrower acknowledges that Bank may, following
the occurrence and during the continuance of an Event of Default, place a "hold"
on any Deposit Account pledged as Collateral to secure the Obligations.
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
4.2. Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3. Right to Inspect. Bank (through any of its officers, employees,
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1. Due Organization and Qualification. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to
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do business in, and is in good standing in, any state in which the conduct of
its business or its ownership of property requires that it be so qualified.
5.2. Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound except to
the extent that certain intellectual property agreements prohibit the assignment
of the rights thereunder to a third party without Borrower's or other party's
consent and the Loan Documents constitute an assignment Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default would reasonably be expected to have a Material Adverse Effect.
5.3. No Prior Encumbrances. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4. Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5. Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6. Intellectual Property. Borrower is the sole owner of the
Intellectual Property Collateral, except for non-exclusive licenses granted by
Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party. Except for and upon the filing with the
United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights and
Mask Works necessary to perfect the security interests created hereunder, and
except as has been already made or obtained, no authorization, approval or other
action by, and no notice to or filing with, any United States governmental
authority or United States regulatory body is required either (i) for the grant
by Borrower of the security interest granted hereby or for the execution,
delivery or performance of Loan Documents by Borrower in the United States or
(ii) for the perfection in the United States or the exercise by Bank of its
rights and remedies hereunder.
5.7. Name; Location of Chief Executive Office. Except as disclosed in
the Schedule, Borrower has not done business and will not without at least 30
days prior written notice to Bank do business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.8. Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency in
which an adverse decision would reasonably be expected to have a Material
Adverse Effect.
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5.9. No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.10. Solvency. The fair saleable value of Borrower's assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.11. Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that would reasonably be expected to have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System). Borrower has complied with all the provisions of
the Federal Fair Labor Standards Act. Borrower has not violated any statutes,
laws, ordinances or rules applicable to it, violation of which could have a
Material Adverse Effect.
5.12. Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the release, or other
disposition of hazardous waste or hazardous substances into the environment.
5.13. Taxes. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected therein,
except those being contested in good faith by proper proceedings with adequate
reserves under GAAP.
5.14. Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15. Government Consents. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as
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currently conducted except where the failure to obtain such consent, approval or
authorization, to make any such declaration or filing or to give any such notice
would not reasonably be expected to have a Material Adverse Effect.
5.16. Year 2000 Compliance. Borrower has conducted a comprehensive
review and assessment of Borrower's systems and equipment applications and made
inquiry of Borrower's key suppliers, vendors and customers with respect to the
Year 2000 Problem. Based on that review and inquiry, Borrower does not believe
the Year 2000 Problem, including costs of remediation, will have a Material
Adverse Effect. Borrower has developed adequate contingency plans to ensure
uninterrupted and unimpaired business operation in the event of a failure of its
own or a third party's systems or equipment due to the Year 2000 Problem,
including those of vendors, customers, and suppliers, as well as a general
failure of or interruption in its communications and delivery infrastructure.
5.17. Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank by
Borrower in connection with the transaction contemplated by this Agreement,
taken as a whole, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading it being recognized by the Bank
that the projections and forecasts provided by Borrower are based on Borrower's
reasonable and good faith assessment of the probabilities of future events and
that actual results during the period or periods covered by any such projections
and forecasts may differ from the projected or forecasted results).
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1. Good Standing. Borrower shall maintain, or cause to be
maintained, its and each of its Subsidiaries' corporate existence and good
standing in its jurisdiction of incorporation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
have a Material Adverse Effect. Borrower shall maintain, and shall cause each of
its Subsidiaries to maintain, to the extent consistent with prudent management
of Borrower's business, in force all licenses, approvals and agreements, the
loss of which would reasonably be expected to have a Material Adverse Effect.
6.2. Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect.
6.3. Financial Statements, Reports, Certificates. Borrower shall
deliver to Bank: (a) as soon as available, but in any event within 30 days after
the end of each month, a company prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during such period, in a
form and certified by an officer of Borrower reasonably acceptable to Bank; (b)
as soon as available, but in any event within 120 days after the end of
Borrower's fiscal year, audited consolidated financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting
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firm reasonably acceptable to Bank; (c) within five days of filing, copies of
all statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all reports
on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $100,000.00 or more; (e)
prompt notice of any material change in the composition of the Intellectual
Property Collateral, including, but not limited to, any subsequent ownership
right of Borrower in or to any Copyright, Patent or Trademark not specified in
any intellectual property security agreement between Borrower and Bank or
knowledge of an event that materially adversely affects the value of the
Intellectual Property Collateral; and (f) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Within 20 days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable and accounts payable.
Within 30 days after the last day of each month, Borrower shall
deliver to Bank with the monthly financial reports a Compliance Certificate
signed by a Responsible Officer in substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits will be
conducted no more often than every six months unless an Event of Default has
occurred and is continuing.
6.4. Inventory; Returns. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than
$100,000.00.
6.5. Taxes. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is (I) contested in good faith
by appropriate proceedings , (ii) is reserved against (to the extent required by
GAAP) by Borrower and (iii) no lien other than a Permitted Lien results.
6.6. Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating
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to Borrower's ownership and use of the Collateral in amounts and of a type that
are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as are reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least 30
days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations; provided that so long as no Event
of Default has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property.
6.7. Principal Depository. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8. Quick Ratio. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities of at least 2.0
to 1.0.
6.9. Liquidity Coverage. Borrower shall maintain, as of the last day
of each calendar month, a ratio of consolidated cash, cash equivalents and
short-term investments, plus 80% of Eligible Accounts, minus the outstanding
amount of all Revolving Loans, to the outstanding amount of all Equipment Loans,
of at least 2.0 to 1.0.
6.10. Profitability. Borrower shall be profitable (profitability to be
determined in accordance with GAAP and to be net of charges of software
development costs) for each fiscal quarter, except Borrower may suffer a loss
not to exceed $150,000.00 for one fiscal quarter in any fiscal year, commencing
with the fiscal quarter ending March 31, 1999.
6.11. Registration of Intellectual Property Rights.
(a) Borrower shall register or cause to be registered (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement within 10 days of the date of this Agreement. Borrower shall register
or cause to be registered with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, those additional intellectual
property rights developed or acquired by Borrower from time to time in
connection with any product prior to the sale or licensing of such product to
any third party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Bank shall reasonably request to
perfect Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents, Copyrights, and Mask
Works, (ii) use its best efforts to detect
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infringements of the Trademarks, Patents, Copyrights and Mask Works and promptly
advise Bank in writing of material infringements detected and (iii) not allow
any Trademarks, Patents, Copyrights, or Mask Works to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Bank determines that reasonable business practices
suggest that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this section to take but which Borrower fails to take, after 15 days' notice to
Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs
and reasonable expenses incurred in the reasonable exercise of its rights under
this section.
6.12. Further Assurances. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Loans,
Borrower will not do any of the following:
7.1. Dispositions. Convey, sell, lease, transfer or otherwise dispose
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; (iii) that constitute payment of normal and
usual operating expenses in the ordinary course of business;; or (iii) of
worn-out or obsolete Equipment.
7.2. Changes in Business, Ownership, or Management, Business
Locations. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental thereto),
or suffer a material change in Borrower's ownership or management. Borrower will
promptly notify Bank if it relocates its chief executive office or adds any new
offices or business locations.
7.3. Mergers or Acquisitions. Without the prior consent of Bank (not
to be unreasonably withheld), merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4. Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5. Encumbrances. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6. Distributions. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock, except for repurchases under
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Borrower's employee stock option/purchase plans in an aggregate amount not in
excess of $250,000.00 during any twelve month period.
7.7. Investments. Without the prior consent of Bank (not to be
unreasonably withheld), directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8. Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.9. Intellectual Property Agreements. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the definition
of the Intellectual Property Collateral acquired under such contracts, except to
the extent that such provisions are necessary in Borrower's exercise of its
reasonable business judgement.
7.10. Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.11. Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12. Compliance. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Loan for such
purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an "Event of
Default" by Borrower under this Agreement:
8.1. Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2. Covenant Default.
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(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten days after the occurrence
thereof; provided that if the default cannot by its nature be cured within the
ten day period or cannot after diligent attempts by Borrower be cured within
such 10 day period, and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional reasonable period (which shall not
in any case exceed 30 days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Loans will be required to be made
during such cure period);
8.3. Material Adverse Effect. If there occurs any event which has a
Material Adverse Effect;
8.4. Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5. Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Loans will be made prior to the dismissal of such Insolvency Proceeding);
8.6. Other Agreements. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of $100,000.00 or that could
have a Material Adverse Effect;
8.7. Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8. Judgments. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least $100,000.00 shall be
rendered against Borrower and shall remain unsatisfied and unstayed for a period
of ten days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment); or
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8.9. Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate or writing delivered to Bank by Borrower
or any Person acting on Borrower's behalf pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1. Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's premises, Borrower hereby grants Bank a
license to enter such premises and to occupy the same, without charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in equity,
or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including
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Borrower's premises) as Bank determines is commercially reasonable, and apply
the proceeds thereof to the Obligations in whatever manner or order it deems
appropriate;
(h) Bank may credit bid and purchase at any public sale, or
at any private sale as permitted by law;
(i) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower; and
(j) Bank shall have a non-exclusive, royalty-free license to
use the Intellectual Property Collateral to the extent reasonably necessary to
permit Bank to exercise its rights and remedies upon the occurrence of an Event
of Default.
9.2. Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to modify, in its
sole discretion, any intellectual property security agreement entered into
between Borrower and Bank without first obtaining Borrower's approval of or
signature to such modification by amending Exhibit A, Exhibit B and Exhibit C
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents, Trademarks, or Mask Works in which Borrower no longer
has or claims any right, title or interest; (g) to file, in its sole discretion,
one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of Borrower where
permitted by law; and (h) to transfer the Intellectual Property Collateral into
the name of Bank or a third party to the extent permitted under the UCC provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in Section 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide Loans hereunder is terminated.
9.3. Accounts Collection. Effective only upon the occurrence and
during the continuance of an Event of Default, Bank may notify any Person owing
funds to Borrower of Bank's security interest in such funds and verify the
amount of such Account. Borrower shall collect all amounts owing to Borrower for
Bank, receive in trust all payments as Bank's trustee, and if requested or
required by Bank, immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4. Bank Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) upon reasonable notice to Borrower, make payment of the same or any part
thereof; (b) set up such reserves under the Revolving Commitment as Bank deems
necessary to protect Bank from the exposure created by such failure; or (c)
obtain and maintain insurance policies
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of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5. Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6. Remedies Cumulative. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the UCC, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.7. Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below for such party on the signature pages hereof. The parties hereto
may change the address at which they are to receive notices hereunder, by notice
in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
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RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank's prior written consent, which consent may be
granted or withheld in Bank's sole discretion. Bank may, upon the consent of
Borrower (not to be unreasonably withheld), sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank's obligations,
rights and benefits hereunder.
12.2. Indemnification. Borrower shall , indemnify ,defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3. Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4. Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5. Amendments in Writing, Integration. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7. Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run;
provided that so long as the obligations referred to in the first sentence of
this Section 12.7 have been satisfied, and Bank has no commitment to make any
Credit Extensions or to make any other loans to Borrower, Bank shall release all
security interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.
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12.8. Confidentiality. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as Bank may deem
appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
NETRIGHT TECHNOLOGIES, INC.
By /s/ Mark Culhane
-----------------------------------
Title: Chief Financial Officer
-------------------------------
By /s/ Mahmood Panjwani
-----------------------------------
Title: President
-------------------------------
Address for Notices: 2121 South El Camino Real, Suite 400
San Mateo, CA 94403
Attention: Mark Culhane, CFO
SILICON VALLEY BANK
By /s/ Chris Stedman
-----------------------------------
Title: AVP
-------------------------------
Address for Notices: 3003 Tasman Drive
Santa Clara, CA 95054-1191
Attention: John China
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EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower, whether now existing or hereafter acquired or created and wherever
located, in and to the following:
(a) All goods, equipment, machinery, fixtures, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing;
(b) All inventory, merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
including such inventory as is temporarily out of Borrower's custody or
possession or in transit and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing and any documents of title representing any of the
above;
(c) All contract rights, general intangibles, goodwill,
trademarks, servicemarks, trade styles, trade names, patents, patent
applications, leases, license agreements, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights to
payment of any kind;
(d) All accounts, contract rights, royalties, license rights
and all other forms of obligations owing to Borrower, whether or not arising out
of the sale or lease of goods, the licensing of technology or the rendering of
services by Borrower, and whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities,
investment property, letters of credit, certificates of deposit, instruments and
chattel paper and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished; all trade secret rights,
including all rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information; all mask work or
similar rights available for the protection of semiconductor chips; all claims
for damages by way of any past, present and future infringement of any of the
foregoing; and
(g) All Borrower's Books relating to the foregoing and any
and all claims, rights and interests in any of the above and all substitutions
for, additions and accessions to and proceeds thereof.
1
<PAGE> 30
EXHIBIT B
LOAN PAYMENT/LOAN ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
---------------------
FAX#: (408) TIME:
---------------------
FROM:
-----------------------------------
BORROWER'S NAME
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE
PHONE:
--------------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT#
---------------------- -----------------------------
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
<S> <C>
PRINCIPAL INCREASE (Loan) $
------
PRINCIPAL PAYMENT (ONLY) $
------
INTEREST PAYMENT (ONLY) $
------
PRINCIPAL AND INTEREST (PAYMENT) $
------
</TABLE>
OTHER INSTRUCTIONS:
-------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Loan confirmed by this Loan Request;
provided that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date.
1
<PAGE> 31
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
Authorized Requester:
--------------------------------
Authorized Signature (Bank)
Phone #
----------------------------------------
2
<PAGE> 32
EXHIBIT C
BORROWING BASE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: NETRIGHT TECHNOLOGIES, INC. ("Borrower")
Commitment Amount: $
ACCOUNTS RECEIVABLE
<TABLE>
<S> <C> <C>
1. Accounts Receivable Book Value as of $
-------- ---------------------
2. Additions (please explain on reverse) $
---------------------
3. TOTAL ACCOUNTS RECEIVABLE $
---------------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
---------------------
5. Balance of 50% over 90 day accounts $
---------------------
6. Concentration Limits $
---------------------
7. Foreign Accounts $
---------------------
8. Governmental Accounts $
---------------------
9. Contra Accounts $
---------------------
10. Promotion or Demo Accounts $
---------------------
11. Intercompany/Employee Accounts $
---------------------
12. Other (please explain on reverse) $
---------------------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
---------------------
CALCULATION OF LOAN VALUE
14. Eligible Accounts (#3 minus #13) $
---------------------
15. LOAN VALUE OF ACCOUNTS (80% of #14) $
---------------------
BALANCES
16. Maximum Loan Amount $
---------------------
17. Total Funds Available (Lesser of #16 or #15) $
---------------------
18. Present balance owing on Line of Credit $
---------------------
19. RESERVE POSITION (#17 minus #18) $
---------------------
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
BORROWER: NETRIGHT TECHNOLOGIES, INC.
By:
--------------------------------
Authorized Signer
COMMENTS (FOR BANK USE ONLY):
Received By:
----------------------------
Date:
-----------------------------------
Reviewed By:
----------------------------
Compliance Status: Yes / No
------------
1
<PAGE> 33
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: NETRIGHT TECHNOLOGIES, INC. ("Borrower")
The undersigned authorized officer of the above Borrower hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending __________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
<TABLE>
<CAPTION>
REPORTING COVENANT COMPLIES
------------------ --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
Maintain on a Monthly Basis
(unless otherwise stated):
<S> <C> <C> <C>
Minimum Quick Ratio 2:00:1.0 _____:1.0 Yes No
Minimum Liquidity Ratio 2.00:1.0 _____:1.0 Yes No
Profitability (Quarterly) $1.00 $1.00 Yes No
</TABLE>
Sincerely,
Date
- -------------------------------- --------
SIGNATURE
- --------------------------------
TITLE
BANK USE ONLY
Received By:
-----------------------------------
Date
-------------------------
Reviewed By:
-----------------------------------
Compliance Status: Yes / No
-------------------
1
<PAGE> 34
DISBURSEMENT REQUEST AND AUTHORIZATION
TO: SILICON VALLEY BANK
FROM: NETRIGHT TECHNOLOGIES, INC. ("Borrower")
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $_____________.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: _______________.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Revolving Line
--------------
<S> <C>
Amount paid to Borrower directly: $
--------
Undisbursed Funds $
--------
Principal $
--------
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
<TABLE>
<S> <C>
Prepaid Finance Charges Paid in Cash: $________
$_______ Loan Fee
$_______ Accounts Receivables Audit
Other Charges Paid in Cash: $________
$_______ UCC Search Fees
$_______ UCC Filing Fees
$_______ Patent Filing Fees
$_______ Trademark Filing Fees
$_______ Copyright Filing Fees
$________ Outside Counsel Fees and Expenses
[ESTIMATE, DO NOT LEAVE BLANK]
Total Charges Paid in Cash $________
</TABLE>
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower's account numbered ______ the amount of any loan payment. If the funds
in the account are insufficient to cover any payment, Bank shall not be
obligated to advance funds to cover the payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS
1
<PAGE> 35
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF _____________, 19___.
BORROWER:
By:
-------------------------------------
Authorized Officer
2
<PAGE> 36
AGREEMENT TO PROVIDE INSURANCE
TO: SILICON VALLEY BANK
FROM: NETRIGHT TECHNOLOGIES, INC. ("Borrower")
INSURANCE REQUIREMENTS. Borrower understands that insurance coverage is
required in connection with the extending of a loan or the providing of other
financial accommodations to Borrower by Bank. These requirements are set forth
in the Loan Documents. The following minimum insurance coverages must be
provided on the following described collateral (the "Collateral"):
<TABLE>
<S> <C>
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that coverage will not be
cancelled or diminished without a minimum of 20 days prior written notice
to Bank.
</TABLE>
INSURANCE COMPANY. Borrower may obtain insurance from any insurance
company Borrower may choose that is reasonably acceptable to Bank. Borrower
understands that credit may not be denied solely because insurance was not
purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Borrower agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of ______________, 19___, or earlier. Borrower acknowledges and
agrees that if Borrower fails to provide any required insurance or fails to
continue such insurance in force, Bank may do so at Borrower's expense as
provided in the Loan and Security Agreement. The cost of such insurance, at the
option of Bank, shall be payable on demand or shall be added to the indebtedness
as provided in the security document. BORROWER ACKNOWLEDGES THAT IF BANK SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION
AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN;
HOWEVER, BORROWER'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION,
THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Borrower authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
1
<PAGE> 37
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT
TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 31,
1999.
BORROWER:
By: /s/ Mark Culhane, Chief Financial Officer
-------------------------------------------
Authorized Officer
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
2
<PAGE> 38
This JUNE 1999 LOAN MODIFICATION AGREEMENT, dated as of June 30, 1999
(this "Agreement"), is between iMANAGE, INC. (formerly known as NETRIGHT
TECHNOLOGIES, INC.), a Delaware corporation ("Borrower"), and SILICON VALLEY
BANK ("Bank").
Recitals
A. In addition to any other obligations which may be owing by
Borrower to Bank, Borrower is indebted to Bank pursuant to a Loan and Security
Agreement, dated as of March 31, 1999 (as may have been amended to the date
hereof, the "Loan Agreement"). The term "Obligations" and the other terms
defined in the Loan Agreement are used herein with the same meanings unless
otherwise defined herein.
B. Repayment of the Obligations is secured by the Collateral
described in the Loan Agreement and in an Intellectual Property Security
Agreement. The Loan Agreement, such Intellectual Property Security Agreement and
all other documents evidencing or securing the Obligations are called the
"Existing Loan Documents" herein.
The parties hereto hereby agree as follows:
1. Amendments.
(a) The following defined terms are hereby added to Section
1.1 of the Loan Agreement:
"Cash Management Advances" means all amounts advanced by Bank
for merchant services, direct deposit of payroll, business credit card and check
cashing services provided to Borrower as identified in the Cash Management
Services Agreement between Borrower and Bank.
"Cash Management Sublimit" means $5,000,000.00.
"Exchange Contract" has the meaning set forth in Section 2.1.4.
"June 1999 Equipment Availability Date" has the meaning set
forth in Section 2.1.5.
"June 1999 Equipment Commitment" means a credit extension of up
to $1,000,000.00.
"June 1999 Equipment Loan" has the meaning set forth in Section
2.1.5.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.3.
(b) The definition of "Loan" in Section 1.1 of the Loan
Agreement is amended and restated in its entirety to read as follows:
-1-
<PAGE> 39
"Loan" means a Revolving Loan, an Equipment Loan or a June 1999
Equipment Loan.
(c) Section 2.1.1.(a) of the Loan Agreement is amended and
restated in its entirety to read as follows:
2.1.1. (a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Revolving loans to Borrower in an
aggregate outstanding amount not to exceed: (i) the Revolving
Commitment or the Borrowing Base, whichever is less, minus (ii)
the amount of all outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit), minus (iii) the Foreign
Exchange Reserve, and minus (iv) the amount of all outstanding
Cash Management Advances. Subject to the terms and conditions of
this Agreement, amounts borrowed pursuant to this Section 2.1
may be repaid and reborrowed at any time during the term of this
Agreement.
(d) The first sentence of Section 2.1.2.(b) of the Loan
Agreement is amended by deleting the reference to "Section 2.3(b)" contained
therein and by substituting therefor a reference to "Section 2.3(a)."
(e) The following Sections 2.1.3., 2.1.4. and 2.1.5. are
hereby added to the Loan Agreement:
2.1.3. Letters of Credit.
(a) Subject to the terms and conditions of
this Agreement, Bank agrees to issue or cause to be issued Letters of
Credit for the account of Borrower in an aggregate outstanding face
amount not to exceed (i) the Revolving Commitment or the Borrowing Base,
whichever is less, minus (ii) the amount of all outstanding Revolving
Loans, the amount of all outstanding Cash Management Advances and the
Foreign Exchange Reserve; provided that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit)
shall not in any case exceed $5,000,000.00. Each Letter of Credit shall
have an expiry date no later than 180 days after the Revolving Maturity
Date provided that Borrower's Letter of Credit reimbursement obligation
shall be secured by cash on terms acceptable to Bank at any time after
the Revolving Maturity Date if the term of this Agreement is not
extended by Bank. All Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the
terms and conditions of Bank's form of standard Application and Letter
of Credit Agreement.
(b) The obligation of Borrower to
immediately reimburse Bank for drawings made under Letters of Credit
shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement and such Letters
of Credit, under all circumstances whatsoever. Borrower shall indemnify,
defend, protect, and hold Bank harmless from any loss, cost, expense or
liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit.
-2-
<PAGE> 40
(c) Borrower may request that Bank issue a
Letter of Credit payable in a currency other than United States Dollars.
If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as a Revolving Loan to Borrower of the
equivalent of the amount thereof (plus cable charges) in United States
currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the
country of which it is the currency.
(d) Upon the issuance of any letter of
credit payable in a currency other than United States Dollars, Bank
shall create a reserve under the Revolving Commitment for letters of
credit against fluctuations in currency exchange rates, in an amount
equal to ten percent (10%) of the face amount of such letter of credit.
The amount of such reserve may be amended by Bank from time to time to
account for fluctuations in the exchange rate. The availability of funds
under the Revolving Commitment shall be reduced by the amount of such
reserve for so long as such letter of credit remains outstanding.
2.1.4. Foreign Exchange Contract; Foreign Exchange
Settlements.
(a) Subject to the terms of this Agreement,
Borrower may enter into foreign exchange contracts (the "Exchange
Contracts") not to exceed an aggregate amount of $5,000,000.00 (the
"Contract Limit"), pursuant to which Bank shall sell to or purchase from
Borrower foreign currency on a spot or future basis. Borrower shall not
request any Exchange Contracts at any time it is out of compliance with
any of the provisions of this Agreement. All Exchange Contracts must
provide for delivery of settlement on or before the Revolving Maturity
Date. The amount available under the Revolving Commitment at any time
shall be reduced by the following amounts (the "Foreign Exchange
Reserve") on any given day (the "Determination Date"): (i) on all
outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed more than two business days after the Determination
Date, 10% of the gross amount of the Exchange Contracts; plus (ii) on
all outstanding Exchange Contracts on which delivery is to be effected
or settlement allowed within two business days after the Determination
Date, 100% of the gross amount of the Exchange Contracts.
(b) Bank may, in its discretion, terminate
the Exchange Contracts at any time (a) that an Event of Default occurs
or (b) that there is no sufficient availability under the Revolving
Commitment and Borrower does not have available funds in its bank
account to satisfy the Foreign Exchange Reserve. If Bank terminates the
Exchange Contracts, and without limitation of any applicable
indemnities, Borrower agrees to reimburse Bank for any and all fees,
costs and expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total
gross amount of all Exchange Contracts on which delivery is to be
effected and settlement allowed in any two business day period to be
more than $5,000,000.00 (the "Settlement Limit") nor shall Borrower
permit the total gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any
-3-
<PAGE> 41
one time, to exceed the Contract Limit. Notwithstanding the above,
however, the amount which may be settled in any two (2) business day
period may be increased above the Settlement Limit up to, but in no
event to exceed, the amount of the Contract Limit under either of the
following circumstances:
(i) if there is sufficient availability
under the Revolving Commitment in the amount of the Foreign Exchange
Reserve as of each Determination Date, provided that Bank in advance
shall reserve the full amount of the Foreign Exchange Reserve against
the Revolving Commitment; or
(ii) if there is insufficient availability
under the Revolving Commitment, as to settlements within any two (2)
business day period, provided that Bank, in its sole discretion, may:
(A) verify good funds overseas prior to crediting Borrower's deposit
account with Bank (in the case of Borrower's sale of foreign currency);
or (B) debit Borrower's deposit account with Bank prior to delivering
foreign currency overseas (in the case of Borrower's purchase of foreign
currency).
(d) In the case of Borrower's purchase of
foreign currency, Borrower in advance shall instruct Bank upon
settlement either to treat the settlement amount as an advance under the
Revolving Commitment, or to debit Borrower's account for the amount
settled.
(e) Borrower shall execute all standard form
applications and agreements of Bank in connection with the Exchange
Contracts and, without limiting any of the terms of such applications
and agreements, Borrower will pay all standard fees and charges of Bank
in connection with the Exchange Contracts.
(f) Without limiting any of the other terms
of this Agreement or any such standard form applications and agreement
of Bank, Borrower agrees to indemnify Bank and hold it harmless, from
and against any and all claims, debts, liabilities, demands,
obligations, actions, costs and expenses (including, without limitation,
attorneys' fees of counsel of Bank's choice), of every nature and
description which it may sustain or incur, based upon, arising out of,
or in any way relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated thereby.
2.1.5. June 1999 Equipment Loans.
(a) Subject to an upon the terms and conditions of
this Agreement, at any time from the date hereof through the date which
is twelve months from the date of that certain June 1999 Loan
Modification Agreement, between Bank and Borrower (the "June 1999
Equipment Availability Date"), but no more frequently than once during
each calendar month, Bank agrees to make advances (each and "Equipment
Loan") to Borrower in an aggregate amount not to exceed the June 1999
Equipment Commitment. Borrower shall deliver to Bank, at the time of
each June 1999 Equipment Loan request, an invoice for the equipment to
be financed
-4-
<PAGE> 42
by such June 1999 Equipment Loan. The June 1999 Equipment Loan shall be
used only to purchase or refinance Equipment purchased on or after 120
days prior to the date hereof and shall not exceed 100% of the invoice
amount of such equipment approved from time to time by Bank, including
sales taxes, freight, and installation expenses.
(b) Interest Rate. Except as set forth in Section
2.3(a), the outstanding principal amount of the June 1999 Equipment
Loans shall bear interest, on the average daily balance thereof, at a
per annum rate equal to 0.50 percentage points above the Prime Rate.
Accrued interest on each June 1999 Equipment Loan shall be payable
monthly on each Payment Date and on the date the final installment of
principal on the June 1999 Equipment Loans is due.
(c) Any June 1999 Equipment Loans that are
outstanding on the June 1999 Equipment Availability End Date will be
payable in 36 equal monthly installments of principal, on each Payment
Date, beginning on the Payment Date of following the June 1999 Equipment
Availability End Date and continuing until June 30, 2003, when all June
1999 Equipment Loans shall be immediately due and payable. June 1999
Equipment Loans, once repaid, may not be reborrowed.
(d) When Borrower desires to obtain a June 1999
Equipment Loan, Borrower shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no later than 3:00
p.m. Pacific time one Business Day before the day on which the June 1999
Equipment Loan is to be made. Such notice shall be substantially in the
form of Exhibit B. The notice shall be signed by a Responsible Officer
or its designee and include a copy of the invoice for the Equipment to
be financed.
(e) Section 2.2 of the Loan Agreement is amended and
restated in its entirety to read as follows:
2.2 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to Section 2.1.1, 2.1.3
and 2.1.4 of this Agreement, plus the amount of all outstanding Cash Management
Advances, is greater than the lesser of (i) the Revolving Commitment or (ii) the
Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2. Corresponding Amendments. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
3. No Defenses. Borrower agrees that it has no defenses against the
obligations to pay any amounts under the Obligations.
4. Continuing Validity. Borrower understands and agrees that in
modifying the existing Obligations, Bank is relying upon Borrower's
representations, warranties, and agreements, as set forth in the Existing Loan
Documents. Except as expressly modified pursuant to this Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Obligations pursuant to this
Agreement in no way shall obligate Bank to make any future modifications to the
Obligations.
-5-
<PAGE> 43
Nothing in this Agreement shall constitute a satisfaction of the Obligations. It
is the intention of Bank and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Bank in writing. The terms of this paragraph apply not only to this Agreement,
but also to all subsequent loan modification agreements.
5. Condition. The effectiveness of this Agreement is conditioned
upon (a) the execution and delivery hereof by both Bank and Borrower; and (b)
receipt by Bank from Borrower of a Facility Fee in the amount of $2,500.00 on
account of the June 1999 Equipment Commitment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER: BANK:
iMANAGE, INC. SILICON VALLEY BANK
By /s/ Mark Culhane By /s/ Chris Stedman
-------------------------------- --------------------------------------
Title: Chief Financial Officer Title: AVP
---------------------------- ----------------------------------
-6-
<PAGE> 44
This AUGUST 1999 LOAN MODIFICATION AGREEMENT, dated as of August 31,
1999 (this "Agreement"), is between iMANAGE, INC. (formerly known as NETRIGHT
TECHNOLOGIES, INC.), a Delaware corporation ("Borrower"), and SILICON VALLEY
BANK ("Bank").
Recitals
A. In addition to any other obligations which may be owing by Borrower
to Bank, Borrower is indebted to Bank pursuant to a Loan and Security Agreement,
dated as of March 31, 1999 (as may have been amended to the date hereof, the
"Loan Agreement"). The term "Obligations" and the other terms defined in the
Loan Agreement are used herein with the same meanings unless otherwise defined
herein.
B. Repayment of the Obligations is secured by the Collateral described
in the Loan Agreement and in an Intellectual Property Security Agreement. The
Loan Agreement, such Intellectual Property Security Agreement and all other
documents evidencing or securing the Obligations are called the "Existing Loan
Documents" herein.
The parties hereto hereby agree as follows:
1. Amendments.
(a) Section 6.10 of the Loan Agreement is amended and restated in
its entirety to read as follows:
6.10 Profitability. Borrower shall be profitable
(profitability to be determined in accordance with GAAP,
to be net of charges of software development costs and to
exclude any and all non-cash expenses associated directly
with the amortization of stock compensation to employees
of Borrower) for each fiscal quarter, except Borrower may
suffer a loss not to exceed $150,000.00 for one fiscal
quarter in any fiscal year, commencing with the fiscal
quarter ending March 31, 1999.
2. Waiver. Bank waives, on a one-time basis, any and all violations by
Borrower prior to the execution and delivery of this Amendment of the
profitability covenant contained in Section 6.10 of the Loan Agreement.
3. Corresponding Amendments. The Existing Loan Documents are hereby
amended wherever necessary to reflect the changes described above.
4. No Defenses. Borrower agrees that it has no defenses against the
obligations to pay any amounts under the Obligations.
5. Continuing Validity. Borrower understands and agrees that in
modifying the existing Obligations, Bank is relying upon Borrower's
representations, warranties, and agreements, as set forth in the Existing Loan
Documents. Except as expressly modified pursuant to this Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force
-1-
<PAGE> 45
and effect. Bank's agreement to modifications to the existing Obligations
pursuant to this Agreement in no way shall obligate Bank to make any future
modifications to the Obligations. Nothing in this Agreement shall constitute a
satisfaction of the Obligations. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. The terms of this
paragraph apply not only to this Agreement, but also to all subsequent loan
modification agreements.
6. Condition. The effectiveness of this Agreement is conditioned upon
(a) the execution and delivery hereof by both Bank and Borrower; and (b) receipt
by Bank from Borrower of an Amendment Fee in the amount of $500.00.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
BORROWER: BANK:
iMANAGE, INC. SILICON VALLEY BANK
By /s/ Mark Culhane By /s/ Chris Stedman
-------------------------------- --------------------------------
Title: CFO Title: AVP
---------------------------- -----------------------------
-2-
<PAGE> 1
EXHIBIT 10.5
2121 S. EL CAMINO REAL
OFFICE LEASE
between
CORNERSTONE PROPERTIES I, LLC,
as Landlord
and
NetRight Technologies, Inc.
A Delaware Corporation
as Tenant
<PAGE> 2
TABLE OF CONTENTS
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Page
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1. Premises 1
2. Term 1
3. Rent; Additional Charges 1
4. Additional Charges for Expenses and Real Estate Taxes 2
5. Use 3
6. Construction of Premises; Building Changes 3
7. Alterations 4
8. Repairs and Maintenance 4
9. Liens 5
10. Compliance with Laws and Insurance Requirements 5
11. Protection of Lenders 5
12. Damage and Destruction 6
13. Eminent Domain 7
14. Assignment and Subletting 8
15. Utilities and Services 8
16. Default 9
17. Liability of Landlord; Indemnity by Tenant 10
18. Insurance 12
19. Access to Premises 12
20. Notices 12
21. Tenant's Certificate 13
22. Tax on Tenant's Personal Property 13
23. Security Deposit 13
24. Landlord's Option to Relocate Tenant 13
25. Guarantor 13
26. Surrender of Lease Premises 13
27. Miscellaneous 14/15
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EXHIBIT A Floor Plan
EXHIBIT A-1 Definition of Standard Building Improvements
EXHIBIT B Definitions of Real Estate Taxes, Building Expenses and
Common Area Expenses
EXHIBIT C Rules and Regulations
EXHIBIT D Option to Extend
i.
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2121 S. EL CAMINO REAL OFFICE LEASE
BASIC LEASE INFORMATION SUMMARY
("Summary")
Lease Date: November 30, 1998
Building Address: 2121 South El Camino Real, Suite 400,
San Mateo, CA 94403
Landlord: CORNERSTONE PROPERTIES I, LLC
Address of Landlord: 1720 So. Amphlett Blvd., Suite 110
San Mateo, CA 94402
Tenant: NETRIGHT TECHNOLOGIES, INC.
A California Corporation
Rentable Area of Premises (Article 1): 11,516 Rentable Square Feet (RSF)
Term (Article 2): Three Years (36) Months
January 01, 1999 - December 31, 2001
Target Commencement Date: The target commencement date shall be
the later of (a) January 01, 1999; or
(b) the substantial completion of
tenant improvements. Substantial
completion is defined in Paragraph 2.
Monthly Base Rent (Article 3):
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6,841 Square Feet Commencement - August 31, 1999 $2.75/rsf $18,813.00/month
11,516 Square Feet September 1, 1999 - December 31, 1999 $2.75/rsf $31,669.00/month
January 1, 2000 - December 31, 2000 $3.00/rsf $34,548.00/month
January 1, 2001 - December 31, 2001 $3.10/rsf $35,700.00/month
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Security Deposit (Article 23): $35,700.00
The first months rent of $18,813.00 and the security deposit of $35,700.00 for a
total of $54,513.00 are due upon Lease execution.
Tenant's Common Area Expense Share (Article 4):
6.19% (11,516 square feet /186,000 square feet)
Base Year (Article 4): 1999
Use (Article 5): General Office and other related uses.
Tenant's Minimum General Liability
Insurance (Article 16): $1,000,000.00 per occurrence
$500,000.00 per person, per occurrence
$100,000.00 property damage
Tenant Improvements:
Costs paid by Landlord: Standard tenant improvement upgrades as
described on Exhibit A-1.
Costs paid by Tenant: All costs associated with data/phone
cabling and supplemental HVAC in the
server room.
Option to Extend: Tenant shall have Two (2), One (1) year options to extend the
Lease upon no less than six (6) months written notice to Landlord. The rental
rate shall be the then current market rate as calculated on Exhibit D.
ii.
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Stock: Landlord shall receive One Hundred Thousand (100,000) shares of Series C
stock at a price per share of Two Dollars and Ten Cents ($2.10) for a total
value of Two Hundred Ten Thousand Dollars ($210,000.00). Tenant shall exchange
the One Hundred Thousand (100,000) shares of Series C stock for a Two Hundred
Ten Thousand Dollar ($210,000.00) credit against its obligation to pay Monthly
Base Rent (as under this Lease) which credit shall be applicable against
Tenant's rental obligation on a chronological basis beginning with the first
month's Base Rent.
Each reference in the Lease to the Summary shall mean the respective
information set forth above and shall be deemed to incorporate all of the terms
provided under the particular Lease paragraph pertaining to such information. To
the extent there is any conflict between the provisions hereof and any more
specific provision of this Lease, such more specific provision shall control.
iii.
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2121 South El Camino Real
OFFICE LEASE
THIS LEASE is entered as of November 30, 1998 by and between
CORNERSTONE PROPERTIES I, LLC ("Landlord"), and NETRIGHT TECHNOLOGIES, INC.
("Tenant").
Landlord and Tenant hereby agree as follows:
1. PREMISES.
Subject to the contents of this Lease, Landlord hereby leases to
Tenant and Tenant hereby leases from Landlord the premises described in the
Basic Lease Information Summary (the "Summary") (the "Premises") in the building
described in the Summary (the "Building"), as shown on the floor plan (s)
attached as Exhibit A to this Lease. The Building is part of an office complex
consisting of 2121 South El Camino Real (the "Complex"). All measurements of
area contained in this Lease are conclusively agreed to be correct and binding
upon the parties, even if a subsequent measurement of any one of these areas
determines that it is more or less than the amount of area reflected in the
Lease. Any such subsequent determination that the area is more or less than
shown in this Lease shall not result in a change in any of the computations of
rent, improvement allowances or other matters described in this Lease where area
is a factor.
2. TERM.
The term of this lease (the "Term") is thirty-six months and
commences on the later of (a) January 01, 1999 in the condition required
hereunder; or (b) the "substantial completion" of tenant improvements in
accordance with Exhibit A as extended hereunder. The dates on which the Term
commences and terminates pursuant to this Article 2 are herein called the
"Commencement Date and the "Expiration Date," respectively. If, for any reason,
Landlord cannot deliver possession of the Premises to Tenant on or prior to the
Commencement Date, this Lease shall not be void or voidable nor shall Landlord
be liable to Tenant for any loss or damage resulting therefrom. In such case,
Tenant shall not pay any rent and the Commencement Date shall not occur until
such date as Landlord can deliver the Premises, provided, however that if
Landlord's failure to deliver the Premises is attributable to any action or
inaction by Tenant, then the Commencement Date shall not be advanced to the date
on which possession of the Premises is delivered to Tenant and Landlord shall be
entitled to full performance by Tenant (including payment of rent) from the date
the Premises would have been ready for delivery to Tenant but for Tenant's
action or inaction, provided Landlord shall deliver possession of the Premises
no later than February 01, 1999, or Tenant shall have the right to terminate
this Lease upon written notice to Landlord, and the Commencement Date shall be
delayed the same number of days such delivery of possession by Landlord is
delayed. "Substantial Completion" means the date the tenant improvements are
substantially completed in accordance to Exhibit "A".
3. RENT, ADDITIONAL CHARGES.
3.1 BASE RENT. Tenant will pay to Landlord during the Term the
monthly Base Rent set forth in the Summary (the "Base Rent") in consecutive
monthly installments on or before the first day of each calendar month, in
advance, at the address specified for Landlord in the Summary, or such other
place as Landlord may designate in writing, without any prior demand and without
any deductions or setoff. Upon execution of this Lease, Tenant shall pay to
Landlord the first month's Base Rent. If the Commencement Date occurs on a day
other than the first day of a calendar month, or the Expiration Date occurs on a
day other than the last day of a calendar month, then the rental for such
fractional month will be prorated based on a thirty (30) day month.
3.2 ADDITIONAL CHARGES. Tenant shall pay to Landlord all charges and
other amounts required to be paid by Tenant under this Lease (herein called
"Additional Charges") as additional rent at the place where the Base Rent is
payable. Landlord will have the same remedies for a default in the payment of
any Additional Charges as for a default in the payment of Base Rent. (Base Rent
and Additional Charges are sometimes collectively referred to herein as "rent.")
3.3 LATE CHARGE. If Tenant fails to pay any Base Rent or additional
Charges within five (5) business days after written notice, such unpaid amounts
will be subject to a late payment charge equal to five percent (5%) of the
unpaid amounts in each instance. The late payment charge has been agreed upon by
Landlord and Tenant, after negotiation, as a reasonable estimate of the
additional administrative costs and detriment that will be incurred by Landlord
as a result of any such failure by Tenant, the actual costs thereof being
extremely difficult if not impossible to determine. The late payment charge
constitutes liquidated damages to compensate Landlord for its damages resulting
from such failure to pay and shall be paid to Landlord together with such unpaid
amounts.
1.
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2121 South El Camino Real
4. ADDITIONAL CHARGES FOR EXPENSES AND REAL ESTATE TAXES.
4.1 DEFINITION OF EXPENSES. For purposes of this Article 4, the
following terms shall have the meanings set forth in this Section 4.1. "Tenant's
Building Percentage Share", "Tenant's Common Area Expense percentage Share" and
"Base Year" shall be as set forth in the Summary. Landlord may adjust these
percentages as a result of any change in the rentable area of the Premises or
the total rentable area of the Building or the other building in the Complex.
"Computation Year" means each calendar year during the Term, including any
partial calendar year in which the Term may commence or terminate. "Real Estate
Taxes", "Building Expenses", "Insurance Expenses" and "Common Area Expenses" are
defined in Exhibit B to this Lease.
Exclusions from Definition of "Expenses", including Real Estate Taxes, Building
Expenses, Insurance Expenses and Common Area Expenses (collectively "Expenses")
as defined in Exhibit B to this Lease.
The term "Expenses" shall not include the following:
(a) Costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements made for Lessee or
present or prospective lessees of the Building;
(b) The cost of any service provided to Tenant which is provided to
other tenants of the Building or the Project in quantities which are materially
in excess of that which would represent a fair proportion of such services based
upon Tenant Proportionate Share, but the costs so excluded shall be limited to
that amount which is in excess of the fair proportion of such services provided
to Tenant.
(c) Interest, principal, points and fees on debts or amortization on
any mortgage or mortgages or any other debt instrument encumbering the Project
or any portion of the Project.
(d) Landlord's general corporate overhead and general and
administrative expenses not related to the Building or Project.
(e) Costs incurred in connection with the original acquisition of the
property upon which the Project is located and the original construction of the
Project.
(f) Legal fees, brokerage commissions, advertising costs, or other
related expenses incurred in connection with the leasing of the Building or the
Project or associated with disputes with tenants or other occupants of the
Building or the Project or with the enforcement of any lease or defense of
Landlord's title to or interest in the Building or the Project or any part
thereof.
(g) Any improvements, alterations or expenditures of a capital nature,
unless the costs are amortized in accordance with generally accepted accounting
principles with interest over the useful life of the improvement, alteration or
expenditure, and that only portion of the costs so amortized, with interest,
which is allocated to the period of the term of this Lease shall be included as
an Operating Expense during each calendar year of the term of this Lease.
(h) The cost of damage and repairs necessitated by the negligence or
willful misconduct of Landlord or of Landlord's agents, employees, contractors
or invitees.
(i) Executive salaries or salaries of service personnel to the extent
that such executives or service personnel perform services other than in
connection with the management, operation, repair or maintenance of the Building
or Project.
(j) Advertising or promotional expenditures and other costs (including
permit, license and inspections fees) related to or incurred in renovating or
otherwise improving, decorating, painting or altering vacant space in the
Building or the Project.
(k) The cost of any service provided to Tenant or other occupants of
the Building for which Landlord receives reimbursement.
(l) The cost of any service provided to any other tenant of the
Building or the Project which is not also provided to Tenant.
(m) Any cost or expense incurred by reason of the remediation or
clean-up of any contamination of the Building or Project, or the soils or ground
water underlying the Building or the Project, by hazardous materials or toxic
substances, except to the extent such contamination results from Tenant's
activities within the Premises.
2.
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2121 South El Camino Real
4.2 PAYMENT OF CHARGES. From the first day of the thirteenth month
of the Term through the Expiration Date, Tenant shall pay to Landlord as
Additional Charges (i) Tenant's Building Share of the total dollar increase, if
any, in Building Expenses attributable to each Computation Year over Building
Expenses for the Base Year, (ii) Tenant's Building Share of the total dollar
increase, if any, in Real Estate Taxes attributable to each Computation Year
over Real Estate Taxes for the Base Year, (iii) Tenant's Building Share of the
total dollar increase, if any, in Insurance Expenses attributable to each
Computation Year over Insurance Expenses for the Base Year and (iv) Tenant's
Common Area Expense Share of the total dollar increase, if any, in Common Area
Expenses attributable to each Computation Year over Common Area Expenses for the
Base Year. During the last month of each Computation Year or as soon thereafter
as practicable, Landlord shall give to Tenant notice of Landlord's estimate of
the amounts payable by Tenant for the following Computation Year. On or before
the first day of each month during the following Computation Year, Tenant shall
pay to Landlord one- twelfth (1/12th) of the estimated amounts, provided that
until Landlord gives such notice, Tenant shall continue to pay on the basis of
the prior year's estimate until the first day of the calendar month after
Landlord gives such notice. If at any time or times Landlord determines that the
amounts payable by Tenant for the current Computation Year will vary from its
estimate given to Tenant , Landlord, by notice to Tenant, may revise its
estimate for the Computation Year, and subsequent payments for the Computation
year shall be based upon the revised estimate. Following the end of each
Computation Year, Landlord shall deliver to Tenant a statement of amounts
payable for the Computation Year. If the statement shows an amount owing by
Tenant that is less than the payments for such Computation Year previously made
by Tenant, and if no Event of Default is outstanding, Landlord shall credit the
amount to the next payments of rent due. If the statement shows an amount owing
by Tenant that is more than the estimated payments for the Computation Year
previously made by Tenant, Tenant shall pay the deficiency to Landlord within
thirty (30) days after delivery of such statement. The respective obligations of
Landlord and Tenant under this Section 4.2 shall survive the Expiration Date. If
the Commencement Date is a day other than the first day of a Computation Year or
the Expiration Date is a day other than the last day of a Computation Year, the
adjustment in rent pursuant to this Section 4.2 for such Computation Year shall
be prorated based on a 365-day year. Landlord shall deliver copies of invoices
and records for the computation year to Tenant supporting Landlord's estimates.
5. USE.
5.1 LIMITATIONS. Tenant shall use the Premises solely for the use or
uses specified in the Summary and for no other use or purpose. Tenant shall take
no action, nor permit any action to be taken, in or about the Premises that will
in any way increase the existing rate of or affect any fire or other insurance
upon the Building or any of its contents, or cause cancellation of any insurance
policy covering all or any part of the Building or any of its contents, or which
will in any way injure or interfere with the rights of other tenants or
occupants of the Building, nor shall Tenant use or allow the Premises to be used
for unlawful or objectionable purpose, nor cause, maintain or permit any
nuisance in, on or about the Premises, nor commit nor suffer to be committed any
waste in, on or upon the Premises. Tenant shall not use or operate any
equipment, machinery or apparatus within the Premises which will injure, vibrate
or shake the Premises or the Building, overload existing electrical systems or
other utilities or equipment servicing the Premises or Building, or impair the
efficient operation of the sprinkler system (if any) or the heating, ventilating
and air conditioning equipment within or servicing the Premises or the Building.
Tenant shall not cause or permit any Hazardous Materials to be brought upon,
stored, used, generated or released or disposed of on, under, from or about the
Premises, Building or Complex (including, without limitation, the soil and
groundwater thereunder) without the prior written consent of Landlord except for
office and janitorial supplies used in compliance with the laws.
5.2 COMMON AREA. Tenant shall have a non-exclusive right to use the
Common Area, provided, however, that Tenant's use of the Common Area shall be
subject to such rules and regulations as Landlord shall make from time to time.
As used in this Lease, the term "Common Area" shall mean the area and
improvements designated by Landlord from time to time as "Common Area" for the
use and enjoyment of tenants of the Complex. Landlord reserves the right, from
time to time provided the following does not unreasonably interfere with
Tenant's use of the Premises and access to the Premises, to: (i) utilize
portions of the Common Area for entertainment, displays, product shows, the
leasing of kiosks or such other uses as, in Landlord's judgment, tend to attract
the public, change the shape, size, location and extent of improvements on the
Common Area; (ii) eliminate or add any improvements; and (iii) temporarily close
any portion of the Common Areas for repairs, remodeling and/or alteration, to
prevent a public dedication or the accrual of prescriptive rights, or for any
other reason deemed sufficient by Landlord.
6. CONSTRUCTION OF PREMISES; BUILDING CHANGES.
Landlord shall construct the Premises and perform the work and make
the installations in the Premises substantially as set forth in Exhibit A to
this Lease (the "floor plan"). Landlord reserves the right, at any time and from
time to time, to make alterations, additions, repairs or improvements to or in
or to decrease the size or area of all or any part of the Building, the fixtures
and equipment therein and the areas outside the Building, and the Common Area,
and to change the arrangement and/or location of entrances or passageways,
doors, corridors, elevators, stairs,
3.
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2121 South El Camino Real
toilets and other public parts of the Building, provided that any such
alterations or additions shall not materially diminish the quality or quantity
of services being provided to the Premises or adversely affect the functional
utilization of the Premises, Tenants use of or access to the Premises.
7. ALTERATIONS.
7.1 TRADE FIXTURES. During the Term of this Lease, Tenant may
install Tenant's Trade Fixtures which may be removed without material injury to
the Premises on the Premises without the prior consent of Landlord. All Trade
Fixtures shall remain Tenant's property. "Trade Fixtures" shall not include the
initial Tenant Improvements described in Exhibit A-1 nor any improvements
thereafter made to the Premises by Landlord at any time with Landlord's Funds.
7.2 CONSENT REQUIREMENT FOR ALTERATIONS. Tenant shall make no
alterations, additions or improvements (collectively, "Alterations") to the
Premises or any part thereof without obtaining the prior written consent of
Landlord, not to be unreasonably withheld. Landlord may impose as a condition to
such consent such requirements as Landlord may deem reasonably necessary,
without limitation: (i) that Landlord be furnished with working drawings before
work commences; (ii) that performance and labor and material payment bonds be
furnished; (iii) that Landlord approve the contractor by whom the work is to be
performed; (iv) that adequate course of construction insurance be in place and
the Landlord is named as an additional insured under the contractor's liability
and property damage policies; and (v) that Landlord's instructions relating to
the manner in which the work is to be done and the times during which it is to
be accomplished be complied with. All such alterations, additions or
improvements must be done in compliance with all applicable laws, in a good and
workmanlike manner and diligently prosecuted to completion. Tenant shall deliver
to Landlord upon commencement of such work, a copy of the building permit or
improvement plans with respect thereto. All such work shall be performed so as
not to obstruct the access to the Premises of any other tenant in the Building
or Complex. Should Tenant make any alterations without Landlord's prior written
consent, Landlord shall have the right, in addition to and without limitation of
any right or remedy Landlord may have under this Lease, at law or in equity, to
require the Tenant to remove all or some of the alterations at Tenant's sole
cost and restore the Premises to the same condition as existed prior to
undertaking the alterations. Tenant shall notify Landlord in writing at least
ten (10) days prior to the commencement of any such work in or about the
Premises and Landlord shall have the right at any time and from time to time to
post and maintain notices of nonresponsibility in or about the Premises. Not
withstanding the foregoing, Tenant shall have the right to make Tenant
Improvement's having a value up to Twenty Thousand Dollars ($20,000.00) upon ten
(10) days prior written notice to Landlord.
7.3 POSSESSION. All Tenant's Alterations (not including Trade
Fixtures) shall remain the property of Tenant during the Term but shall not be
altered or removed from the Premises. At the expiration or sooner termination of
the Term, all Tenant's Alterations shall be surrendered to Landlord and shall
then become Landlord's property, and Landlord shall have no obligation to
reimburse Tenant for all or any portion of the value or cost thereof; provided,
however, that if Landlord requires Tenant to remove any Tenant's Alterations,
which removal requirement Landlord shall notify Tenant of at the time Tenant
first requests Landlord's consent, Tenant shall so remove such Tenant's
Alterations, and Tenant shall restore the Premises to the condition which
existed prior to the installation of such Tenant's Alterations, prior to the
expiration or sooner termination of the Term.
8. REPAIRS AND MAINTENANCE.
8.1 TENANT'S OBLIGATIONS. By occupying the Premises, Tenant accepts
the Premises as being in the condition in which Landlord is obligated to deliver
the Premises under the terms of this Lease. Tenant shall at the end of the Term
surrender the Premises to Landlord in substantially the same condition as when
received, except for ordinary wear and tear and Alterations. Landlord has no
obligation and has made no promise to alter, remodel, improve, repair, decorate
or paint the interior all or any part of the Premises, the Building or the
Common Area except as specifically set forth in the Work Letter. Notwithstanding
the foregoing, Tenant shall have no obligation to make any structural or capital
improvements, repairs or replacements to any portion of the Premises.
8.2 LANDLORD'S OBLIGATIONS. Landlord shall repair, replace and
maintain the structural portions of the Building, the Building systems and the
Common Area. If the necessity for such maintenance and repairs is in any way
caused by the act, neglect, fault, or omission of Tenant, its agents, servants,
employees or invitees, Tenant shall pay promptly to Landlord the reasonable cost
of such maintenance and repairs. Landlord shall not be liable for any failure to
make any such repairs or to perform any such maintenance unless Landlord
receives notice of the need for such repairs or maintenance from Tenant and
fails to make such repairs or perform such maintenance for a reasonable period
of time following such notice by Tenant. Rent shall not abate nor shall Landlord
be liable as a result of any injury to or interference with Tenant's business
arising from the making of any repairs, or the performance of any maintenance,
in or to any portion of the Building, the Premises or the Common Area, excepting
the negligence or willful misconduct of Landlord, Agents, servants, employees,
licensees or contractors.
4.
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2121 South El Camino Real
9. LIENS.
Tenant shall keep the Premises and the Building free from any liens
arising out of any work performed, material furnished or obligations incurred by
or for Tenant. In the event that Tenant shall not, within ten (10) days
following the imposition of any such lien, cause the lien 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 same to be released by such means as it shall deem proper,
including payment of the claim giving rise to such lien. All such sums paid by
Landlord and all expenses incurred by it in connection therewith (including
without limitation reasonable counsel fees) shall be payable to Landlord by
Tenant upon demand. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law or that Landlord
shall deem proper for the protection of Landlord, the Premises, and the
Building, from mechanics' and material men's liens. Tenant shall give to
Landlord at least ten (10) business days' prior written notice of commencement
of any repair or construction on the Premises.
10. COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS.
Tenant, at Tenant's cost and expense, and irrespective of the cost
of compliance, shall comply with all laws, orders and regulations of federal,
state, county and municipal authorities relating to the Premises or the use
thereof, and with all rules, orders, regulations or requirements of the American
Insurance Association (formerly the National Board of Fire Underwriters) and
with any similar body that shall hereafter perform the function of such
Association, except that Tenant shall not be required to make any structural
Alterations in order to comply unless such Alterations shall be necessitated by
Tenant's Alterations or Trade Fixtures, by Tenant's particular use of the
Premises, by Tenant's application for any permit or governmental approval,
and/or by the acts, omissions or negligence of Tenant or its servants,
employees, contractors, agents, visitors or licensees.
11. PROTECTION OF LENDERS.
11.1 SUBORDINATION. Without the necessity of any additional
document, this Lease shall be the subject and subordinate at all times to: (a)
all reciprocal easement agreements and all ground leases or underlying leases
which may now exist or hereafter be executed affecting the Building, the land on
which the Building is located or the Common Area, or any of the foregoing, and
(b) the lien of any mortgage or deed of trust which may now exist or hereafter
be executed in any amount for which the Building, land on which the Building is
located, ground leases or underlying leases, or Landlord's interest or estate in
any of said items, is specified as security. Notwithstanding the foregoing,
Landlord shall have the right to subordinate or cause to be subordinated to this
Lease any of the items referred to in clause (a) or (b) above. Tenant shall
execute and deliver, upon demand by Landlord and in the form requested by
Landlord, any additional documents evidencing the priority or subordination of
this Lease with respect to any such ground leases, underlying leases, reciprocal
easement agreements or similar documents or instruments, or with respect to the
lien of any such mortgage or deed of trust and containing such matters as
lenders customarily and reasonably require in connection with such agreements,
including, provisions that the lender will not be liable for: (i) the return of
any security deposit unless the lender receives it from Landlord and (ii) any
defaults on the part of Landlord occurring prior to the time lender takes
possession. Tenant's failure to execute any such document within ten (10) days
after written demand therefor shall constitute an event of Tenant's default by
Tenant under this Lease.
11.2 ATTORNMENT. If Landlord's interest in the Property is acquired
by any ground Landlord, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interests.
Notwithstanding the foregoing, as a condition precedent to Tenant's agreement to
be bound by Section 11.2 of this Lease, Landlord shall provide Tenant with
commercially reasonable non-disturbance agreements in favor of Tenant from any
ground lessors, mortgage holders or lien holders then in existence. Said
non-disturbance agreements shall be in recordable form and may be recorded at
Tenant's election and expense. In the event Landlord fails to provide such
commercially reasonable non-disturbance agreements within thirty (30) days after
the mutual execution of any subordination agreement affecting this Lease, Tenant
shall have the right, exercisable at any time thereafter to give ten (10)
business days' written notice to Landlord terminating this Lease. In the event
Landlord does not provide Tenant with the applicable non-disturbance agreements
within such ten (10) day period, the Lease shall terminate and Landlord shall
reimburse Tenant a proportionate share of all of Tenant's out-of-pocket costs
incurred in connection with the design and construction of any tenant
improvements and Tenant's reasonable legal fees incurred in connection with the
review and negotiation of this Lease. Upon such termination, neither party shall
have any further liability thereunder to the other. Landlord shall also provide
Tenant with commercially reasonable
5.
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2121 South El Camino Real
non-disturbance agreement(s) in favor of Tenant from any ground lessors,
mortgage holders or lien holders of Landlord who later come into existence at
any time prior to the expiration of the term of this Lease.
11.3 NON-DISTURBANCE. As long as Tenant is not in material default
of this Lease, after applicable notices and cure period, Tenant shall be
entitled to continue its occupancy and use of the premises pursuant to the terms
and provisions of this Lease and any transferee of the Premises shall take
subject to the Lease.
12. DAMAGE AND DESTRUCTION.
12.1 DEFINITION OF TERMS. For the purposes of this Lease, the term:
(a) "Insured Casualty" means damage to or destruction of the Premises from a
cause actually insured against, for which the insurance proceeds paid or made
available to Landlord are sufficient to rebuild or restore the Premises under
then-existing building codes to the condition existing immediately prior to the
damage or destruction; and (b) "Uninsured Casualty" means damage to or
destruction of the Premises from a cause not actually insured against, or from a
cause actually insured against but for which the insurance proceeds paid or made
available to Landlord are for any reason insufficient to rebuild or restore the
Premises under then-existing building codes to the condition existing
immediately prior to the damage or destruction, or from a cause actually insured
against but for which the insurance proceeds are not paid or made available to
Landlord within twelve (12) months of the event of damage or destruction.
12.2 INSURED CASUALTY.
(a) In the event of an Insured Casualty where the extent of
damage or destruction is less than twenty-five percent (25%) of the then full
replacement cost of the Premises or the Building, Landlord shall rebuild or
restore the Premises or the Building substantially to the condition existing
immediately prior to the damage or destruction, provided that there exist no
governmental codes or regulations that would interfere with Landlord's ability
to so rebuild or restore.
(b) In the event of an Insured Casualty where the extent of
damage or destruction is equal to or greater than twenty-five percent (25%) of
the then full replacement cost of the Premises or the Building, Landlord may
rebuild or restore the Premises or the Building substantially to the condition
existing immediately prior to the damage or destruction, or terminate this
Lease. Landlord shall notify Tenant in writing within thirty (30) days from the
event of damage or destruction of Landlord's election to either rebuild or
restore the Premises or terminate this Lease.
12.3 UNINSURED CASUALTY. In the event of an Uninsured Casualty,
Landlord may (i) rebuild or restore the Premises as soon as reasonably possible
at Landlord's expense (unless the damage or destruction was caused by a
negligent or willful act of Tenant, in which event Tenant shall pay all costs of
rebuilding or restoring), in which event this Lease shall continue in full force
and effect or (ii) terminate this Lease, in which event Landlord shall give
written notice to Tenant within thirty (30) days after the event of damage or
destruction of Landlord's election to terminate this Lease as of the date of the
event of damage or destruction, and if the damage or destruction was caused by a
negligent or willful act of Tenant, Tenant shall be liable therefor to Landlord.
Notwithstanding the foregoing, Landlord shall have no right to terminate this
Lease with respect to an Uninsured Casualty if the cost of rebuilding or
restoring the damage caused thereby is equal to or less than Two Hundred Fifty
Thousand Dollars ($250,000).
12.4 TENANT'S ELECTION. Notwithstanding anything to the contrary
contained in this Article 12, Tenant may elect to terminate this Lease in the
event the Premises are damaged or destroyed and, in the reasonable opinion of
Landlord's architect or construction consultants, the restoration of the
Premises cannot be substantially completed within ninety (90) days after the
event of damage or destruction. Tenant's election shall be made by written
notice to Landlord within ten (10) days after Tenant receives from Landlord the
estimate of the time needed to complete repair or restoration of the Premises.
If Tenant does not deliver said notice within said ten (10) day period, Tenant
may not later terminate this Lease even if substantial completion of the
rebuilding or restoration occurs subsequent to said ninety (90) day period,
provided that Landlord is proceeding with diligence to rebuild or restore the
Premises. If Tenant delivers said notice within said ten (10) day period, this
Lease shall terminate as of the date of the event of damage or destruction.
12.5 CONTINUANCE OF LEASE. If Landlord is required or elects to
rebuild or restore the Premises pursuant to this Article 12, this Lease shall
remain in effect and Tenant shall have no claim against Landlord for
compensation for inconvenience or loss business during any period of repair or
restoration.
12.6 DAMAGE OR DESTRUCTION NEAR END OF LEASE TERM. Notwithstanding
anything to the contrary contained in this Article 12, in the event the Premises
are damaged or destroyed in whole in part (regardless of the extent of damage)
from any cause during the last twelve (12) months of the Lease Term, Landlord or
Tenant may, terminate this Lease as of the date of the event of damage or
destruction by giving written notice to the other party of Landlord's election
to do so within thirty (30) days after the event of such damage or destruction.
For purposes of this
6.
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2121 South El Camino Real
Section 12.6, if Tenant has been granted an option to extend or renew the Lease
Term pursuant to another provision of this Lease, then the damage or destruction
shall be deemed to have occurred during the last twelve (12) months of the Lease
Term if Tenant fails to exercise its option to extend or renew within twenty
(20) days of the event of damage or destruction.
12.7 TERMINATION OF LEASE. If the Lease is terminated pursuant to
this Article 12, the current Rentals shall be proportionately reduced during the
period following the event of damage or destruction until the date on which
Tenant surrenders the Premises, based upon the extent to which the damage or
destruction interferes with Tenant's business conducted in the Premises, as
reasonably determined by Landlord, to the extent such loss is covered as an
insured peril by the insurance carried by Landlord, and to the extent the
resulting loss of income is covered by rental income or other insurance carried
by Landlord.
12.8 ABATEMENT OF RENTALS. If the Premises are to be rebuilt or
restored pursuant to this Article 12, the then current Rentals shall be
proportionately reduced during the period of repair or restoration, based upon
the extent to which the making of repairs interferes with Tenant's business
conducted in the Premises, as reasonably determined by Landlord. In the event
Tenant reasonably disputes Landlord's determination regarding Rentals in Section
12.7 above and/or in the preceding sentence, then Tenant shall, within thirty
(30) days following written notice to Tenant of such determination by Landlord,
have the right to send Landlord written notice objecting to such determination
and requesting that Landlord and Tenant determine by arbitration the extent to
which Rentals should be proportionately reduced during the period described in
Section 12.7 above or the period of repair or restoration, which arbitration
shall be carried out pursuant to the rules and procedures of the American
Arbitration Association. All costs and expenses of any such arbitration shall be
shared equally by Landlord and Tenant. The determination of any such arbitration
shall be binding upon Landlord and Tenant.
12.9 LIABILITY FOR PERSONAL PROPERTY. In no event shall Landlord
have any liability for, nor shall it be required to repair or restore, any
injury or damage to any improvements, alterations or additions to the Premises
made by Tenant, trade fixtures, equipment, merchandise, furniture, or any other
property installed by Tenant or at the expense of Tenant. If Landlord or Tenant
do not elect to terminate this Lease pursuant to this Article 12, Tenant shall
be obligated to promptly rebuild or restore the same to the condition existing
immediately prior to the damage or destruction.
12.10 WAIVER OF CIVIL CODE REMEDIES. Landlord and Tenant
acknowledge that the rights and obligations of the parties upon damage or
destruction of the Premises are as set forth herein; therefore Tenant hereby
expressly waives any rights to terminate this Lease upon damage or destruction
of the Premises, except as specifically provided by this Lease, including
without limitation any rights pursuant to the provisions of Subdivision 2 of
Section 1932 and Subdivision 4 of Section 1933 of the California Civil Code, as
amended from time to time, and the provisions of any similar law hereinafter
enacted, which provisions relate to the termination of the hiring of a thing
upon its substantial damage or destruction.
13. EMINENT DOMAIN.
If all or any part of the Premises shall be taken as a result of
the exercise of the power of eminent domain or any transfer in lieu thereof,
this Lease shall terminate as to the part so taken as of the date of taking,
and, in the case of a partial taking, either Landlord or Tenant shall have the
right to terminate this Lease as to the balance of the Premises by written
notice to the other within thirty (30) days after such date; provided, however,
a condition to Tenant's right to terminate shall be that Tenant's use of the
balance of the Premises is substantially handicapped, impeded or impaired by the
taking. If any material part of the building consisting of seventy five percent
(75%) of rentable square feet shall be taken, Landlord shall have the right to
terminate this Lease by written notice to Tenant within thirty (30) days of the
date of taking. In the event of any taking, Landlord shall be entitled to any
and all compensation, damages, income, rent, awards, or any interest therein
whatsoever which may be paid or made in connection therewith, and Tenant shall
have no claim against the Landlord for the value of any unexpired term of this
Lease or otherwise; provided, Landlord shall have no claim to any portion of the
award that is specifically allocable to Tenant's relocation expenses or the
interruption of or damage to Tenant's business. In the event of a partial taking
of the Premises which does not result in a termination of this Lease, the Base
Rent and Additional Charges thereafter to be paid shall be equitably reduced.
14. ASSIGNMENT AND SUBLETTING.
14.1 IN GENERAL. Tenant shall not directly or indirectly,
voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise
transfer or hypothecate its interest in or rights with respect to the Premises
or Tenant's leasehold estate hereunder (collectively, "Assignment"), or permit
all or any portion of the Premises to be occupied by anyone by other than Tenant
or sublet all or any portion of the Premises or transfer a portion of its
interest
7.
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2121 South El Camino Real
in or rights with respect to Tenant's leasehold estate hereunder (collectively,
"Sublease") without Landlord's prior consent in each instance not to be
reasonably withheld.
14.2 NOTICE TO LANDLORD. If Tenant desires at any time to enter in
an Assignment or a Sublease, Tenant shall first give notice to Landlord of its
desire to do so, which notice shall contain (a) the name and address of the
proposed assignee or subtenant, (b) the nature of the proposed assignee's or
subtenant's business to be carried on in the Premises, (c) the terms and
provisions of the proposed Assignment or Sublease. In addition thereto, Tenant
shall furnish to Landlord such financial information as Landlord may reasonably
request concerning the proposed assignee or subtenant.
14.3 LANDLORD'S OPTION. At any time within ten (10) days after
Landlord's receipt of the notice specified in Section 14.2, Landlord may by
notice to Tenant elect to (a) terminate this Lease as to the portion (including
all) of the Premises that is specified in Tenant's notice, with a proportionate
abatement in the Base Rent, (b) consent to the Sublease or Assignment, or (c)
disapprove the Sublease or Assignment; Landlord shall not unreasonably withhold
its consent to the Assignment or Sublease. Tenant shall pay as additional rent,
Landlord's reasonable attorneys' fees incurred in connection with the review of
any proposed Assignment or Sublease. Tenant agrees to pay Landlord fifty percent
(50%) of the amount by which all sums payable to Tenant in connection with such
Assignment or Sublease exceed the total of (a) Base Rent payable by Tenant to
Landlord hereunder, (b) reasonable leasing commission incurred by Tenant in
connection therewith, and (c) the cost of any Alterations reasonably incurred in
connection therewith, and (d) advertisement costs. If Landlord consents to the
Sublease or Assignment within such ten (10) day period, Tenant may thereafter
within sixty (60) days after Landlord's consent enter into such Assignment or
Sublease with such approved assignee or subtenant upon the terms and conditions
set forth in the notice furnished by Tenant to Landlord pursuant to Section
14.2. No Assignment or Sublease shall be binding on Landlord until Tenant
delivers an executed copy of such Assignment or Sublease to Landlord.
Notwithstanding Section 14.3 or any other provision to the contrary, in the
event Landlord exercises its recapture right under this Section 14.3, Tenant
shall have the right to rescind its notice for request to sublease, assign or
transfer within three (3) business days following receipt of Landlord's notice
of recapture.
14.4 NO RELEASE. No consent by Landlord to any Assignment or
Sublease by Tenant shall relieve Tenant of any obligation to be performed by
Tenant under this Lease, whether arising before or after the Assignment or
Sublease. The consent by Landlord to any Assignment or Sublease shall not
relieve Tenant from the obligation to obtain Landlord's express consent to any
other Assignment or Sublease. Any Assignment or Sublease that fails to comply
with this Article 14 shall be void and, at the option of Landlord, shall
constitute an Event of Default by Tenant under this Lease. The acceptance of
Base Rent or Additional Charges by Landlord from a proposed assignee or
subleasee shall not constitute consent to such Assignment or Sublease by
Landlord.
14.5 AFFILIATES. Occupancy of all or part of the Premises by a
parent, subsidiary or affiliated companies of Tenant or Tenant's parent or
Tenant's subsidiary shall not be deemed an assignment or subletting provided
that such parent, subsidiary or affiliated companies were not formed as a
subterfuge to avoid the obligation of this Article 14.
15. UTILITIES AND SERVICES.
15.1 LANDLORD'S OBLIGATIONS. Landlord agrees to furnish to the
Premises, subject to the rules and regulations of the Building, (a) at all
times, electricity for normal lighting and fractional horsepower office machines
in an amount not to exceed .025 KWH per square foot per normal business day,
nonattended freight and passenger elevator service, and water for lavatory and
drinking purposes, and (b) from 8:00 a.m. to 6:00 p.m. Monday through Friday,
except for generally recognized business holidays in San Mateo, California, heat
and air-conditioning required in Landlord's judgment for the comfortable use and
occupation of the Premises. Landlord may reduce elevator service on evenings,
weekends and holidays. Landlord shall provide sufficient janitorial service for
general office use, as reasonably determined by Landlord. Landlord shall not be
liable for, and Tenant shall not be entitled to, any reduction of Base Rent by
reason of (x) the installation, use of or interruption of use of any equipment
in connection with the furnishing of any of the foregoing services (y) the
failure to furnish or delay in furnishing any of the foregoing services when
such failure is caused by accident, breakage, repairs, strikes, lockouts or
other labor disturbances or labor disputes of any character, or by any other
cause, similar or dissimilar, beyond the reasonable control of Landlord or by
the making of any repairs or improvements to the Premises or to the Building or
any portion of either, or (z) the limitation, curtailment, rationing or
restrictions on use of water, electricity, gas or any other utility servicing
the Premises or the Building by any utility or governmental agency. If Tenant
requests additional or after-hours heating or air conditioning, Landlord shall
provide such service provided that Tenant pays Landlord's reasonable charge for
such services. Tenant further agrees to cooperate fully at all times with
Landlord and to abide by all regulations and requirements which Landlord may
prescribe (including, without limitation, maintaining all window coverings in
the Premises closed whenever the system is in operation) for the proper function
and control of the air conditioning system.
8.
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2121 South El Camino Real
15.2 RESTRICTIONS. Tenant shall not use any apparatus or device in
the Premises using in excess of 120 volts, that will in any way increase the
amount of electricity usually furnished or supplied for the use of the Premises
as general office space; nor connect with electric current, except through
existing electrical outlets in the Premises, any apparatus or device, for the
purpose of using electric current. If the Tenant shall require water or electric
current in excess of the amount usually furnished or supplied for the use of the
Premises as general office space, Tenant shall first procure the prior
reasonable consent of Landlord to the use of such excess water or electric
current, which consent Landlord may refuse in its sole discretion. Landlord may
condition its consent upon Tenant's agreement to reimburse Landlord monthly for
the excess cost thereof, based upon an estimate agreed upon by Landlord and
Tenant, or, if the parties fail to agree, as established by an independent
licensed engineer.
16. DEFAULT.
16.1 EVENTS OF TENANT'S DEFAULT. Tenant shall be in default of its
obligations under this Lease if any of the following events occurs (an "Event of
Tenant's Default"):
(a) Tenant shall have failed to pay Base Rent or Additional
Charges when due, and such failure is not cured within five (5) days after
delivery of written notice from Landlord specifying such failure to pay; or
(b) Tenant shall have failed to perform any term, covenant,
or condition of this Lease except those requiring the payment of Base Rent or
Additional Charges, and Tenant shall have failed to cure such breach within
thirty (30) days after written notice from Landlord specifying the nature of
such breach where such breach could reasonably be cured within said thirty (30)
day period, or if such breach could not be reasonably cured within said thirty
(30) day period, Tenant shall have failed to commence such cure within said
thirty (30) day period and thereafter continue with due diligence to prosecute
such cure to completion within such time period as is reasonably needed.
(c) Tenant shall have sublet the Premises or assigned its
interest in the Lease in violation of the provisions contained in Section 14; or
(d) Tenant shall have abandoned the Premises or left the
Premises substantially vacant for thirty (30) consecutive days; or
(e) The occurrence of the following: (i) the making by
Tenant of any general arrangements or assignments for the benefit of creditors;
(ii) Tenant becomes a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Tenant, the same is dismissed within 60 days); (iii) 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 thirty (30) days; or (iv) 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 thirty (30) days; provided, however, in the
event that any provision of this Section 16.1 (e) is contrary to any applicable
Law, such provision shall be of no force or effect; or
(f) Tenant shall have failed to deliver documents required
of Tenant pursuant to Section 11 or 21 within the time periods specified
therein.
The notice periods provided for in this Section 16.1 are intended to satisfy any
and all notice requirements imposed on Landlord by law (including, without
limitation, California Code of Civil Procedure Section 1161) and are not in
addition to any such requirements.
16.2 LANDLORD'S REMEDIES. If an Event of Tenant's Default occurs,
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by any Law or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:
(a) Landlord may keep this Lease in effect and enforce its
rights and remedies under this Lease. Landlord may enter the Premises and
release them to third parties for Tenant's account for any period, whether
shorter or longer than the remaining Term. Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in releasing the Premises, including
brokers' commissions, expenses of altering and preparing the Premises required
by the releasing in substantially the same condition delivered to Tenant. No act
by Landlord allowed by this subparagraph or intended to mitigate the adverse
effects of a breach of this Lease by Tenant shall terminate this Lease unless
Landlord notifies Tenant in writing that Landlord elects to terminate this
Lease. Notwithstanding any releasing without termination, Landlord may later
elect to terminate this Lease because of the default by Tenant. Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover the Rent as it becomes due under the Lease as provided in California
Civil Code Section 1951.4.
9.
<PAGE> 14
(b) Landlord may terminate this Lease by giving Tenant
written notice of termination in which event this Lease shall terminate on the
date set for termination in such notice. In the event Landlord terminates this
Lease, Landlord shall be entitled, at Landlord's election, to damages in an
amount as set forth in California Civil Code Section 1951.2 as in effect on the
Effective Date. For purposes of computing damages pursuant to California Civil
Code Section 1951.2, an interest rate equal to the Interest Rate shall be used
where permitted. Such damages shall include:
(1) 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 rental loss that Tenant proves could be reasonably
avoided, 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%); and
(2) Any other amount necessary to compensate Landlord
for all detriment approximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would be
likely to result therefrom, including the following: (i) expenses for cleaning,
repairing or restoring the Premises to substantially the same condition as
delivered to Tenant; (ii) broker's fees, advertising costs and other expenses of
reletting the Premises; (iii) costs of carrying the Premises, such as taxes,
insurance premiums, utilities and security precautions; (iv) expenses in
retaking possession of the Premises; and (v) attorneys' fees and court costs
incurred by Landlord in retaking possession of the Premises and in releasing the
Premises or otherwise incurred as a result of Tenant's default.
(c) Nothing in this Section 16.2 shall limit Landlord's
right to indemnification from Tenant as provided in Sections 17.3. Any notice
given by Landlord in order to satisfy the requirements of this Section 16.2
shall also satisfy the notice requirements of California Code of Civil Procedure
Section 1161 regarding unlawful detainer proceedings.
16.3 WAIVER. One party's consent to or approval of any act by the
other party requiring the first party's consent or approval shall not be deemed
to waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any rent,
payment, interest or late charge with or without knowledge of the breach of any
other provision hereof shall not be deemed a waiver of any such breach unless
such waiver is in writing and signed by Landlord. No delay or omission in the
exercise of any right or remedy accruing to either party upon any breach by the
other party under this Lease shall impair such right or remedy or be construed
as a waiver of any such breach therefore or thereafter occurring. The waiver by
either party of any breach of any provision of this Lease shall not be deemed to
be a waiver of any subsequent breach of the same or of any other provisions
herein contained.
16.4 LIMITATION ON EXERCISE OF RIGHTS. At any time that an Event of
Tenant's Default has occurred and remains uncured, (i) Landlord may deny or
withhold any consent or approval requested of it by Tenant which Landlord would
otherwise be obligated to give; and (ii) Tenant may not exercise any option to
extend, right to terminate this Lease, or other right granted to it by this
Lease which would otherwise be available to it.
16.5 WAIVER BY TENANT OF CERTAIN REMEDIES. Tenant waives the
provisions of Sections 1932(l), 1941 and 1942 of the California Civil Code and
any similar or successor law regarding Tenant's right to terminate this Lease or
to make repairs and deduct the expenses of such repairs from the rent due under
this Lease. Tenant hereby waives any right of redemption or relief from
forfeiture under the laws of the State of California, or under any other present
or future law, including the provisions of Sections 1174 and 1179 of the
California Code of Civil Procedure.
16.6 REMEDIES CUMULATIVE. All rights, privileges and remedies of
the parties are cumulative and not alternative or exclusive to the extent
permitted by law except as otherwise provided herein.
17. LIABILITY OF LANDLORD; INDEMNITY BY TENANT.
17.1 LIMITATION ON LANDLORD'S LIABILITY. Except to the extent
caused by Landlord's negligence or willful misconduct, Landlord shall not be
liable to Tenant, nor shall Tenant be entitled to terminate this Lease or to any
abatement of Rent, for any injury to Tenant or any parties affiliated with
Tenant, damage to the property of Tenant or any parties affiliated with Tenant,
or loss to Tenant's business resulting from any cause, including without
limitation any: (i) failure, interruption or installation of any HVAC or other
utility system or service; (ii) failure to furnish or delay in furnishing any
utilities or services when such failure or delay is caused by fire or other
peril, the elements, labor disturbances of any character, or any other accidents
or other conditions beyond the reasonable control of Landlord; (iii) limitation,
curtailment, rationing or restriction on the use of water or electricity, gas or
any other form of energy or any services or utility serving the Complex; (iv)
vandalism or forcible entry by unauthorized persons or the criminal act of any
person; or (v) penetration of water into or onto any portion of the Building
through roof leaks or otherwise.
10.
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2121 South El Camino Real
Notwithstanding the foregoing but subject to Sections 17.2 and 18.3, Landlord
shall be liable for any such injury, damage or loss which is approximately
caused by Landlord's willful misconduct or negligence.
17.2. LIMITATION ON TENANT'S RECOURSE. If Landlord is a
corporation, trust, partnership, joint venture, unincorporated association or
other form of business entity: (i) the obligations of Landlord shall not
constitute personal obligations of the officers, directors, trustees, partners,
joint ventures, members, owners, stockholders, or other principals or
representatives of such business entity; and (ii) Tenant shall not have recourse
to the assets of such officers, directors, trustees, partners, joint ventures,
members, owners, stockholders, principals or representatives except to the
extent of their interest in the Premises. Notwithstanding anything to the
contrary in this Lease, Tenant shall have recourse only to the interest of
Landlord in the Premises and proceeds thereof for the satisfaction of each and
every remedy of Tenant in the event of default by Landlord hereunder; such
exculpation of personal liability is absolute and without exception whatever.
17.3 MUTUAL INDEMNITY. Landlord and Tenant (the "Indemnifying
Party") shall each hold the other (the "Other Party") harmless, indemnify,
protect and defend the Other Party and the Other Party's employees, agents,
contractors, directors, partners, shareholders, officers, advisors, consultants
and lenders, with legal counsel satisfactory to the Other Party from all
liability, penalties, losses, damages, costs, expenses (including reasonable
attorneys' fees and court costs), causes of action, claims and/or judgments
arising by reason of any death, bodily injury, personal injury or property
damage resulting from (i) the acts or omissions of the Indemnifying Party inside
the Premises; (ii) the negligence or willful misconduct of the Indemnifying
Party or any party affiliated with the Indemnifying Party, wherever the same may
occur; or (iii) an Event of Tenant's Default or other breach of this Lease by
the Indemnifying Party.
17. 4 ASBESTOS. Notwithstanding anything to the contrary in the
Lease, Landlord shall indemnify, defend, protect and hold harmless Tenant from
and against any claims, injuries, causes of action, losses, demands, damages,
penalties, costs and expenses arising from the existence of asbestos containing
materials (ACM) in the Premises and Building unless the presence of airborne
asbestos is the direct result of the gross negligence or willful misconduct of
Tenant.
Landlord shall also comply with the Cornerstone Properties
Operations and Maintenance Program dated 11/16/98 and keep documents regarding
periodic ACM condition inspection reports, periodic air monitoring reports,
training for maintenance personnel, medical surveillance and respiratory
protection program for maintenance staff, and spot checks of the top side of
ceilings annually and after a significant earthquake.
Landlord, at its cost and expense, shall perform quarterly and as
soon as possible after any significant earthquake, air monitoring of the
Premises for the presence of asbestos at four locations on each floor of the
Premises and shall notify Tenant within one (1) business day of any sample
result in the Building that exceeds (1) the OSHA Permissible Exposure Limit
("Action Level") for airborne asbestos of 0.01 f/cc; and ; or (2) the "no
significant risk" level for asbestos under Prop. 65 ( 12 C.C.R. 12705 (b) (1) ),
or such stricter Action Limit or Prop. 65 Level as may be promulgated.
Landlord shall defend Tenant its employees, agents, contractors,
directors, shareholders, officers, advisors, consultants and invitees with legal
counsel reasonably satisfactory to Tenant, from all liability penalties, losses,
damages, costs, expenses (including attorney fees and court costs to a
reasonable extent), causes of action, claims and judgments arising by reason of
any death, bodily injury, personal injury or property damage resulting from
Landlord's negligence or willful misconduct.
17.5 NOTICE OF CLAIM OR SUIT. Tenant shall promptly notify Landlord
of any claim, action, proceeding or suit instituted or threatened against Tenant
of which Tenant received notice or of which Tenant acquires knowledge and which
names Landlord as a party thereto.
17.6 WAIVER OF JURY TRIAL.
PARAGRAPH DELETED.
17.7 SALE OF PREMISES. In the event of any sale or transfer of the
Premises, the seller, transferor or assignor shall be and hereby is entirely
freed and relieved of all agreements, covenants and obligations of Landlord
thereafter to be performed and it shall be deemed and construed without further
agreement between the parties or their successors in interest or between the
parties and the purchaser, transferee or assignee on any such sale, transfer or
assignment that such purchaser, transferee or assignee has assumed and agreed to
carry out any and all agreements, covenants and obligations of Landlord
hereunder.
11.
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2121 South El Camino Real
18. INSURANCE.
18.1 TENANT'S INSURANCE. Tenant shall procure at its cost and
expense and keep in effect during the Term broad form comprehensive general
liability insurance, including, without limitation, contractual liability for
Tenant's indemnity obligation contained in Section 17 and specific coverage of
risks arising out of any activities of Tenant pursuant to Articles 7 and 8, with
a combined single limit of liability in an amount equal to the amount set forth
in the Summary. Such coverage shall be in a comprehensive general liability form
with at least the following endorsements to the extent such endorsements are
generally available: (i) deleting any employee exclusion on personal injury
coverage, (ii) including employees as additional insured, (iii) providing for
blanket contractual coverage, broad form property damage coverage and products
completed operations coverage (where applicable), (iv) deleting any liquor
liability exclusions, and (v) providing for coverage of employees' automobile
non ownership liability. Such insurance shall name Landlord and any other party
designated by Landlord as an additional insured, shall be carried by companies
licensed to do business in California and which have a general policy holders'
rating of at least "VIII" as set forth in the most current issue of "Best's
Insurance Guide", shall specifically include the liability assumed hereunder by
Tenant, shall provide that it is primary insurance and not in excess over or
contributory with any other valid, existing and applicable insurance covering
the same loss carried by Landlord or any other party, shall provide for
severability of interests, shall further provide that an act or omission of one
of the named insiders which would void or otherwise reduce coverage shall not
reduce or void the coverage as to any insured, shall afford coverage for all
claims based on acts, omissions, injury or damage which occurred or arose (or
the onset of which occurred or arose) in whole or part during the policy period,
and shall provide that Landlord will receive thirty (30) days' written notice
from the insurer prior to any cancellation or change of coverage. Tenant shall
deliver policies of such insurance or certificates thereof to Landlord on or
before the Commencement Date, and thereafter at least thirty (30) days before
the expiration dates of expiring policies; and in the event Tenant shall fail to
procure such insurance, or to deliver such policies or certificates, Landlord
may, at its option, procure same for the account of Tenant, and the cost thereof
shall be paid to Landlord within five (5) days after delivery to Tenant of bills
therefore. Tenant shall be responsible, at its cost and expense, for separately
insuring Tenant's property. The amounts of such insurance shall be subject to
adjustment from time to time as requested by Landlord based upon Landlord's
determination of the amount of such insurance generally required for comparable
tenants, premises and buildings in the general geographic location of the
Building or required by a lender with an interest in the Building.
18.2 LANDLORD'S INSURANCE. Landlord shall maintain all risk
property insurance covering the estimated replacement cost of the Building.
Landlord may, but is not obligated to, maintain such other insurance and
additional coverages as it may deem necessary, including, but not limited to,
commercial liability insurance and rent loss insurance. The cost of such
insurance to Landlord shall be deemed an Insurance cost. The Building may be
included in a blanket policy (in which case the cost of such insurance allocable
to the Building will be determined by Landlord based upon the insurer's cost
calculations).
18.3 WAIVER OF SUBROGATION. Notwithstanding anything to the
contrary contained herein, to the extent of insurance proceeds received with
respect to the loss, Landlord and Tenant each hereby waives any right of
recovery against the other party and against any other party maintaining a
policy of insurance with respect to the Building or any portion thereof or the
contents of any of the same, for any loss or damage maintained by such other
party with respect to the Building, or the Premises or any portion thereof or
the contents of the same or any operation therein, whether or not such a loss is
caused by the fault or negligence of such other party.
19. ACCESS TO PREMISES.
Landlord, its agents and representatives shall have the right to
enter the Premises at all reasonable times and, except in cases of emergency,
after giving Tenant reasonable notice for any purpose deemed necessary or
desirable by Landlord. Rent shall not abate as a result thereof. Landlord shall
use reasonable efforts to minimize any interference with Tenant's use of the
Premises or access thereto for its normal business purposes. 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
or any other loss occasioned thereby excepting the negligence or willful
misconduct of Landlord, agents, servants, employees, licensees or contractors.
No entry by Landlord under any circumstances shall be construed or deemed to be
a forcible or unlawful entry into or a detainer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Tenant acknowledges that in the event the Lease is not renewed, that
the Landlord shall have the right to show prospective tenants the Leased
premises during the last ninety (90) days of the Lease term without prior notice
to Tenant during reasonable business hours, provided Landlord comply with
Tenant's security procedures.
20. NOTICES.
Notices or other communications under this Lease shall be effective
only if given in writing, sent by certified mail, by facsimile telecopy or by
courier service with a return receipt requested or delivered personally: (a) to
12.
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2121 South El Camino Real
Tenant (i) at Tenant's address set forth in the Summary, if sent prior to
Tenant's taking possession of the Premises, or (ii) at the Premises, if sent
subsequent to Tenant's taking possession of the Premises, or (b) to Landlord at
Landlord's address set forth in the Summary, or (c) to either Landlord or Tenant
at such other address as either Landlord or Tenant may designate as its new
address for such purpose by notice given to the other in accordance with the
provisions of this Article. A notice shall be deemed to have been given (i) upon
actual receipt or refusal of delivery (ii) when delivered if given by personal
delivery; and in all other cases when actually received at the address for
notices set forth above.
21. TENANT'S CERTIFICATE.
Tenant, at any time and from time to time upon not less than ten
(10) day's prior written notice from Landlord, will execute, acknowledge and
deliver to Landlord a certificate stating that this Lease is in full force and
effect, specifying the dates to which rent has been paid thereunder and
certifying to such other matters as Landlord may reasonably request. Any such
certificate may be relied upon by Landlord and by any prospective purchaser or
mortgagee considering the purchase of or a loan on all or any part of the
Building or any interest therein.
22. TAX ON TENANT'S PERSONAL PROPERTY.
At least ten (10) days prior to delinquency, Tenant shall pay all
taxes levied or assessed upon Tenant's Property and shall deliver satisfactory
evidence of such payment to Landlord, If, as determined by Landlord, the
assessed value of Landlord's property is increased by the inclusion therein of a
value placed upon Tenant's Property, Tenant shall promptly pay such increased
amount to Landlord.
23. SECURITY DEPOSIT.
Upon execution of this Lease, Tenant shall pay to Landlord,
Tenant's security deposit for the faithful performance of all terms, covenants
and conditions of this Lease in the amount specified in the Summary. Landlord
may apply any part of the security deposit to: (i) remedy any default by Tenant
in the payment of rent; (ii) repair damage to the Premises caused by Tenant;
(iii) clean the Premises upon termination of the Lease; and (iv) remedy any
other default of Tenant to the extent provided by Law. Tenant hereby waives the
restriction contained in California Civil Code Section 1950.7. Should Landlord
use any portion of the security deposit, Tenant shall forthwith replenish the
security deposit to the original amount. If Tenant shall fully and faithfully
perform every provision of this Lease, the remaining balance of the security
deposit, if any, shall be returned to Tenant (or, at Landlord's option, to the
last assignee of Tenant's interest hereunder) within twenty-one (21) days after
the Expiration Date with any deductions itemized in writing. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer the
security deposit to Landlord's successor in interest and, upon such transfer,
Landlord shall be relieved of any and all liability for or obligation with
respect to the security deposit. Landlord shall not be deemed a Trustee of the
Security Deposit, may use the Security Deposit in Landlord's business, one shall
not be required to segregate it from its general accounts.
24. LANDLORD'S OPTION TO RELOCATE TENANT.
PARAGRAPH DELETED.
25. GUARANTOR.
PARAGRAPH DELETED.
26. SURRENDER OF LEASED PREMISES.
26.1 Tenant shall, at least ninety (90) days before the last day of
the term hereof, give to Landlord a written notice of intention to surrender the
leased premises on that date, but nothing contained herein shall be construed as
an extension of the term hereof or as consent of Landlord to any holding over by
Tenant. At the end of the term or any renewal thereof or other sooner
termination of this Lease, Tenant will peaceably deliver up to the Landlords
possession of the leased premises, together with all improvements or additions
upon or belonging to the same, by whosoever made, in substantially the same
condition as received, or first installed, ordinary wear and tear and damage by
fire, earthquake, act of God or the elements alone excepted. Tenant may, upon
the termination of this Lease, remove, at Tenants sole cost, all trade fixtures
installed by Tenant, title to which shall be in Tenant until such termination,
repairing any damage to the leased caused by such removal. Any of Tenants
personal property and trade fixtures not removed by Tenant at the end of the
term or other sooner termination of this Lease shall be deemed abandoned by the
Tenant if Landlord so elects, and Landlord shall remove, store and disposing of
Tenants abandoned personal property and trade fixtures. Tenant shall indemnify
Landlord against any loss or liability resulting from delay by Tenant in so
surrendering the leased premises, including without limitation, any claims made
by any succeeding Tenant founded on such delay.
13.
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2121 South El Camino Real
The voluntary or other surrender of this lease by Tenant, or a
mutual cancellation thereof, shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of any or all such
subleases or subtenacies.
26.2 If Tenant does not give Landlord ninety (90) days written
notice then Tenant will be obligated to pay rent ninety (90) days from when
written notice is given, unless the space has been leased to a new Tenant. In
the event Landlord leases the space to a new Tenant during the ninety (90) day
period, then Tenant will be released from the Lease obligation as of the date of
commencement of the new Lease.
27. MISCELLANEOUS.
27.1 The words "Landlord" and "Tenant" as used herein shall include
the plural as well as the singular. If there is more than one Tenant, the
obligations under this Lease imposed on Tenant shall be joint and several. The
captions preceding the articles of this Lease have been inserted solely as a
matter of convenience and such captions in no way define or limit the scope or
intent of any provision of this Lease.
27.2 The terms, covenants and conditions contained in this Lease
shall bind and inure to the benefit of Landlord and Tenant and, except as
otherwise provided herein, their respective personal representatives and
successors and assigns; provided, however, that upon the sale, assignment or
transfer by Landlord named herein (or by any subsequent landlord) of its
interest in the Building as owner or Tenant, including any transfer by operation
of law, Landlord (or such subsequent landlord) shall be relieved from all
subsequent obligations and liabilities arising under this Lease subsequent to
such sale, assignment or transfer.
27.3 Any provision of this Lease which shall prove to be invalid,
void, illegal or unenforceable shall in no way affect, impair or invalidate any
other provisions of this Lease, and such provisions and this Lease shall remain
in full force and effect.
27.4 This Lease shall be construed and enforced in accordance with
the laws of the State of California.
27.5 This instrument, including the exhibits hereto, which are made
a part of this Lease, contains the entire agreement between the parties and all
prior negotiations and agreements are merged herein. Tenant hereby acknowledges
that neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building or this Lease except as
expressly set forth herein.
27.6 In the event of any action or proceeding brought by either
party against the other under this Lease, the prevailing party shall be entitled
to recover all costs and expenses, including its attorneys' fees, in such action
or proceeding in such amount as the court may adjudge reasonable. The prevailing
party shall be determined by the court based upon an assessment of which party's
major arguments made or positions taken in the proceedings could fairly be said
to have prevailed over the other party's major arguments or positions on major
disputed issues in the court's or arbitrator's decision. If Landlord or Tenant,
through no fault of its own, is named as defendant in any suit brought against
Landlord or Tenant in connection with or in any way arising out of this Lease or
Tenant's use of occupancy of the Premises, Landlord or Tenant shall pay
Landlord's or Tenant's costs and expenses, including, without limitation,
reasonable attorneys fees, incurred in such suit or action.
27.7 If Landlord is unable to fulfill or is delayed in fulfilling
any of Landlord's obligations under this Lease, by reason of acts of God,
accidents, repairs, labor disputes, inability to obtain utilities or materials
or by any other reason beyond Landlord's reasonable control, then no such
inability or delay by Landlord shall constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of Base Rent or Additional Charges, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience, annoyance, interruption, injury or loss to or
interference with Tenant's business or use and occupancy or quiet enjoyment of
the Premises or any loss or damage occasioned thereby. Tenant hereby waives and
releases any right to terminate this Lease under Section 1932 (1) of the
California Civil Code or any similar law, statute or ordinance now or hereafter
in effect, provided Landlord make all reasonable efforts within a timely manner
to assist Tenant in relocating to suitable space within the project.
27.8 If Tenant shall retain possession of the Premises or any part
thereof without Landlord's consent following the expiration or sooner
termination of this Lease for any reason, then Tenant shall pay to Landlord one
hundred and twenty-five percent (125%) of the Base Rent in effect immediately
prior to the date of such expiration or termination, subject to adjustment as
provided in Article 4.
27.9 In the event of any default by Landlord hereunder, Tenant
shall look only to Landlord's interest in the Building and the land on which the
Building is located or proceeds thereof for the satisfaction of Tenant's
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2121 South El Camino Real
remedies; and no other property or assets of Landlord or any partner, member,
officer or director thereof, disclosed or undisclosed, shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease.
27.10 Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
27.11 Tenant shall faithfully observe and comply with the rules and
regulations attached to this Lease as Exhibit C and all modifications thereof
and additions thereto from time to time put into effect by Landlord (the "Rules
and Regulations"). Landlord shall have no duty to enforce the Rules and
Regulations by any other tenant or occupant. In the event of any conflict
between the terms and conditions of this Lease and the Terms and conditions of
the Rules and Regulations, this Lease shall control.
27.12 If Tenant signs this Lease as a corporation or a partnership,
each of the persons executing this Lease on behalf of Tenant does hereby
covenant and warrant that Tenant is a duly authorized and existing entity, that
Tenant has full right and authority to enter into this Lease, and that each and
both of the persons signing on behalf of Tenant are authorized to do so. Upon
Landlord's request, Tenant shall provide Landlord with evidence reasonably
satisfactory to Landlord confirming the foregoing covenants and warranties.
27.13 Tenant and Landlord each represent and warrant to the other
party hereto that it has had no dealings with any real estate broker or agent in
connection with the negotiation of this Lease except the brokers specified in
the Summary, and it knows of no other real estate broker or agent who is
entitled to a commission in connection with this Lease. Each party shall
indemnify the other and hold the other harmless from and against any and all
claims, expenses, demands, losses, liabilities, lawsuits, judgments, costs, and
expenses (including reasonable attorneys' fees) with respect to any leasing
commission or equivalent compensation alleged to be owing on account of such
party's dealings with any real estate broker or agent other than as specified in
the Summary.
27.14 The waiver by Landlord or Tenant of the other party's failure
to perform or observe any provision of this Lease shall not be deemed to be a
continuing waiver of such provision or a waiver of any subsequent failure to
perform the same or any other such provision, and no custom or practice which
may develop between the parties during the Term shall be deemed a waiver of, or
in any way affect, the right of Landlord or Tenant to insist upon performance
and observance by the other party in strict accordance with the terms of this
Lease. The subsequent acceptance of rent hereunder by Landlord shall not be
,deemed to be a waiver of any preceding failure of Tenant to perform or observe
any provision of this Lease, other than the failure of Tenant to pay the
particular rent so accepted, irrespective of any knowledge on the part of
Landlord of such preceding failure at the time of acceptance of such rent.
27.15 Upon Tenant's paying the Base Rent and Additional Charges and
observing and performing all of the provisions of this Lease, Tenant shall be
entitled to the quiet enjoyment of the Premises for the entire Term, subject to
the provisions of this Lease.
27.16 Tenant covenants and agrees that no diminution of light, air
or view by any structure that may hereafter be erected (whether or not by
Landlord) shall entitle Tenant to any reduction of the Base Rent or Additional
Charges under this Lease, result in any liability of Landlord to Tenant, or in
any other way affect this Lease or Tenant's obligations hereunder.
27.17 ADA Compliance: Landlord will be responsible for any work
required to bring the premises into ADA compliance and any future code changes
that effect the building. Landlord shall deliver the Premises to Tenant in
compliance with ADA and all laws.
27.18 Parking: Throughout the term hereof, Tenant shall have the
right to use for its employees parking spaces as available in the parking areas
in and about the Building. The parking areas shall be used on a non-exclusive
basis with other Tenants of the Building. Parking for Tenant's invitees shall be
available in said parking areas on a non-exclusive, first-come, first serve
basis with invitees of other tenants of the Building.
15.
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2121 South El Camino Real
WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
day and year first written above.
Dated: 11/30/98 Landlord: Cornerstone Properties, I, LLC
By: /s/ Steve Kaufman
---------------------------------
Steve Kaufman, Principal
Dated: 11/30/98 Tenant: NetRight Technologies, Inc.
By: /s/ Mahmood Panjwani
---------------------------------
Mahmood Panjwani, CEO
16.
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2121 South El Camino Real
EXHIBIT A
2121 South El Camino Real
Rayview Plaza: 4th Floor
This exhibit shows a rectangular floor plan designating a 4,675 square foot
area as, "VACANT--TO BE LEASED." The entire floor also portrays nine offices
containing 204 square feet, 144 square feet, 144 square feet, 144 square feet,
204 square feet, 144 square feet, 144 square feet, 144 square feet, and 304
square feet, respectively. Also portrayed is an open work area (unspecified
dimensions), two stairwells (unspecified dimensions), an 80 square foot meeting
room, a 244 square foot conference room, one men's restroom and one women's
restroom (each having unspecified dimensions), two storage rooms with 48 and 36
square feet, respectively, an electrical room (unspecified dimensions), and a
302 square foot kitchen.
17.
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2121 South El Camino Real
EXHIBIT A-1
2121 South El Camino Real
Standard Tenant Improvement Upgrades
Elevation lobby remodel
Parabolic lighting
Second look ceiling tiles
HVAC upgrades
Life safety upgrades
Agreed upon number of private spaces
Glass front offices with brushed aluminum glazing
Upgraded carpet, tile and paint selections
Kitchen with upper and lower cabinetry (appliances not included)
18.
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2121 South El Camino Real
EXHIBIT B
The following defines Real Estate Taxes, Building Expenses and Common Area
Expenses with the exception of those exclusions set forth in Paragraph 4.1.
"Real Estate Taxes" means all taxes, assessments and charges levied upon or with
respect to the Building or any personal property of Landlord used in the
operation thereof, or Landlord's interest in the Building or such personal
property. Real Estate Taxes shall include, without limitation, all general real
property taxes and general and special assessments, charges, fees, or
assessments for transit, housing, police, fire or other governmental services or
purported benefits to the Building or the occupants thereof, service payments in
lieu of taxes, and any tax, fee or excise on the act of entering into this Lease
or any other lease of space in the Building, or on the use or occupancy of the
Building or any part thereof, or on the rent payable under any lease or in
connection with the business of renting space in the Building, that now or
hereafter levied or assessed against Landlord by the United States of America,
the State of California or any political subdivision thereof, public
corporation, district, or any other political or public entity, and shall also
include any other tax, fee or other excise, however described, that may be
levied or assessed as a substitute for, or as an additional to, in whole or in
part, any other Real Estate Taxes whether or not now customary or in the
contemplation of the parties. Real Estate Taxes shall not include franchise,
transfer, inheritance, or capital stock taxes or income taxes ,measured by the
net income of Landlord from all sources unless, due to a change in the method of
taxation, any of such taxes is levied or assessed against Landlord as a
substitute for, or as an addition to, in whole or in part, any other tax that
would otherwise constitute a Real Estate Tax. Real Estate Taxes shall also
include reasonable legal fees, costs, and disbursements incurred in connection
with proceedings to contest, determine, or reduce Real Estate Taxes.
"Building Expenses" means the total cost and expenses paid or incurred
by Landlord in connection with the management, operation, maintenance and repair
of the Buildings, including without limitation: (i) the cost of air
conditioning, electricity, steam, water, heating, mechanical, telephone,
utilities (ii) the cost of repairs, replacements and all labor and material
costs related thereto, and the cost of general maintenance, cleaning and service
contracts and the cost of all supplies, tools and equipment required in
connection therewith, (iii) wages, salaries, payroll taxes and other labor costs
and employee benefits, (iv) management fees, (v) fees, charges and other costs
of all independent contractors engaged by Landlord working in the building, (vi)
accounting and legal expenses, (vii) security protection, (viii) depreciation on
personal property, including, without limitation, carpeting in public corridor
and common areas and window coverings provided by Landlord, (ix) the fair market
rental value of all offices in the Building for the property manager and related
management and operations personnel, (x) the cost of any capital improvements
made in the building after completion of its construction as a labor saving or
energy saving device or to effect other economics in the operation or
maintenance of the Building, or made to the Building after the date of this
Lease that are required under any governmental law or regulations that was not
applicable to the Building at the time that permits for the construction thereof
were obtained such cost to be amortized over such reasonable period as Landlord
shall determine, together with interest on the unamortized balance at the rate
of ten percent (10%) per annum or such higher rate as may have been paid by
Landlord on funds borrowed for the purpose of construction such capital
improvements, (xi) the cost of contesting the validity or applicability of any
governmental enactments which may affect operating expenses, (xii) maintenance
and repair of the roof of the building and the structural parts of the Building,
(xiii) fees for licenses and permits required for the operation of the Building
and Common Area and (xiv) any other expenses of any kind whatsoever reasonably
incurred in connection with the management, operation, maintenance and repair of
the Building (other than Real Estate Taxes, Insurance expenses and any services
for which Landlord is separately and directly reimbursed by tenant or other
tenants in the Building). Building Expenses of a variable nature shall be
adjusted to reflect ninety-five (95%) occupancy of the Building during any
period in which the Building is not at least ninety-five (95%) occupied;
provided, however, no such adjustment shall result in an inequitable allocation
of Building Expenses to Tenant.
"Common Area Expenses" means the total cost and expenses paid or
incurred by Landlord in connection with the management, operation and
maintenance of the Common Area (as defined in Section 5.2), including without
limitation each of those items specified under "Building Expenses" to the extent
applicable to the Common Area.
"Insurance Expenses" shall mean all premiums and costs and expenses for
all policies of insurance which may be obtained by Landlord in its discretion
for (a) the Premises, Building and the Common Areas of the Complex, or any
blanket policies which include the Building or Complex, covering damage thereto
and loss of rents caused by fire and other perils Landlord elects to cover,
including, without limitation, coverage for earthquakes and floods, (b)
commercial general liability insurance for the benefit of Landlord and its
designees and (c) such other coverage required by any lender or which Landlord
elects to obtain for the Premises, Building or Common Areas of the Complex,
including, without limitation, coverage for environmental liability and losses.
Notwithstanding anything to the contrary, Landlord reserves the right to adjust
the Base Insurance Costs if such Base Insurance costs including coverage's for
perils not required or elected to be insured by Landlord in the future.
19.
<PAGE> 24
EXHIBIT C
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be inscribed,
displayed or printed or affixed to any part of the outside or inside of the
Building/Office Complex or the leased premises without the prior written consent
of Landlord and Landlord shall have the right to remove any such sign, placard,
picture, advertisement, name or notice without notice to and at the expense of
Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the leased premises; provided, however, that Landlord may furnish and
install a Building standard window covering at all exterior windows. Tenant
shall not without prior written consent of Landlord cover or otherwise sunscreen
any window.
2. Landlord shall approve in writing, prior to installation, the method of
attachment of any objects affixed to walls, ceilings or doors.
3. The bulletin board or directory of the Building/Office Complex will be
provided exclusively for the display of the name and location of Tenant only and
Landlord reserves the right to exclude any other names therefrom.
4. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by Tenant or used by Tenant for any purpose other than
ingress and egress from the leased premises. The halls, passages, exits,
entrances, elevators, stairways, balconies and roof are not for the use of the
general public and the 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/Office Complex and its Tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with whom the
Tenant normally deals in the ordinary course of Tenant's business unless such
persons are engaged in illegal activities. No Tenant and no employees or
invitees of any Tenant shall go upon the roof of the Building/Office Complex.
5. Locks-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 without the prior written consent of the Landlord.
Tenant must, upon the termination of Tenant's tenancy, restore to Landlord all
keys of storage, offices and toilet rooms either furnished to or otherwise
procured by Tenant and in the event of the loss of any keys so furnished Tenant
shall pay to Landlord the costs thereof or of changing the lock or locks opened
by lost keys if Landlord deems it necessary to make a change.
6. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein and the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by the Tenant who, or whose employees or invitees, shall have caused it.
7. Tenant shall not overload the floor of the leased premises or mark, drive
nails, screw or drill into the partitions, woodwork or plaster or in any way
deface the leased premises or any part thereof. No boring, cutting or stringing
of wires shall be permitted except with the prior written consent of the
Landlord and as the Landlord may direct.
8. No furniture, freight or equipment of any kind shall be brought into the
Building/Office Complex without the consent of Landlord and all moving of the
same into or out of the Building/Office Complex shall be done at such time and
in such manner as Landlord shall designate. Landlord shall have the right to
prescribe the weight, size and position of all safes and other heavy equipment
brought into the Building/Office Complex and also the times and manner of moving
the same in and out of the Building/Office Complex. Safes or other heavy objects
shall, if considered necessary by Landlord, stand on wood strips of such
thickness as is necessary to properly distribute the weight. Landlord will not
be responsible for loss of or damage to any such safe or property from any cause
and all damage done to the Building/Office Complex by moving or maintaining any
such safe or other property shall be repaired at the expense of the Tenant.
There shall not be used in any space, or in the public halls of the
Building/Office Complex, either by any Tenant or others, any hand trucks except
those equipped with rubber tires and side guards.
9. Janitorial Service-Tenant shall not employ any person or persons for the
purpose of cleaning the leased premises without the consent of Landlord.
Landlord shall be in no way responsible to Tenant for any loss of property from
the leased premises, however occurring, or for any damage done to the effects of
Tenant by the Janitorial Service or any of Landlord's employees, or by any other
person. Janitorial service will not include the cleaning of carpets and rugs,
other than vacuuming. Tenant shall not cause unnecessary labor by reason of
Tenant's carelessness and indifference in the preservation of good order and
cleanliness.
10. Tenant shall not use, keep or permit to be used any food or noxious gas or
substance in the leased premises, or permit or suffer the leased premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building/Office Complex by reason of noise, odors, and/or
vibrations, or interfere in any way with other Tenants or those having business
therein nor shall any animals or birds be brought in or kept in or about the
leased premises or the Building/Office Complex. No Tenant shall make or permit
to be made any unseemly or disturbing noises or disturb or interfere with
occupants of this or neighboring Buildings or leased premises or those having
business with them whether by the use of any musical instrument, radio,
phonograph, unusual noise, or in any other way. No Tenant shall throw anything
out of door or down the passageways. No trash shall be put in the common areas
before 5:00 p.m.
11. The leased premises shall not be used for manufacturing or for the storage
of merchandise except as such storage may be incidental to the use of the leased
premises for general office purposes. No Tenant shall occupy or permit any
portion of his leased premises for anything other than general office purposes.
No Tenant shall occupy or permit any portion of his leased premises to be
occupied as an office for the manufacture or sale of liquor, narcotics, or
tobacco in any form, or as a medical office, or as a barber shop or manicure
shop. The leased premises shall not be used for lodging or sleeping or for any
illegal purposes.
12. Tenant shall not use or keep in the leased premises or the Building/Office
Complex any kerosene, gasoline, or inflammable or combustible fluid or material,
except office and janitorial supplies.
20.
<PAGE> 25
2121 South El Camino Real
13. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The location of telephones, call boxes
and other office equipment affixed to the leased premises shall be subject to
the approval of the Landlord.
14. Installation of Floor Coverings-No Tenant shall lay linoleum or other
similar floor covering so that the same shall be affixed to the floor of the
leased premises in any manner except by a paste, or other material, which may
easily be removed with water, the use of cement or other similar adhesive
materials being expressly prohibited. The method of affixing any such linoleum
or other similar floor covering to the floor, as well as the method of affixing
carpets or rugs to the lease premises, shall be subject to approval by Landlord.
The expense of repairs any damage resulting from a violation of this rule shall
be borne by Tenant by whom, or by whose agents, employees, or visitors, the
damage shall have been caused.
15. Carpet/Floor Protection-Tenant shall provide and use chair pad and carpet
protectors at all desk and furniture locations.
16. No furniture, packaging supplies, equipment or merchandise will be received
in the Building/Office Complex or carried up or down in the elevators except
between such hours and in such elevators as shall be designated by Landlord.
17. On Saturdays, Sundays and legal holidays and on other days between the hours
of 7:00 p.m. and 7:00 a.m. the following day, access to the Building/Office
Complex, or the halls, corridors, elevators or stairways in the Building/Office
Complex, or to the leased premises may be refused unless the person seeking
access is known to the person or employee of the Building/Office Complex in
charge and has a pass or is property identified. The Landlord shall in no case
be liable for damages for any error with regard to the admission to or exclusion
from the Building/Office Complex of any person. In case of invasion. mob, riot,
public excitement, or other commotion, the Landlord reserves right to prevent
access to the Building/Office Complex during the continuance of the same by
closing the doors or otherwise, for the safety of the Tenants and protection of
property in the Building/Office Complex. The Landlord reserves the right to
close and keep locked all entrance and exit doors of the Building/Office Complex
on Saturdays, Sundays and legal holidays and other days between the hours of
7:00 p.m. and 7:00 a.m., and during such further hours as Landlord may deem
advisable for the adequate protection of said Building/Office Complex and the
property of its Tenants.
18. All entrance doors in the leased premises shall be left locked when the
leased premises are not in use, and all doors opening to public corridors shall
be kept closed except for normal ingress and egress from the leased premises.
19. Landlord reserves the right to exclude or expel from the Building/Office
Complex any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building/Office Complex.
20. Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from the Landlord, and no
employee will admit any person (Tenant or otherwise) to any office without
specific instruction from the Landlord.
21. No vending machine or machines of any description shall be installed,
maintained or operated upon the lease premises without the prior written consent
of the Landlord.
22. Landlord shall have the right, exersiable without notice and without
liability to Tenant, to change the name and the street address of the
Building/Office Complex of which the leased premises are a part.
23. Tenant agrees that it shall comply with all fire and security regulations
that may be issued from time to time by Landlord and Tenant also shall provide
Landlord with the name of a designated responsible employee to represent Tenant
in all matters pertaining to such fire or security regulations.
24. Landlord reserves the right by written notice to Tenant to rescind, alter or
waive any rule or regulation at any time prescribed for the Building/Office
Complex and its Tenants.
25. Tenant shall not disturb, solicit or canvass any occupant of the
Building/Office Complex and shall cooperate to prevent the same.
26. Without the prior written consent of Landlord, Tenant shall not use the name
of the Building/Office Complex in connection with or in promoting or advertising
the business of the Tenant except as Tenants address.
27. Landlord shall furnish reasonable amounts of heating and air conditioning
during the hours of 7:00 a.m. to 6:00 p.m., Monday through Friday. In the event
Tenant requires heating and air conditioning during off hours, Saturdays,
Sundays or holidays, there will be a $40.00 per hour charge. Tenants off hours
usage will be billed monthly. Landlord and Tenant shall mutually agree upon an
estimated usage prior to Lease commencement. Tenant will be billed monthly on
this estimated amount and any changes will be adjusted on the end of the year.
28. Energy Conservation Measures - Tenant shall abide by all energy conservation
measures employed by Landlord, including but not limited to requirements that
lights be extinguished upon leaving the leased premises and that draperies by
closed at times specified by Landlord. Tenant shall not use any method of
heating or air conditioning other than that supplied by Landlord.
29. Equipment Defects - Tenant shall give Landlord prompt notice of any
accidents to or defects in the water pipes, gas pipes, electric lights and
fixtures, heating apparatus, or any other service equipment.
30. Parking - Vehicles are to park in properly marked spaces only. Under no
circumstances are vehicles to (a) back in, (b) park in space reserved for other
Tenants, (c) park in driveways, (d) park in front of entrances the
Building/Office Complex, (e) park in unmarked areas, (f) park in loading zones,
(g) park in two or more spaces, (h) park for over 48 hours without registering
the vehicle, in writing, with the Landlord or (i) park in areas reserved the
handicapped. Landlord shall have the right to cause improperly parked cars to be
towed at the owners expense.
21.
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2121 South El Camino Real
EXHIBIT D
Tenant shall have the option to extend the term of Lease for two (2) consecutive
periods of one (1) year each (each an "Option Term", collectively, the "Option
Term"). In the event the parties fail to agree upon the amount of the monthly
rent for the applicable Option Term on or before ninety (90) days prior to the
scheduled commencement thereof, the minimum monthly rent for the Option Term
shall be the fair market rental value to be determined by appraisal in the
manner set forth below.
In the event it becomes necessary under this paragraph to determine the
fair market rental value by appraisal, ninety (90) days prior to commencement of
the applicable extended term, Landlord and Tenant each shall appoint a licensed
real estate broker who has at least five (5) years experience in leasing office
space in the San Mateo area. Each such broker is hereinafter referred to as an
"appraiser." Such appraisers shall each determine the fair market rental value
for the Premises taking into account the value of the Premises and the amenities
provided by the building and prevailing comparable rentals. Such appraisers
shall, within twenty (20) business days after their appointment, complete their
appraisals and submit their appraisal reports to Landlord and Tenant. If the
fair market rental value of the Premises established in the two (2) appraisals
varies by five percent (5%) or less of the higher rental, the average of the two
shall be controlling. If the fair market rental value varies by more than five
percent (5%) of the higher rental, said appraisers, within five (5) days after
submission of the last appraisal, shall appoint a third appraiser who also shall
be a licensed real estate broker having at least five (5) years experience in
leasing office space in the San Mateo area. Such third appraiser shall, within
twenty (20) business days after his appointment, determine by appraisal the fair
market rental value of the Premises, taking into account the same factors
referred to above, and submit his appraisal report to Landlord and Tenant. The
fair market rental value determined by the third appraiser for the Premises
shall be averaged with whichever of the other two appraised values is closest to
that determined by the third appraiser, and said average shall be the fair
market rental value used pursuant to the preceding paragraph. If either Landlord
or Tenant fails to appoint an appraiser, or if an appraiser appointed by either
of them fails, after his appointment, to submit his appraisal within the
required period in accordance with the foregoing, the appraisal submitted by the
appraiser properly appointed and timely submitting his appraisal shall be
controlling. If the two appraisers appointed by Landlord and Tenant are unable
to agree upon a third appraiser within the required period in accordance with
the foregoing, application shall be made within ten (10) days thereafter by
either Landlord or Tenant to the local office of the American Arbitration
Association, which shall appoint a licensed real estate broker satisfying the
requirements set forth above. The cost of all appraisals under this paragraph
shall be borne equally by Landlord and Tenant.
If Tenant is dissatisfied with the determination of the fair market
rental value (whether as the result of negotiations between Landlord and Tenant
or any decision by the appraisers), within twenty (20) days after such
determination Tenant shall have the right to revoke its exercise of the option,
provided that if appraisers have been appointed to determine the fair market
rental value, Tenant shall bear the cost of appointing the appraisers.
Such appraisal also shall take into account that, with respect to the
lease of the Premises to Tenant during the Option Term, Tenant shall not be
receiving any tenant improvement allowance and Landlord shall not be doing any
additional tenant improvement work.
22.
<PAGE> 1
EXHIBIT 10.6
================================================================================
55 EAST MONROE STREET
OFFICE BUILDING LEASE
BETWEEN
TST 55 EAST MONROE, L.L.C.
AS LANDLORD
AND
NETRIGHT TECHNOLOGIES
AS TENANT
DATED: JANUARY 28, 1999
================================================================================
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TABLE OF CONTENTS
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ARTICLE 1 BASIC LEASE PROVISIONS...................................................... 1
ARTICLE 2 SPECIAL PROVISIONS.......................................................... 2
Section 2.1 Fixed Option Space.............................................. 2
Section 2.2 Extension Term.................................................. 3
Section 2.3 Market Rental................................................... 4
Section 2.4 Arbitration..................................................... 4
Section 2.5 Option to Cancel................................................ 5
ARTICLE 3 PREMISES, TERM, RENT........................................................ 5
Section 3.1 Lease of Premises............................................... 5
Section 3.2 Payment of Rent................................................. 5
Section 3.3 First Month's Rent.............................................. 5
Section 3.4 Interest........................................................ 5
ARTICLE 4 USE AND OCCUPANCY........................................................... 5
Section 4.1 Uses, Licenses and Permits...................................... 5
Section 4.2 Delivery of Premises............................................ 6
ARTICLE 5 CONDITION OF THE PREMISES................................................... 6
Section 5.1 Condition....................................................... 6
Section 5.2 Landlord's Contribution......................................... 6
ARTICLE 6 ALTERATIONS................................................................. 6
Section 6.1 Landlord's Consent.............................................. 6
Section 6.2 Manner and Quality of Alterations............................... 7
Section 6.3 Removal of Tenant's Property.................................... 7
Section 6.4 Mechanic's Liens................................................ 7
Section 6.5 Labor Relations................................................. 8
Section 6.6 Tenant's Costs.................................................. 8
Section 6.7 Tenant's Equipment.............................................. 8
Section 6.8 Legal Compliance................................................ 8
ARTICLE 7 REPAIRS..................................................................... 9
Section 7.1 Landlord's Repair and Maintenance.............................. 9
Section 7.2 Tenant's Repair and Maintenance................................ 9
Section 7.3 Interruptions Due to Repairs................................... 9
ARTICLE 8 INCREASES IN TAXES AND OPERATING EXPENSES................................... 9
Section 8.1 Definitions.................................................... 9
Section 8.2 Tenant's Tax Payment........................................... 11
Section 8.3 Tenant's Operating Payment..................................... 12
Section 8.4 Formula........................................................ 13
Section 8.5 Non-Waiver; Disputes........................................... 13
ARTICLE 9 REQUIREMENTS OF LAW......................................................... 13
Section 9.1 Compliance...................................................... 13
Section 9.2 Fire Alarm System............................................... 14
Section 9.3 Limitations on Rent............................................. 14
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ARTICLE 10 SUBORDINATION............................................................... 14
Section 10.1 Subordination and Attornment................................... 14
Section 10.2 Mortgage or Superior Lease Defaults............................ 15
Section 10.3 Tenant's Termination Right..................................... 15
Section 10.4 Provisions..................................................... 15
Section 10.5 Non-Disturbance Agreements..................................... 16
ARTICLE 11 SERVICES.................................................................... 16
Section 11.1 Elevators...................................................... 16
Section 11.2 Heating. Ventilation and Air Conditioning...................... 16
Section 11.3 Overtime Freight Elevators and HVAC............................ 16
Section 11.4 Cleaning....................................................... 17
Section 11.5 Water.......................................................... 17
Section 11.6 Refuse and Rubbish Removal..................................... 17
Section 11.7 Service Interruptions.......................................... 17
Section 11.8 Rent Abatement for Interruptions and Repairs................... 17
ARTICLE 12 INSURANCE; PROPERTY LOSS OR DAMAGE; REIMBURSEMENT........................... 18
Section 12.1 Tenant's Insurance............................................. 18
Section 12.2 Waiver of Subrogation.......................................... 19
ARTICLE 13 DESTRUCTION - FIRE OR OTHER CAUSE........................................... 19
Section 13.1 Restoration.................................................... 19
Section 13.2 Landlord's Termination Right................................... 19
Section 13.3 Tenant's Termination Right..................................... 20
Section 13.4 Final 18 Months................................................ 20
Section 13.5 Landlord's Liability........................................... 20
Section 13.6 Windows........................................................ 20
ARTICLE 14 EMINENT DOMAIN.............................................................. 20
Section 14.1 Condemnation................................................... 20
Section 14.2 Awards......................................................... 21
Section 14.3 Temporary Taking............................................... 21
ARTICLE 15 ASSIGNMENT AND SUBLETTING .................................................. 21
Section 15.1 Landlord's Consent............................................. 21
Section 15.2 Tenant's Notice................................................ 22
Section 15.3 Landlord's Termination......................................... 22
Section 15.4 Conditions to Assignment/Subletting............................ 22
Section 15.5 Binding on Tenant; Indemnification of Landlord................. 24
Section 15.6 Tenant's Failure to Complete................................... 24
Section 15.7 Profits........................................................ 24
Section 15.8 Other Transfers................................................ 24
Section 15.9 Assumption of Obligations...................................... 25
Section 15.10 Tenant's Liability............................................ 25
Section 15.11 Listings in Building Directory................................ 25
Section 15.12 Lease Disaffirmance or Rejection.............................. 25
ARTICLE 16 ELECTRICITY................................................................. 26
Section 16.1 Electricity.................................................... 26
Section 16.2 Excess Electricity............................................. 26
Section 16.3 Service Disruption............................................. 26
Section 16.4 Electricity Additional Rent.................................... 27
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ARTICLE 17 ACCESS TO PREMISES.......................................................... 28
Section 17.1 Landlord's Access.............................................. 28
Section 17.2 Final 12 Months................................................ 28
Section 17.3 Alterations to Building........................................ 28
ARTICLE 18 DEFAULT..................................................................... 29
Section 18.1 Tenant's Defaults.............................................. 29
Section 18.2 Tenant's Liability............................................. 30
ARTICLE 19 REMEDIES AND DAMAGES........................................................ 30
Section 19.1 Landlord's Remedies............................................ 30
Section 19.2 Landlord's Damages............................................. 31
Section 19.3 Default Interest; Other Rights of Landlord..................... 31
ARTICLE 20 LANDLORD'S RIGHT TO CURE; FEES AND EXPENSES................................. 32
ARTICLE 21 NO REPRESENTATIONS BY LANDLORD: LANDLORD'S APPROVAL......................... 32
Section 21.1 No Representations............................................. 32
Section 21.2 Written Approval............................................... 32
Section 21.3 No Money Damages............................................... 32
ARTICLE 22 END OF TERM................................................................. 33
Section 22.1 Expiration..................................................... 33
Section 22.2 Holdover Rent.................................................. 33
ARTICLE 23 QUIET ENJOYMENT............................................................. 33
ARTICLE 24 NO SURRENDER; NO WAIVER..................................................... 33
Section 24.1 No Surrender or Release........................................ 33
Section 24.2 No Waiver...................................................... 34
ARTICLE 25 WAIVER OF TRIAL BY JURY..................................................... 34
ARTICLE 26 INABILITY TO PERFORM........................................................ 34
ARTICLE 27 NOTICES..................................................................... 34
ARTICLE 28 RULES AND REGULATIONS....................................................... 35
ARTICLE 29 PARTNERSHIP TENANT.......................................................... 35
Section 29.1 Partnership Tenant............................................. 35
Section 29.2 Change of Partners............................................. 36
ARTICLE 30 SUBSTITUTION OF OTHER PREMISES.............................................. 36
ARTICLE 31 BROKER...................................................................... 36
Section 31.1 Broker Representations......................................... 36
Section 31.2 Indemnity...................................................... 37
ARTICLE 32 INDEMNITY................................................................... 37
Section 32.1 Indemnity...................................................... 37
Section 32.2 Defense and Settlement......................................... 37
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ARTICLE 33 MISCELLANEOUS............................................................... 38
Section 33.1 Delivery....................................................... 38
Section 33.2 Transfer of Real Property...................................... 38
Section 33.3 Limitation on Liability........................................ 38
Section 33.4 Rent........................................................... 38
Section 33.5 Entire Document................................................ 38
Section 33.6 Governing Law.................................................. 38
Section 33.7 Unenforceability............................................... 38
Section 33.8 Lease Disputes................................................. 38
Section 33.9 Landlord's Agent............................................... 39
Section 33.10 Estoppel...................................................... 39
Section 33.11 Certain Interpretational Rules................................ 39
Section 33.12 Captions...................................................... 39
Section 33.13 Parties Bound................................................. 39
Section 33.14 Directory..................................................... 40
Section 33.15 Counterparts.................................................. 40
Section 33.16 Joint and Several Obligations................................. 40
Section 33.17 Amendments.................................................... 40
ARTICLE 34 TAX STATUS OF BENEFICIAL OWNERS............................................. 40
ARTICLE 35 SECURITY DEPOSIT............................................................ 40
Section 35.1 Security Deposit............................................... 40
Section 35.2 Letter of Credit............................................... 41
Section 35.3 Application of Security........................................ 41
Section 35.4 Transfer....................................................... 41
EXHIBIT A Floor Plan..................................................................A-1
EXHIBIT A-1 First Option Space..........................................................A-3
EXHIBIT A-2 Second Option Space
EXHIBIT B Definitions.................................................................B-1
EXHIBIT D HVAC Specifications.........................................................D-1
EXHIBIT E Cleaning Specifications.....................................................E-1
EXHIBIT F Rules and Regulations.......................................................F-1
EXHIBIT G SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT.....................G-1
EXHIBIT H LEASE ESTOPPEL CERTIFICATE..................................................H-1
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i
<PAGE> 6
LEASE
THIS LEASE is made as of the 28th day of January, 1999, between TST 55 EAST
Monroe L.L.C., a Delaware limited liability company ("Landlord"), having an
office c/o Tishman Speyer Properties, L.P. 520 Madison Avenue, New York, New
York 10022 and NetRight Technologies ("Tenant"), a Delaware Corporation having
an office at 2121 South El Camino Real, Suite 400, San Mateo, California 94403.
Landlord and Tenant hereby covenant and agree as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
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<S> <C>
PREMISES A portion of the 17th floor of the Building, as more particularly shown on Exhibit A.
BUILDING The building, fixtures, equipment and other improvements and appurtenances
now located or hereafter erected, located or placed upon the land known as 55 East
Monroe Street, Chicago, Illinois.
REAL PROPERTY The Building, together with the plot of land upon which it stands.
COMMENCEMENT DATE The date upon which Landlord delivers a fully-executed copy of
this Lease to Tenant.
RENT COMMENCEMENT
DATE ("RCD") The earlier of (a) April 15, 1999 and (b) the date upon which Tenant occupies the Premises
for the conduct of its business.
EXPIRATION DATE April 30, 2009, or the last day of any renewal or extended term, if the term of this Lease
shall have been extended in accordance with any express provision hereof.
TERM The period commencing on the Commencement Date and ending on the Expiration Date.
PERMITTED USES Executive and general offices for the transaction of Tenant's business.
BASE TAXES $0.00
BASE OPERATING EXPENSES 0.916 percent for Taxes and 0.971 percent for Operating Expenses
TENANT'S
PROPORTIONATE SHARE 0.916 percent for Taxes and 0.971 percent for Operating Expenses
AGREED AREA OF BUILDING 1,528,700 rentable square feet of office and retail space. 1,443,000 rentable square
feet of office space.
AGREED AREA OF PREMISES 14,007 rentable square feet.
ELECTRICAL ALLOCATION $1.31 per rentable square foot
</TABLE>
1
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Annual Monthly
FIXED RENT Period Fixed Rent Installment
- ---------- ------ ----------- -----------
<S> <C> <C> <C>
RCD -03/31/00 $126,063.00 $10,505.25
04/1/00-03/31/01 133,066.50 11,088.88
04/1/01-03/31/02 140,070.00 11,672.50
04/1/02-03/31/03 147,073.50 12,256.13
04/1/03-03/31/04 154,077.00 12,839.75
04/1/04-03/31/05 161,080.50 13,423.38
04/1/05-03/31/06 168,084.00 14,007.00
04/1/06-03/31/07 175,087.50 14,590.63
04/1/07-03/31/08 182,091.00 15,174.25
04/1/08-04/30/09 189,094.50 15,757.88
</TABLE>
<TABLE>
<S> <C>
ADDITIONAL RENT All sums other than Fixed Rent payable by Tenant to Landlord under this Lease, including
Tenant's Tax Payment, Tenant's Operating Payment, Electricity Additional Rent, late
charges, overtime or excess service charges, and interest and other costs related to
Tenant's failure to perform any of its obligations under this Lease.
RENT Fixed Rent and Additional Rent, collectively.
INTEREST RATE The lesser of (i) four percent per annum above the then current Base Rate charged by
Citibank, N.A. or its successor, or (ii) the maximum rate permitted by applicable law.
SECURITY DEPOSIT $23,450.00 cash security deposit and $427,215.00 Letter of Credit
BROKER Cushman & Wakefield of Illinois, Inc.
LANDLORD'S AGENT Tishman Speyer Properties, L.P. or any other person designated at any time and from time
to time by Landlord as Landlord's Agent and their successors and assigns.
LANDLORD'S $280,140.00
CONTRIBUTION
</TABLE>
All capitalized terms used in the Lease text without definition are
defined in Exhibit B.
ARTICLE 2
SPECIAL PROVISIONS
SECTION 2.1 FIXED OPTION SPACE.
(a) Tenant shall have the following rights (together, the "Expansion
Rights") to lease additional space in the Building:
(i) the right ("First Expansion Right") to lease the space on
the seventeenth (17th) floor of the Building identified as first option space on
Exhibit A attached hereto containing approximately 2,961 rentable square feet
("First Option Space"), effective as of a date specified by Tenant in its
Exercise Notice, which date shall occur prior to April 1, 2001 and at least 3
months after the delivery of the Exercise Notice.
(ii) the right ("Second Expansion Right") to lease
the space on the seventeenth (17th) floor of the Building identified as second
option space on Exhibit A attached hereto containing approximately 2,266
rentable square feet ("Second Option Space"), effective May 1, 2003.
As used herein, the Proposed Delivery Date for the First Option Space shall be
the date specified by Tenant in its Exercise Notice and the Proposed Delivery
Date for the Second Option Space shall be May 1, 2003. The First Option Space
and Second Option Space
2
<PAGE> 8
are herein referred to as the "Option Space." On or before the later of (x) 30
days after Tenant's exercise of an Expansion Right or (y) 8 months prior to the
Proposed Delivery Date, Landlord shall advise Tenant in writing of (1) the
Market Rental for the applicable Option Space and (2) any rent abatement,
construction allowances, Landlord's Work or other rent concession ("Option Space
Rent Concessions") to be provided by Landlord for such space. Tenant shall be
deemed to have accepted Landlord's determination of the Market Rental unless,
within 30 days after receipt of such Market Rental determination, Tenant
notifies Landlord in writing of (s) its election to have the Market Rental
determined pursuant to Section 2.4 and (t) Tenant's determination of the Market
Rental.
(b) Tenant may exercise an Expansion Right only if (i) Tenant shall
have notified Landlord in writing of Tenant's exercise of such Expansion Right
not later than three (3) months prior to the Proposed Delivery Date for the
First Option Space and nine (9) months prior to the Proposed Delivery Date for
the Second Option Space, (ii) Tenant and Related Entities occupy at least 80% of
the Premises, (iii) at the time of the exercise of such right and immediately
prior to the Proposed Delivery Date the Lease is in full force and effect and no
Event of Default shall have occurred and be continuing hereunder and (iv) Tenant
has not exercised the cancellation option pursuant to Section 2.5.
(c) If Tenant exercises an Expansion Right and provided the Lease is
then in full force and effect and no Event of Default then exists, the Option
Space shall be leased commencing on the date ("Option Space Commencement Date")
which is the later of (i) the Proposed Delivery Date for such space and (ii) the
date Landlord delivers possession of all of the Option Space to Tenant. The
Option Space shall be leased in its then "as is" condition, and except for the
Option Space Rent Concessions, Landlord shall not be required to provide any
work or contribution to improve the Option Space for Tenant's use. Landlord
shall not be liable for failure to deliver possession of the Option Space to
Tenant on or before the Proposed Delivery Date and such failure shall not impair
the validity of the Lease or Tenant's exercise of its Expansion Right. However,
Landlord shall use reasonable and diligent efforts to obtain and deliver
possession of the First Option Space and Second Option Space to Tenant. The term
of the lease for the Option Space shall expire on the Expiration Date. Tenant
shall commence to pay Rent for the Option Space on the Option Space Commencement
Date. On the Option Space Commencement Date the Agreed Area of the Premises
shall be increased by the rentable area of the Option Space and thereafter the
"Premises" shall include such Option Space. On the Option Space Commencement
Date Tenant's Proportionate Share shall be increased by an amount equal to the
percentage equivalent of a fraction the numerator of which is the rentable area
of the Option Space and the denominator of which is the Agreed Area of the
Building. The annual Fixed Rent for the Option Space shall be equal to the
product of (A) the rentable area of such Option Space and (B) the Market Rental
for such Option Space as of the Option Space Commencement Date as determined by
Landlord or pursuant to Section 2.5. The annual Fixed Rent for the Option Space
shall be payable in 12 equal monthly installments in accordance with Section
3.2. Tenant shall receive the benefit of any Option Space Rent Concessions
Landlord is to provide for the Option Space. Any construction allowance included
in the Option Space Rent Concessions shall be disbursed in the same manner and
subject to the same terms and conditions as set forth in Section 5.2. Except as
provided herein, all the other terms and conditions of the Lease shall apply to
the Option Space.
(d) Landlord and Tenant shall enter into a mutually acceptable
written amendment to the lease confirming the terms, conditions, and provisions
applicable to the Option Space as determined in accordance with the provisions
of this Section, but Landlord's or Tenant's failure to execute such amendment
shall not relieve Tenant of its obligation to lease such Option Space on the
terms and conditions set forth in this Section.
SECTION 2.2 EXTENSION TERM.
(a) Tenant shall have the right to extend the Term for all of the
Premises for one extension term of 5 years (the "Extension Term") which shall
commence on the day following the expiration of the initial Term and end on the
fifth anniversary of the Expiration Date, unless the Extension Term shall sooner
terminate pursuant to any of the terms of this Lease or otherwise. The Extension
Term shall commence only if (i) Tenant shall have notified Landlord in writing
of Tenant's exercise of such extension right not later than nine (9) months
prior to the Expiration Date, (ii) at the time of the exercise of such right and
immediately prior to the Expiration Date, no event of Default shall have
occurred and be continuing hereunder, and (iii) Tenant and/or Related Entities
shall be in occupancy of at least 80 percent of the Premises at the time such
notice is given. Time is of the essence with respect to the giving of the notice
of Tenant's exercise of the extension option. The Extension Term shall be upon
all of the agreements, terms, covenants and conditions hereof binding upon
Tenant, except that (x) the Fixed Rent (as defined in Article 1) shall be
determined as provided in Section 2.2(b), (y) Tenant shall have no further right
to renew the Term and (z) Landlord shall have no obligation to provide any work
or contribution to improve the Premises for Tenant's use. Upon the commencement
of the Extension Term, (A) the Extension Term shall be added to and become part
of the Term (but shall not be
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considered part of the initial Term), (B) any reference to "this Lease", to the
"Term", the "term of this Lease" or any similar expression shall be deemed to
include the Extension Term, and (C) the expiration of the Extension Term shall
become the Expiration Date.
(b) If the Term shall be extended as provided in Section 2.2(a), the
annual Fixed Rent payable during the Extension Term shall be equal to the
product of (i) the Agreed Area of the Premises as of the first day of the
Extension Term and (ii) the Market Rental for the Premises as of the day
immediately following the expiration of the initial Term. The annual Fixed Rent
shall be payable in 12 equal monthly installments. No adjustment shall be made
to Base Operating Expenses and Base Taxes for the Extension Term. On or before
the later of (a) 30 days after Tenant exercises an option to extend the Term for
the Extension Term and (b) 11 months prior to the beginning of the Extension
Term, Landlord shall notify Tenant in writing of Landlord's determination of the
Market Rental for the Premises, or the portion thereof to be leased by Tenant
during the Extension Term. Tenant shall be deemed to have accepted Landlord's
determination of the Market Rental unless, within 30 days after Tenant receives
Landlord's notice of such Market Rental, Tenant notifies Landlord in writing of
(x) Tenant's election to have such Market Rental determined pursuant to Section
2.4 and (y) Tenant's determination of the Market Rental.
(c) Landlord and Tenant shall enter into a mutually acceptable
amendment to the Lease confirming the terms, conditions and provisions
applicable to the Premises during the Extension Term in accordance with this
Section, but neither Landlord's nor Tenant's failure to execute such amendment
0shall relieve Tenant of its obligation to lease the Premises on the terms and
conditions set forth herein.
SECTION 2.3 MARKET RENTAL. The "Market Rental" shall be the annual
market rental rate per rentable square foot as of the beginning of the term of
the space in question for space comparable in size, location and degree of
improvements to be or included in the space in question and for a term
comparable to the term in question. The Market Rental shall be determined by
taking into consideration comparable fact situations in the Building and in
Comparable Buildings. The Market Rental shall take into account, without
limitation, the rent concessions such as rental abatements and construction
allowances to be provided by Landlord and the market rent concessions; the
leasing commissions payable for the space in question, the Base Taxes and Base
Operating Expenses used in determining Tenant's Tax Payments and Tenant's
Operating Payments, periodic increases in rent to adjust for inflation and other
then prevailing rental related terms, conditions and components of rent. If the
Fixed Rent payable the space in question has not been determined prior to the
beginning of the applicable term, Tenant shall pay Fixed Rent in an amount equal
to the Market Rental as determined by Landlord (the "Interim Rent"). Upon final
determination of the Fixed Rent for the space in question, Tenant shall commence
paying such Fixed Rent as so determined, and within ten (10) days after such
determination Tenant shall pay any deficiency in prior payments of Fixed Rent
or, if the Fixed Rent as so determined shall be less than the Interim Rent,
Tenant shall be entitled to a credit against the next succeeding installments of
Fixed Rent in an amount equal to the difference between each installment of
Interim Rent and the Fixed Rent as so determined which should have been paid for
such installment until the total amount of the over payment has been recouped.
SECTION 2.4 ARBITRATION. If the Market Rental is to be determined
pursuant to this Section 2.4, Tenant shall give notice to Landlord of such
dispute within 10 days of Tenant's receipt of Landlord's determination, and such
dispute shall be determined by a single arbitrator appointed in accordance with
the American Arbitration Association Real Estate Valuation Arbitration
Proceeding Rules. The arbitrator shall be impartial and shall have not less than
10 years' experience in the City of Chicago in a calling related to the leasing
of commercial office space in office buildings comparable to the Building, and
the fees of the arbitrator shall be shared by Landlord and Tenant. Within 30
days following the appointment of the arbitrator, Landlord and Tenant shall
attend a hearing before the arbitrator at which each party shall submit a report
setting forth its determination of the Market Rental for the space and term in
question, together with such information on comparable rentals and such other
evidence as such party shall deem relevant. The arbitrator shall, within 30 days
following such hearing and submission of evidence, render his or her decision by
selecting the determination of Market Rental submitted by either Landlord or
Tenant which, in the judgment of the arbitrator, most nearly reflects the Market
Rental for the space and term in question. The arbitrator shall have no power or
authority to select any Market Rental other than a Market Rental submitted by
Landlord or Tenant, and the decision of the arbitrator shall be final and
binding upon Landlord and Tenant. Each party shall pay the fees and expenses of
its counsel and witnesses and shall share equally the fees of the arbitrator.
SECTION 2.5 OPTION TO CANCEL. Tenant shall have the option to cancel
this Lease effective on the April 30, 2004 ("Termination Effective Date") by
delivery of written notice of such election to Landlord prior to April 1, 2003,
time being of the essence, and payment of a cancellation fee ("Cancellation
Fee") with such notice equal to the sum of (a) $265,714.66 and (b) five times
the then monthly installments of Fixed Rent and Additional Rent. If Tenant
leases Option Space, the Cancellation Fee shall be increased by the unamortized
cost as of the Termination Effective Date of any leasing commissions,
construction allowances,
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rent abatements and other rent concessions paid or provided by Landlord for such
space; such costs to be amortized over the Term remaining after the date Rent
commences for such space with interest at 10% per annum.
SECTION 2.6 RENT CREDIT. If the costs of the Initial Installations
equals or exceeds $210,105.00, then Tenant shall receive a credit against Rent
equal to that portion, if any, of Landlord's Contribution not applied to the
cost of the Initial Installations. The credit shall be applied to the Rent due
and owing on or after the first day of the month following the final application
of Landlord's Contribution to the cost of the Initial Installations and
continuing until such rent credit has been fully applied.
ARTICLE 3
PREMISES, TERM, RENT
SECTION 3.1 LEASE OF PREMISES. Subject to the terms of this Lease,
Landlord leases to Tenant and Tenant leases from Landlord the Premises for the
Term. In addition, Landlord grants to Tenant the right to use, on a
non-exclusive basis and in common with other tenants, the lobby area and other
Building common elements and common facilities.
SECTION 3.2 PAYMENT OF RENT. Tenant shall pay to Landlord, without
notice or demand, and without any set-off, counterclaim, abatement or deduction
whatsoever, except as may be expressly set forth in this Lease, in lawful money
of the United States by wire transfer of funds to Landlord's account, as
designated by Landlord, or by check drawn upon a bank approved by Landlord, (i)
Fixed Rent in equal monthly installments, in advance, on the first (1st) day of
each calendar month during the Term, commencing on the Rent Commencement Date,
and (ii) Additional Rent, at the times and in the manner set forth in this
Lease. Except as otherwise expressly set forth in this Lease, Tenant's
obligations to pay Rent is independent of each and every covenant contained in
this Lease.
SECTION 3.3 FIRST MONTH'S RENT. If the Rent Commencement Date shall
occur on a date other than the first day of any calendar month, Tenant shall pay
to Landlord, on the Rent Commencement Date, a sum equal to the Fixed Rent for
such month multiplied by a fraction, the numerator of which shall be the number
of calendar days in the period from the Rent Commencement Date to the last day
of the month in which the Rent Commencement Date shall occur, both dates
inclusive, and the denominator of which shall be the number of calendar days in
such month.
SECTION 3.4 INTEREST. If Tenant shall fail to pay any installment or
other payment of Rent when due, interest shall accrue on such installment or
payment as a late charge, from the date such installment or payment became due
until the date paid at the Interest Rate.
ARTICLE 4
USE AND OCCUPANCY
Section 4.1 Uses, Licenses and Permits.
(a) PERMITTED USES. Tenant shall use and occupy the Premises for the
Permitted Uses and for no other purpose. Tenant shall not use or occupy or
permit the use or occupancy of any part of the Premises in a manner constituting
a Prohibited Use, which violates any Requirement, which causes the Building to
be in violation of any Requirement, or which exceeds the floor loads for the
Premises.
(b) LICENSES AND PERMITS. Tenant, at its expense, shall procure and
at all times maintain and comply with the terms and conditions of all licenses
and permits required for the lawful conduct of the Permitted Uses in the
Premises. Landlord represents that the Certificate of Occupancy issued for the
Building permits the use of the Premises as offices.
SECTION 4.2 DELIVERY OF PREMISES. Landlord shall not be liable for
failure to deliver possession of the Premises on the Commencement Date and such
failure shall not impair the validity of the Lease or extend the Term, provided,
however, the Rent payable hereunder shall be abated until possession of the
Premises is delivered to Tenant.
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ARTICLE 5
CONDITION OF THE PREMISES
SECTION 5.1 CONDITION. Tenant has inspected the Premises and agrees (a)
to accept possession of the Premises in the condition existing on the
Commencement Date "as is", (b) that neither Landlord nor Landlord's agents have
made any representations or warranties with respect to the Premises or the
Building except as expressly set forth herein, and (c) except for Landlord's
Contribution as expressly set forth in Section 5.2 hereof, Landlord has no
obligation to perform any work, supply any materials, incur any expense or make
any alterations or improvements to the Premises to prepare the Premises for
Tenant's occupancy. Any work to be performed by Tenant for Tenant's initial
occupancy of the Premises shall be referred to hereinafter as the "Initial
Installations". Tenant's occupancy of any part of the Premises shall be
conclusive evidence, as against Tenant, that Tenant has accepted possession of
the Premises in its then current condition and at the time such possession was
taken, the Premises and the Building were in a good and satisfactory condition
as required by this Lease.
SECTION 5.2 LANDLORD'S CONTRIBUTION.
(a) Landlord agrees to pay to Tenant an amount not to exceed
Landlord's Contribution toward the cost of the Initial Installations, provided
as of the date on which Landlord is required to make payment thereof pursuant to
Section 5.2(b), (i) this Lease is in full force and effect, (ii) Tenant has
delivered to Landlord the Letter of Credit described in Section 34.2 and (iii)
no Event of Default then exists and is continuing. Tenant shall pay all costs of
the Initial Installations in excess of Landlord's Contribution. Landlord's
Contribution shall be payable solely on account of labor directly related to the
Initial Installations and materials delivered to the Premises in connection with
the Initial Installations, and architectural, consulting and engineering fees
incurred in connection with the Initial Installations.
(b) Landlord shall pay Landlord's Contribution to Tenant following
commencement of Tenant's business operations at the Premises and the final
completion of the Initial Installations, within 30 days after submission by
Tenant to Landlord of a written requisition therefor, signed by the chief
financial officer of Tenant and accompanied by (i) copies of paid invoices
covering all of the Initial Installations, (ii) a written certification from
Tenant's architect stating that the Initial Installations described on such
invoices have been completed in accordance with the plans and specifications
approved by Landlord, that such work has been paid in full by Tenant and that
all contractors, subcontractors and material suppliers have delivered to Tenant
waivers of lien with respect to such work (copies of which shall be included
with such architect's certification), (iii) proof of the satisfactory completion
of all required inspections and the issuance of any required approvals and
sign-offs by Governmental Authorities with respect thereto, (iv) final
"as-built" plans and specifications for the Initial Installations as required
pursuant to Section 6.1(c) and (v) such other documents and information as
Landlord may reasonably request, including in connection with title drawdowns
and endorsements.
ARTICLE 6
ALTERATIONS
SECTION 6.1 LANDLORD'S CONSENT.
(a) TENANT'S ALTERATIONS. Tenant shall not make any alterations,
additions or other physical changes in or about the Premises (collectively,
"Alterations") (other than decorative Alterations such as painting, wall
coverings and carpeting ("Decorative Alterations")) without Landlord's prior
consent, which may be withheld in Landlord's sole discretion. Landlord shall not
unreasonably withhold its consent to Alterations so long as such Alterations (i)
are non-structural and do not affect the Building Systems, (ii) are performed
only by Landlord's designated contractors or by contractors or mechanics
approved by Landlord to perform such Alterations, (iii) affect only the Premises
and are not visible from outside of the Premises, (iv) do not affect the
certificate of occupancy issued for the Building or the Premises, (v) do not
adversely affect any service furnished by Landlord to Tenant or to any other
tenant of the Building and (vi) do not violate any Requirement or cause the
Premises or the Building to be non-compliant with any Requirement.
(b) PLANS AND SPECIFICATIONS. Prior to making any Alterations,
Tenant, at its expense, shall (i) submit to Landlord for its written approval,
detailed plans and specifications (including layout, architectural, mechanical,
electrical, plumbing, sprinkler and structural drawings) of each proposed
Alteration, and with respect to any Alteration affecting any Building
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System, Tenant shall submit proof that the Alteration has been designed by, or
reviewed and approved by, Landlord's designated engineer for the affected
Building System, (ii) obtain all permits, approvals and certificates required by
any Governmental Authorities, (iii) furnish to Landlord duplicate original
policies or certificates of worker's compensation (covering all persons to be
employed by Tenant, and Tenant's contractors and subcontractors in connection
with such Alteration) and comprehensive public liability (including property
damage coverage) insurance and Builder's Risk coverage (issued on a completed
value basis) all in such form, with such companies, for such periods and in such
amounts as Landlord may reasonably require, naming Landlord, Landlord's managing
agent, and their respective employees and agents, any Lessor and any Mortgagee
as additional insureds and (iv) furnish to Landlord such other evidence of
Tenant's ability to complete and to fully pay for such Alterations as is
reasonably satisfactory to Landlord. Upon Tenant's request, Landlord shall
reasonably cooperate with Tenant in obtaining any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (if the provisions of the applicable Requirement require that
Landlord join in such application), provided Landlord shall incur no cost,
expense or liability in connection therewith.
(c) GOVERNMENTAL APPROVALS. Upon completion of any Alterations,
Tenant, at its expense, shall promptly obtain certificates of final approval of
such Alterations required by any Governmental Authority and shall furnish
Landlord with copies thereof, together with "as-built" plans and specifications
for such Alterations both in reproducible and CAD form.
SECTION 6.2 MANNER AND QUALITY OF ALTERATIONS. All Alterations shall be
performed (a) in a good and workmanlike manner and free from defects, (b) in
accordance with the plans and specifications, and by contractors approved by
Landlord, (c) under the supervision of a licensed architect reasonably
satisfactory to Landlord, and (d) in compliance with all Requirements, the terms
of this Lease, all procedures and regulations then prescribed by Landlord for
coordinating all work performed in the Building and the Rules and Regulations.
All materials and equipment to be used in the Premises shall be of first quality
and at least equal to the applicable standards for the Building then established
by Landlord, and no such materials or equipment (other than Tenant's Property)
shall be subject to any lien or other encumbrance.
SECTION 6.3 REMOVAL OF TENANT'S PROPERTY. Tenant's Property shall be and
remain the property of Tenant and Tenant may remove the same at any time on or
before the Expiration Date. On or prior to the Expiration Date, Tenant shall,
unless otherwise directed by Landlord, at Tenant's expense, remove any Specialty
Alteration. Tenant shall repair and restore, in a good and workmanlike manner,
any damage to the Premises or the Building caused by Tenant's removal of any
Specialty Alterations or Tenant's Property, and upon default thereof, Tenant
shall reimburse Landlord, on demand, for Landlord's cost of repairing and
restoring such damage. Any Specialty Alterations or Tenant's Property not so
removed shall be deemed abandoned and Landlord may remove and dispose of same,
and repair and restore any damage caused thereby, at Tenant's cost and without
accountability to Tenant. This Section 6.3 shall survive the expiration or
earlier termination of this Lease.
SECTION 6.4 MECHANIC'S LIENS. Tenant, at its expense, shall discharge
any lien or charge filed against the Premises or the Real Property in connection
with any work claimed or determined in good faith by Landlord to have been done
by or on behalf of, or materials claimed or determined in good faith by Landlord
to have been furnished to, Tenant, within 30 days after Tenant's receipt of
notice thereof by payment, filing the bond required by law or otherwise in
accordance with law. If any such liens so attach and Tenant fails to pay and
remove same or contest same as provided herein, Landlord, at its election, may
pay and satisfy the same and in such event the sums so paid by Landlord, with
interest from the date of payment at the Interest Rate, as provided under
Section 3.4 hereof for amounts owed Landlord by Tenant. Such sums shall be
deemed to be additional rent due and payable by Tenant at once without notice or
demand. Notwithstanding the foregoing prohibition against liens against the
Premises, Tenant may in good faith and with reasonable diligence contest the
validity or amount of any lien and defer payment and discharge thereof during
the pendency of such contest, provided: (i) that such contest shall have the
effect of preventing the sale or forfeiture of the Real Property of any part
thereof, or any interest therein, to satisfy such lien; (ii) that, within thirty
(30) days after Tenant has been notified of the filing of such lien, Tenant
shall have notified Landlord in writing of Tenant's intention to contest such
lien; and (iii) that, at Landlord's option, Tenant shall have obtained a title
insurance endorsement over such lien insuring Landlord, Mortgagee and Lessor
against loss or damage by reason of the existence of such lien or Tenant shall
have deposited or caused to be deposited a sum of money which shall be
sufficient in the reasonable judgment of Landlord to pay in full such lien and
all interest which might become due thereon, and shall keep on deposit an amount
so sufficient at all times, increasing such amount to cover additional interest
whenever, in the reasonable judgment of Landlord, such increase is advisable. If
Tenant shall fail to maintain or cause to be maintained sufficient funds on
deposit as hereinabove provided, shall fail to prosecute such contest or cause
such contest to be prosecuted with reasonable diligence, or shall fail to pay or
cause to be paid the amount of the lien plus any interest finally determined to
be due upon the conclusion of such contest, Landlord may, at its option, apply
the money as deposited in payment of or on account of such lien, or that part
thereof then unpaid, together with all interest thereon. If the amount of money
so deposited shall be insufficient for the payment in full of such lien,
together with all interest thereon, Tenant shall forthwith, upon demand, deposit
with Landlord a sum which, when added to the funds then on deposit, shall be
sufficient to make such payment in full.
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SECTION 6.5 LABOR RELATIONS. Tenant shall not employ, or permit the
employment of, any contractor, mechanic or laborer, or permit any materials to
be delivered to or used in the Building, if, in Landlord's sole judgment, such
employment, delivery or use will interfere or cause any conflict with other
contractors, mechanics or laborers engaged in the construction, maintenance or
operation of the Building by Landlord, Tenant or others, or the use and
enjoyment of the Building by other tenants or occupants. In the event of such
interference or conflict, upon Landlord's request, Tenant shall cause all
contractors, mechanics or laborers causing such interference or conflict to
leave the Building immediately.
SECTION 6.6 TENANT'S COSTS. Tenant shall pay promptly to Landlord or its
designee, upon demand, all reasonable out-of-pocket costs actually incurred by
Landlord in connection with Tenant's Alterations (including the Initial
Installations), including costs incurred in connection with (a) Landlord's
review of the Alterations (including review of requests for approval thereof)
and (b) the provision of Building personnel during the performance of any
Alteration required by trade union policy or otherwise, to operate elevators or
otherwise to facilitate Tenant's Alterations. In addition, if Tenant's
Alterations shall cost more than $25,000, exclusive of the cost of Decorative
Alterations, Tenant shall pay to Landlord or its designee, upon demand, an
administrative fee in respect of the performance of such Alterations and the
scheduling of Building equipment, facilities and personnel in connection
therewith in an amount equal to two percent of the total cost of such
Alterations, exclusive of the cost of Decorative Alterations.
SECTION 6.7 TENANT'S EQUIPMENT. Tenant shall not move any heavy
machinery, heavy equipment, freight, bulky matter or fixtures (collectively,
"Equipment") into or out of the Building without Landlord's prior consent and
payment to Landlord of any costs incurred by Landlord in connection therewith.
If such Equipment requires special handling, Tenant agrees (a) to employ only
persons holding a license, if required by Applicable Law, to perform such work,
(b) all work performed in connection therewith shall comply with all applicable
Requirements and (c) such work shall be done only during hours designated by
Landlord. The agreements set forth in this Section 6.7 shall survive the
expiration or earlier termination of this Lease.
SECTION 6.8 LEGAL COMPLIANCE. The approval of plans or specifications,
or consent by Landlord to the making of any Alterations, does not constitute
Landlord's agreement or representation that such plans, specifications or
Alterations comply with any Requirements or the certificate of occupancy issued
for the Building. Landlord shall have no liability to Tenant or any other party
in connection with Landlord's approval of any plans and specifications for any
Alterations, or Landlord's consent to Tenant's performing any Alterations. If as
the result of any Alterations made by or on behalf of Tenant, Landlord is
required to make any alterations or improvements to any part of the Building in
order to comply with any Requirements, whether or not in or near the Premises,
Tenant shall pay all costs and expenses incurred by Landlord in connection with
such alterations or improvements.
ARTICLE 7
REPAIRS
SECTION 7.1 LANDLORD'S REPAIR AND MAINTENANCE. Landlord shall operate,
maintain and, except as provided in Section 7.2 hereof, make all necessary
repairs (both structural and nonstructural) to (i) the Building Systems up to
the point of connection to the Premises, and (ii) the public portions of the
Building, both exterior and interior, in conformance with standards applicable
Comparable Buildings.
SECTION 7.2 TENANT'S REPAIR AND MAINTENANCE. Tenant shall promptly, at
its expense and in compliance with Article 6 of this Lease, (a) make all
nonstructural repairs to the Premises, and the fixtures, equipment and
appurtenances therein (including all electrical, plumbing, mechanical and life
safety systems in the Premises from the point they connect to the Building
Systems) as and when needed to preserve the Premises in good working order and
condition, except for reasonable wear and tear and damage for which Tenant is
not responsible, and (b) repair or replace damaged doors, signs and glass (other
than exterior window glass) in and about the Premises. Without limiting the
foregoing, all damage to the Premises or to any other part of the Building, or
to any fixtures, equipment, sprinkler system and/or appurtenances thereof,
whether requiring structural or nonstructural repairs, caused by or resulting
from any act, omission, neglect or improper conduct of, or Alterations made by,
or the moving of Tenant's fixtures, furniture or equipment into, within or out
of the Premises by Tenant, Tenant's agents, contractors, subcontractors,
employees, invitees or licensees, and all damage to any portion of the
Building's Systems existing in the Premises, shall be repaired at Tenant's
expense. Such repairs shall be made by (i) Tenant, at Tenant's expense, if the
required repairs are nonstructural in nature and do not affect any Building
System and/or if any damaged portion of the sprinkler system is contained within
the Premises, or (ii) Landlord, at Tenant's expense, if the required repairs are
structural in nature, involve replacement of exterior window glass (if damaged
by Tenant) or affect any Building System or any portion of the sprinkler system
not contained within the Premises. All Tenant repairs shall be of a quality at
least equal to the original work or construction utilizing new construction
materials and shall be made in accordance with this Lease. Tenant shall give
Landlord prompt notice of any defective condition of which Tenant is aware
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in any Building System located in, servicing or passing through the Premises. If
Tenant fails after 10 days' notice (or such shorter period as may be required in
an emergency) to proceed with due diligence to make any repairs required to be
made by Tenant, Landlord may make such repairs and all costs and expenses
incurred by Landlord on account thereof, plus interest thereon at the Interest
Rate, shall be paid by Tenant within 10 days after Landlord delivers to Tenant
an invoice therefor.
SECTION 7.3 INTERRUPTIONS DUE TO REPAIRS. Landlord reserves the right to
make all changes, alterations, additions, improvements, repairs or replacements
to the Building, including the Building Systems which provide services to
Tenant, as Landlord deems necessary or desirable, provided that in no event
shall the level of any building service decrease in any material respect from
the level required of Landlord in this Lease as a result thereof (other than
temporary changes in the level of such services during the performance of any
such work by Landlord). Landlord shall use reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises during the making
of such repairs, alterations, additions, improvements, repairs or replacements
provided that Landlord shall have no obligation to employ contractors or labor
at overtime or other premium pay rates or to incur any other overtime costs or
additional expenses whatsoever. There shall be no Rent abatement or allowance to
Tenant for a diminution of rental value, no actual or constructive eviction of
Tenant, in whole or in part, no relief from any of Tenant's other obligations
under this Lease, and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or the Premises, or in or to
fixtures, appurtenances or equipment therein.
ARTICLE 8
INCREASES IN TAXES AND OPERATING EXPENSES
SECTION 8.1 DEFINITIONS. For the purposes of this Article 8, the
following terms shall have the meanings set forth below:
(a) "ASSESSED VALUATION" shall mean the amount for which the Real
Property is assessed for the purpose of imposition of Taxes.
(b) "COMPARISON YEAR" shall mean any calendar year ending after the
Rent Commencement Date all or any part of which falls within the Term.
(c) "OPERATING EXPENSES" shall mean the aggregate of all costs and
expenses (and taxes, if any, thereon) paid or incurred by or on behalf of
Landlord (whether directly or through independent contractors) in connection
with the ownership, operation, repair and maintenance of the Building and the
Real Property, such as: (i) insurance premiums, (ii) the cost of electricity,
gas, oil, steam, water, air conditioning and other fuel and utilities, (iii)
attorneys' fees and disbursements and auditing, management and other
professional fees and expenses, (iv) wages, salaries and benefits for off-site
accountants reasonably allocable to the Building, (v) reasonable rent for the
management office of the Building, and (vi) any capital improvement as described
in items (1) or (2) below which shall be installed by Landlord in the Building.
Such capital improvements shall be amortized on a straight-line basis over such
period as Landlord shall reasonably determine (with interest accruing on the
unamortized portion thereof at the Base Rate in effect at the time such
improvements are substantially completed per annum), and the amount included in
Operating Expenses in any Comparison Year (until such improvement has been fully
amortized) shall be equal to the annual amortized amount. A capital improvement
shall be included in Operating Expenses only if it either (1) results in a
reduction in Operating Expenses (as for example, a labor-saving improvement),
provided, the amount included in Operating Expenses in any Comparison Year shall
not exceed an amount equal to the savings resulting from the installation and
operation of such improvement, and/or (2) is made during any Comparison Year in
compliance with Requirements. Operating Expenses shall not include any Excluded
Expenses. If during all or part of any Comparison Year, Landlord shall not
furnish any particular item(s) of work or service (which would otherwise
constitute an Operating Expense) to any leasable portions of the Building for
any reason, then, for purposes of computing Operating Expenses for such
Comparison Year, as the case may be, the amount included in Operating Expenses
for such period shall be increased by an amount equal to the costs and expenses
that would have been reasonably incurred by Landlord during such period if
Landlord had furnished such item(s) of work or service to such portion of the
Building. In determining the amount of Operating Expenses for any Comparison
Year, if less than 95 percent of the Building rentable area shall have been
occupied by tenant(s) at any time during Comparison Year, variable Operating
Expenses shall be determined for such Comparison Year to be an amount equal to
the like expenses which would normally be expected to be incurred had such
occupancy been 95 percent throughout such Comparison Year.
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(d) "STATEMENT" shall mean a statement containing a comparison of
(1) the Base Taxes and the Taxes payable for any Comparison Year, or (2) the
Base Operating Expenses and the Operating Expenses payable for any Comparison
Year.
(e) "TAX YEAR" shall mean the calendar year (or such other period as
hereinafter may be duly adopted by the County of Cook as its fiscal year for
real estate tax purposes).
(f) "TAXES" shall mean (i) all real estate taxes, assessments, sewer
and water rents, rates and charges and other governmental levies, impositions or
charges, whether general, special, ordinary, extraordinary, foreseen or
unforeseen, which may be assessed, levied or imposed upon all or any part of the
Real Property, and (ii) all expenses (including reasonable attorneys' fees and
disbursements and experts' and other witnesses' fees) incurred in contesting any
of the foregoing or the Assessed Valuation of all or any part of the Real
Property. Taxes shall include any and all payments in lieu of taxes made from
time to time by Landlord to the currently tax-exempt owner of a portion of the
Land pursuant to Article II of the Lease Agreement dated May 18, 1966 by and
between Chicago Title and Trust Company, as Trustee under Trust No. 49367 and
The Baptist Theological Union, located at Chicago. Taxes shall not include (x)
interest or penalties incurred by Landlord as a result of Landlord's late
payment of Taxes, except for interest payable in connection with the installment
payment of assessments pursuant to the next sentence or (y) franchise, transfer,
inheritance, gift, estate or net income taxes imposed upon Landlord. For
purposes hereof, "Taxes" for any calendar year shall be deemed to be the Taxes
which are assessed, levied or imposed for such calendar year regardless of when
due or paid. If any assessment is payable in annual installments, then for the
purposes of this Article 8, (A) such assessment shall be deemed to have been so
divided and to be payable in the maximum number of installments permitted by
law, and (B) there shall be deemed included in Taxes for each Comparison Year
the installments of such assessment becoming payable during such Comparison
Year, together with interest payable during such Comparison Year on such
installments and on all installments thereafter becoming due as provided by law,
all as if such assessment had been so divided. If at any time the methods of
taxation prevailing on the date hereof shall be altered so that in lieu of or as
an addition to the whole or any part of Taxes, there shall be assessed, levied
or imposed (1) a tax, assessment, levy, imposition or charge based on the income
or rents received from the Real Property whether or not wholly or partially as a
capital levy or otherwise, (2) a tax, assessment, levy, imposition or charge
measured by or based in whole or in part upon all or any part of the Real
Property and imposed upon Landlord, (3) a license fee measured by the rents, or
(4) any other tax, assessment, levy, imposition, charge or license fee however
described or imposed, then all such taxes, assessments, levies, impositions,
charges or license fees or the part thereof so measured or based shall be deemed
to be Taxes, provided that any tax, assessment, levy, imposition or charge
imposed on income from the Real Property shall be calculated as if the Real
Property were the only asset of Landlord.
SECTION 8.2 TENANT'S TAX PAYMENT.
(a) If the Taxes for any Comparison Year exceed the Base Taxes,
Tenant shall pay to Landlord Tenant's Proportionate Share of such excess
("Tenant's Tax Payment"). For each Comparison Year, Landlord shall furnish to
Tenant a written statement setting forth Landlord's good faith reasonable
estimate of Tenant's Tax Payment for such Comparison Year, based upon such
year's budget for Taxes. Tenant shall pay to Landlord on the first day of each
month during such Comparison Year an amount equal to one-twelfth of Landlord's
estimate of Tenant's Tax Payment for such Comparison Year. If, however, Landlord
shall furnish any such estimate for a Comparison Year subsequent to the
commencement thereof, then (i) until the first day of the month following the
month in which such estimate is furnished to Tenant, Tenant shall pay to
Landlord on the first day of each month an amount equal to the monthly sum
payable by Tenant to Landlord under this Section 8.2 during the last month of
the preceding Comparison Year, (ii) promptly after such estimate is furnished to
Tenant or together therewith, Landlord shall give notice to Tenant stating
whether the installments of Tenant's Tax Payment previously made for such
Comparison Year were greater or less than the installments of Tenant's Tax
Payment to be made for such Comparison Year in accordance with such estimate,
and (A) if there shall be a deficiency, Tenant shall pay the amount thereof
within 10 business days after demand therefor, or (B) if there shall have been
an overpayment, Landlord shall credit the amount thereof against subsequent
payments of Rent due hereunder, and (iii) on the first day of the month
following the month in which such estimate is furnished to Tenant, and on the
first day of each month thereafter throughout the remainder of such Comparison
Year, Tenant shall pay to Landlord an amount equal to one-twelfth of Tenant's
Tax Payment shown on such estimate.
(b) As soon as reasonably practicable after Landlord has determined
the Taxes for a Comparison Year, Landlord shall furnish to Tenant a Statement
for such Comparison Year. If the Statement shall show that the sums paid by
Tenant under Section 8.2(a) exceeded the actual amount of Tenant's Tax Payment
for such Comparison Year, Landlord shall credit the amount of such excess
against subsequent payments of Rent due hereunder. If the Statement for such
Comparison Year shall show that the sums so paid by Tenant were less than
Tenant's Tax Payment for such Comparison Year, Tenant shall pay the amount of
such deficiency within ten (10) business days after Tenant's receipt of the
Statement.
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(c) If the applicable real estate tax fiscal year is changed, Taxes
for such fiscal year shall be apportioned on the basis of the number of days in
such fiscal year included in the particular Comparison Year for the purpose of
making the computations under this Section 8.2.
(d) Only Landlord shall be eligible to institute proceedings to
reduce the Assessed Valuation of the Real Property and the filings of any such
proceeding by Tenant without Landlord's prior written consent shall constitute
an Event of Default. If the Base Taxes are defined as the Taxes for a particular
calendar year and if such Taxes are reduced, the Base Taxes shall be
correspondingly revised, the Additional Rent previously paid or payable on
account of Tenant's Tax Payment hereunder for all Comparison Years shall be
recomputed on the basis of such reduction, and Tenant shall pay to Landlord
within 30 business days after being billed therefor, any deficiency between the
amount of such Additional Rent previously computed and paid by Tenant to
Landlord, and the amount due as a result of such recomputations. If the Base
Taxes are defined as the Taxes for a particular calendar year and if such Taxes
are increased then Landlord shall either pay to Tenant, or at Landlord's
election, credit against subsequent payments of Rent due, the amount by which
such Additional Rent previously paid on account of Tenant's Tax Payment exceeds
the amount actually due as a result of such recomputations. If Landlord receives
a refund of Taxes for any Comparison Year, Landlord shall, at its election,
either pay to Tenant, or credit against subsequent payments of Rent due
hereunder, an amount equal to Tenant's Proportionate Share of the refund, net of
any expenses incurred by Landlord in achieving such refund, which amount shall
not exceed Tenant's Tax Payment paid for such Comparison Year. Landlord shall
not be obligated to file any application or institute any proceeding seeking a
reduction in Taxes or the Assessed Valuation.
(e) Tenant shall be obligated to make Tenant's Tax Payment
regardless of whether Tenant may be exempt from the payment of any taxes by
reason of Tenant's diplomatic or other tax exempt status.
(f) If the Rent Commencement Date shall occur on a date other than
January 1, any Additional Rent under this Section 8.2 for the calendar year in
which such Rent Commencement Date shall occur shall be apportioned on the basis
of the number of days in the period from the Rent Commencement Date to the
following December 31 bears to the total number of days in such Comparison Year.
If the Expiration Date shall occur on a date other than December 31, any
Additional Rent payable by Tenant to Landlord under this Section 8.2 for the
Comparison Year in which such Expiration Date occurs shall be apportioned on the
basis of the number of days in the period from January 1 to the Expiration Date
shall bear to the total number of days in such Comparison Year. In the event of
the expiration or earlier termination of this Lease, any Additional Rent under
this Section 8.2 owed by Tenant shall be paid by Tenant, and any over payments
not credited against Rent payable hereunder shall be refunded by Landlord within
30 days after submission of the Statement for the last Comparison Year. In no
event shall Fixed Rent ever be reduced by operation of this Section 8.2 and the
rights and obligations of Landlord and Tenant under the provisions of this
Section 8.2 with respect to any Additional Rent shall survive the expiration or
earlier termination of this Lease.
(g) Tenant shall be responsible for any applicable occupancy or rent
tax now in effect or hereafter enacted and, if payable by Landlord, Tenant shall
promptly pay such amounts to Landlord, upon Landlord's demand, as Additional
Rent.
SECTION 8.3 TENANT'S OPERATING PAYMENT.
(a) If the Operating Expenses payable for any Comparison Year exceed
the Base Operating Expenses, Tenant shall pay to Landlord Tenant's Proportionate
Share of such excess ("Tenant's Operating Payment"). For each Comparison Year,
Landlord shall furnish to Tenant a written statement setting forth Landlord's
good faith reasonable estimate of Tenant's Operating Payment for such Comparison
Year, based upon such year's budget. Tenant shall pay to Landlord on the first
day of each month during such Comparison Year an amount equal to one-twelfth of
Landlord's estimate of Tenant's Operating Payment for such Comparison Year. If,
however, Landlord shall furnish any such estimate for a Comparison Year
subsequent to the commencement thereof, then (i) until the first day of the
month following the month in which such estimate is furnished to Tenant, Tenant
shall pay to Landlord on the first day of each month an amount equal to the
monthly sum payable by Tenant to Landlord under this Section 8.3 during the last
month of the preceding Comparison Year, (ii) promptly after such estimate is
furnished to Tenant or together therewith, Landlord shall give notice to Tenant
stating whether the installments of Tenant's Operating Payment previously made
for such Comparison Year were greater or less than the installments of Tenant's
Operating Payment to be made for such Comparison Year in accordance with such
estimate, and (A) if there shall be a deficiency, Tenant shall pay the amount
thereof within 30 business days after demand therefor, or (B) if there shall
have been an overpayment, Landlord shall credit the amount thereof against
subsequent payments of Rent due hereunder, and (iii) on the first day of the
month following the month in which such estimate is furnished to Tenant, and on
the first day of each month thereafter throughout the remainder of such
Comparison Year, Tenant shall pay to Landlord an amount equal to one-twelfth of
Tenant's Operating Payment shown on such estimate.
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(b) On or before May 1st of each Comparison Year, Landlord shall
furnish to Tenant a Statement for the immediately preceding Comparison Year.
Each such Statement shall be accompanied by a computation of Operating Expenses
for the Building prepared by Landlord's managing agent. If the Statement shall
show that the sums paid by Tenant under Section 8.3(a) exceeded the actual
amount of Tenant's Operating Payment for such Comparison Year, Landlord shall
credit the amount of such excess against subsequent payments of Rent due
hereunder. If the Statement for such Comparison Year shall show that the sums so
paid by Tenant were less than Tenant's Operating Payment for such Comparison
Year, Tenant shall pay the amount of such deficiency within 30 business days
after Tenant's receipt of the Statement.
(c) If the Rent Commencement Date shall occur on a date other than
January 1, any Additional Rent under this Section 8.3 for the calendar year in
which such Rent Commencement Date shall occur shall be apportioned on the basis
of the number of days in the period from the Rent Commencement Date to the
following December 31 bears to the total number of days in such Comparison
Year.If the Expiration Date shall occur on a date other than December 31, any
Additional Rent under this Section 8.3 for the Comparison Year in which such
Expiration Date shall occur shall be apportioned on the basis of the number of
days in the period from January 1 to the Expiration Date. Upon the expiration or
earlier termination of this Lease, any Additional Rent owed by Tenant under this
Article 8 shall be paid by Tenant and any over payments not credited to Rent
payable hereunder shall be refunded by Landlord within 30 days after submission
of the Statement for the last Comparison Year. In no event shall Fixed Rent ever
be reduced by operation of this Section 8.3 and the rights and obligations of
Landlord and Tenant under the provisions of this Section 8.3 with respect to any
Additional Rent shall survive the expiration or earlier termination of this
Lease.
SECTION 8.4 FORMULA. The computations of Additional Rent under this
Article 8 are intended to constitute a formula for an agreed rental adjustment
and may or may not constitute an actual reimbursement to Landlord for Taxes,
costs and expenses paid by Landlord with respect to the Building.
SECTION 8.5 NON-WAIVER; DISPUTES.
(a) Landlord's failure to render any Statement on a timely basis
with respect to any Comparison Year shall not prejudice Landlord's right to
thereafter render a Statement with respect to such Comparison Year or any
subsequent Comparison Year, nor shall the rendering of a Statement prejudice
Landlord's right to thereafter render a corrected Statement for that Comparison
Year.
(b) Each Statement sent to Tenant shall be conclusively binding upon
Tenant unless Tenant shall (i) within 30 days after such Statement is sent, pay
to Landlord the amount set forth in such Statement, without prejudice to
Tenant's right to dispute such Statement, and (ii) within 60 days after such
Statement is sent, send a written notice to Landlord objecting to such Statement
and specifying the reasons that such Statement is claimed to be incorrect. If
the parties are unable to resolve any dispute as to the correctness of such
Statement within 30 days following such notice of objection, either party may
refer the issues raised to an independent firm of certified public accountants
which is a so-called "big-six" public accounting firm selected by Landlord and
reasonably acceptable to Tenant, and the decision of such accountants shall be
conclusively binding upon Landlord and Tenant. In connection therewith, Tenant
and such accountants shall execute and deliver to Landlord a confidentiality
agreement, in form and substance reasonably satisfactory to Landlord, whereby
such parties agree not to disclose to any third party any of the information
obtained in connection with such review. The fees and expenses relating to such
procedure shall be borne by the unsuccessful party (and if both parties are
partially unsuccessful, the accountants shall apportion the fees and expenses
between the parties based on the degree of success of each party).
ARTICLE 9
REQUIREMENTS OF LAW
SECTION 9.1 COMPLIANCE.
(a) TENANT'S COMPLIANCE. Tenant, at its expense, shall comply (or
cause to be complied) with all Requirements applicable to the Premises,
regardless of whether imposed by their terms upon Landlord or Tenant. All
repairs and alterations to the Premises, whether structural or nonstructural,
ordinary or extraordinary, required to be made to cause the Premises to comply
with any Requirements and which arise as a result of (i) the specific manner and
nature of Tenant's use or occupancy of the Premises, as distinct from general
office use, (ii) Alterations made by Tenant in the Premises or (iii) a breach by
Tenant of any provisions of this Lease, shall be made by Tenant, at Tenant's
expense and in compliance with Article 6, if such repairs or alterations are
nonstructural and do not affect any Building System, or by Landlord, at Tenant's
expense, if such repairs or alterations are structural or affect any Building
System. If Tenant obtains knowledge of any failure to comply with any
Requirements applicable to the Premises, Tenant shall give Landlord prompt
written notice thereof.
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(b) HAZARDOUS MATERIALS. Tenant shall not (i) cause or permit any
Hazardous Materials to be brought into the Building, (ii) cause or permit the
storage or use of Hazardous Materials in any manner not permitted by any
Requirements, or (iii) cause or permit the escape, disposal or release of any
Hazardous Materials within or in the vicinity of the Building. Nothing herein
shall be deemed to prevent Tenant's use of any Hazardous Materials customarily
used in the ordinary course of office work, provided such use is in accordance
with all Requirements. Tenant shall be responsible, at its expense, for all
matters directly or indirectly based on, or arising or resulting from, the
actual or alleged presence of Hazardous Materials in the Premises or in the
Building which is caused or permitted by Tenant. Tenant shall provide to
Landlord copies of all communications received by Tenant with respect to any
Requirements relating to Hazardous Materials, and/or any claims made in
connection therewith. Landlord or its agents may perform environmental
inspections of the Premises at any time. The covenants contained in this
subsection shall survive the expiration or earlier termination of this Lease.
Notwithstanding the foregoing, Landlord shall remove or encapsulate any asbestos
which is in the Premises as of the Commencement Date.
(c) LANDLORD'S COMPLIANCE. Landlord shall comply with (or cause to
be complied with) all Requirements applicable to the Building which are not the
obligation of Tenant, to the extent that non-compliance would materially impair
Tenant's use and occupancy of the Premises and Tenant's ability to conduct its
business in the Premises for office use; and the cost thereof shall be included
in Operating Expenses pursuant to Section 8.1(c) of this Lease.
(d) LANDLORD'S INSURANCE. Tenant shall not cause or permit any
action or condition that would (i) invalidate or conflict with Landlord's
insurance policies, (ii) violate applicable rules, regulations and guidelines of
the Fire Department, Fire Insurance Rating Organization or any other authority
having jurisdiction over the Building, or (iii) cause an increase in the
premiums of fire insurance then covering the Building over that payable with
respect to comparable first-class office buildings or (iv) result in insurance
companies of good standing refusing to insure the Building or any property
therein in amounts and against risks as reasonably determined by Landlord. If
the fire insurance premiums increase as a result of Tenant's failure to comply
with the provisions of this Article 9, Tenant shall promptly cure such failure
and shall reimburse Landlord, as Additional Rent, for the increased fire
insurance premiums paid by Landlord as a result of such failure by Tenant. In
any action or proceeding to which Landlord and Tenant are parties, a schedule or
"make up" of rates for the Building or the Premises issued by the appropriate
Fire Insurance Rating Organization, or other body fixing such fire insurance
rates, shall be conclusive evidence of the fire insurance rates then applicable
to the Building.
SECTION 9.2 FIRE ALARM SYSTEM. If the Fire Insurance Rating Organization
or any Governmental Authority or any of Landlord's insurers requires or
recommends any modifications and/or Alterations be made or any additional
equipment be supplied in connection with the fire alarm and life-safety system
serving the Building or the Premises by reason of Tenant's business, or the
location of the partitions, trade fixtures, or other contents of the Premises,
Landlord (to the extent outside of the Premises) or Tenant (to the extent within
the Premises) shall make such modifications and/or Alterations, and supply such
additional equipment, in either case at Tenant's expense.
SECTION 9.3 LIMITATIONS ON RENT. If at any time during the Term by
reason of any Requirement, the Rent is not fully collectible, Tenant shall take
such other steps (without additional expense to Tenant) as Landlord may request,
and as may be legally permissible, to permit Landlord to collect the maximum
rents which may during the continuance of such restriction be legally
permissible (but not in excess of the Rent reserved under this Lease). Upon the
termination of such restriction during the Term, Tenant shall pay to Landlord,
in addition to the Rent for the period following such termination of the
restriction, if legally permissible, the portion of Rent which would have been
paid pursuant to this Lease but for such legal restriction less the Rent paid by
Tenant to Landlord while such restriction was in effect, together with interest
thereon at the Base Rate.
ARTICLE 10
SUBORDINATION
SECTION 10.1 SUBORDINATION AND ATTORNMENT.
(a) Subject to Section 10.5, this Lease is subject and subordinate
to all Mortgages and Superior Leases, and, at the request of any Mortgagee or
Lessor, Tenant shall attorn to such Mortgagee or Lessor, its successors in
interest or any purchaser in a foreclosure sale.
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(b) If a Lessor or Mortgagee or any other person or entity shall
succeed to the rights of Landlord under this Lease, whether through possession
or foreclosure action or the delivery of a new lease or deed, then at the
request of the successor landlord and upon such successor landlord's written
agreement to accept Tenant's attornment and to recognize Tenant's interest under
this Lease, Tenant shall be deemed to have attorned to and recognized such
successor landlord as Landlord under this Lease. The provisions of this Article
10 are self-operative and require no further instruments to give effect hereto;
provided, however, that Tenant shall promptly execute and deliver any instrument
that such successor landlord may reasonably request (i) evidencing such
attornment, (ii) setting forth the terms and conditions of Tenant's tenancy, and
(iii) containing such other terms and conditions as may be required by such
Mortgagee or Lessor, provided such terms and conditions do not materially
increase Tenant's obligations or materially and adversely affect the rights of
Tenant under this Lease. Such instruments may include a new lease with the
successor landlord identical to this Lease but for the then remaining Term. Upon
such attornment this Lease shall continue in full force and effect as a direct
lease between such successor landlord and Tenant upon all of the terms,
conditions and covenants set forth in this Lease except that such successor
landlord shall not be:
(A) liable for any act or omission of Landlord (except
to the extent such act or omission continues beyond the date when such successor
landlord succeeds to Landlord's interest and Tenant gives notice of such act or
omission);
(B) subject to any defense, claim, counterclaim, set-off
or offsets which Tenant may have against Landlord;
(C) bound by any prepayment of more than one month's
Rent to any prior landlord, except with respect to a termination payment;
(D) bound by any obligation to make any payment to
Tenant which was required to be made prior to the time such successor landlord
succeeded to Landlord's interest;
(E) bound by any obligation to perform any work or to
make improvements to the Premises except for (x) repairs and maintenance
required to be made by Landlord under this Lease, and (y) repairs to the
Premises as a result of damage by fire or other casualty or a partial
condemnation pursuant to the provisions of this Lease, but only to the extent
that such repairs can reasonably be made from the net proceeds of any insurance
or condemnation awards, respectively, actually made available to such successor
landlord; or
(F) bound by any modification, amendment, renewal, or
termination of this Lease made without successor landlord's consent; or
(G) personally liable under the Lease, Mortgagee's
liability thereunder being limited to its interest in the Real Property.
SECTION 10.2 MORTGAGE OR SUPERIOR LEASE DEFAULTS. Tenant shall not cause
a default under any Superior Lease or Mortgage, or omit to do anything that
Tenant is obligated to do under the terms of this Lease so as to cause Landlord
to be in default thereunder. Any Mortgagee may elect that this Lease shall have
priority over the Mortgage that it holds and, upon notification to Tenant by
such Mortgagee, this Lease shall be deemed to have priority over such Mortgage,
regardless of the date of this Lease. In connection with any financing of the
Real Property, the Building or of the interest of the lessee under any Superior
Lease, Tenant shall consent to any reasonable modifications of this Lease
requested by any lending institution, provided such modifications do not
materially increase the obligations, or materially and adversely affect the
rights, of Tenant under this Lease.
SECTION 10.3 TENANT'S TERMINATION RIGHT. Tenant agrees to give any
Lessor or Mortgagee, by registered or certified mail, a copy of any notice of
default served upon the Landlord by Tenant, provided that, prior to such notice,
Tenant has been notified in writing (by way of service on Tenant of a copy of
assignment of rents and leases, or otherwise) of the address of such Lessor or
Mortgagee. Tenant further agrees that if Landlord shall have failed to cure such
default within thirty (30) days after such notice to Landlord (or if such
default cannot be cured or corrected within that time, then such additional time
as may be necessary if Landlord has commenced within such thirty (30) days and
is diligently pursuing the remedies or steps necessary to cure or correct such
default), then the Lessor or Mortgagee shall have an additional thirty (30) days
within which to cure or correct such default (or if such default cannot be cured
or corrected within that time, then such additional time as may be necessary if
such Lessor or Mortgagee has commenced within such thirty (30) days and is
diligently pursuing the remedies or steps necessary to cure or correct such
default). Until the time allowed, as aforesaid, for the Lessor or Mortgagee to
cure such default has expired without cure, Tenant shall have no right to, and
shall not, terminate this Lease on account of Landlord's default.
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SECTION 10.4 PROVISIONS. The provisions of this Article 10 shall (a)
inure to the benefit of Landlord, any future owner of the Building or the Real
Property, Lessor or Mortgagee and any sublessor thereof and (b) apply
notwithstanding that, as a matter of law, this Lease may terminate upon the
termination of any such Superior Lease or Mortgage.
SECTION 10.5 NON-DISTURBANCE AGREEMENTS. Landlord hereby agrees to
obtain for Tenant a Subordination, Non-Disturbance and Attornment Agreement in
the form attached hereto as Exhibit G with Landlord and Landlord's existing
mortgagee. Landlord hereby agrees to use reasonable efforts to obtain for Tenant
a subordination, non-disturbance and attornment agreement (a "SNDA") from all
future Mortgagees, in the standard form customarily employed by such Mortgagee,
provided that Landlord shall have no liability to Tenant in the event that it is
unable to obtain any such agreements.
ARTICLE 11
SERVICES
SECTION 11.1 ELEVATORS. Landlord, at its expense, shall provide
passenger elevator service to the Premises at all times, and at least one
freight elevator serving the Premises available upon Tenant's prior request, on
a non-exclusive "first come, first serve" basis with other Building tenants, on
all Business Days from 7:00 a.m. to 3:30 p.m.
SECTION 11.2 HEATING, VENTILATION AND AIR CONDITIONING.
(a) Landlord shall furnish to the Premises heating, ventilation and
air-conditioning ("HVAC") in accordance with the standards set forth in Exhibit
D on all Business Days from 8:00 a.m. to 6:00 p.m. and on Saturdays which are
not Holidays from 8:00 a.m. to 1:00 p.m. Landlord, at its expense, shall repair
and maintain the HVAC System in good working order, provided repairs required as
a result of the negligence or willful misconduct of Tenant, its agents or
employees, shall be performed at Tenant's expense. Landlord shall have access to
all air-cooling, fan, ventilating and machine rooms and electrical closets and
all other mechanical installations of Landlord (collectively, "Mechanical
Installations"), and Tenant shall not construct partitions or other obstructions
which may interfere with Landlord's access thereto or the moving of Landlord's
equipment to and from the Mechanical Installations. Neither Tenant, nor its
agents, employees or contractors shall at any time enter the Mechanical
Installations or tamper with, adjust, or otherwise affect such Mechanical
Installations.
(b) Landlord shall not be responsible if the normal operation of the
Building System providing HVAC to the Premises (the "HVAC System") shall fail to
provide cooled or heated air, as the case may be, in accordance with the
specifications set forth in Exhibit D by reason of (i) any machinery or
equipment installed by or on behalf of Tenant or any person claiming through or
under Tenant, which shall have an electrical load in excess of the average
electrical load and human occupancy factors for the HVAC System as designed, as
the case may be, or (ii) any rearrangement of partitioning or other Alterations
(including the Initial Installations) made or performed by or on behalf of
Tenant or any person claiming through or under Tenant. Tenant shall install, if
missing, blinds or shades on all windows, which blinds and shades are subject to
Landlord's approval, and shall keep all of the operable windows in the Premises
closed and lower the blinds when necessary because of the sun's position,
whenever the HVAC System is in operation or when and as reasonably required by
any Requirement. Tenant at all times shall cooperate fully with Landlord and
shall abide by the rules and regulations which Landlord may reasonably prescribe
for the proper functioning and protection of the HVAC System.
SECTION 11.3 OVERTIME FREIGHT ELEVATORS AND HVAC. The Rent does not
reflect or include any charge to Tenant for the furnishing of any freight
elevator service or HVAC to the Premises during any periods other than for the
hours and days set forth in Sections 11.1 and 11.2 hereof ("Overtime Periods").
Landlord shall not be required to furnish any such services during Overtime
Periods unless Tenant delivers written notice to Landlord's property management
office requesting such services at least 24 hours prior to the time at which
such services are to be provided for freight elevator service and by 2:00 p.m.
on the Business Day on which HVAC services are to be provided or by 2:00 p.m. on
the preceding Business Day if such services are requested in the morning or on
Saturday, Sunday or a Holiday, but Landlord shall use reasonable efforts
(without obligation to incur any additional cost) to arrange such service on
such shorter notice as Tenant shall provide. If Landlord furnishes freight
elevator service to the Premises during Overtime Periods, Tenant shall pay to
Landlord Landlord's then established rates for such service in the Building. If
Landlord shall furnish HVAC to the Premises during Overtime Periods, Tenant
shall pay to Landlord Landlord's then established rates for such service in the
Building.
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SECTION 11.4 CLEANING. Landlord shall cause the Premises (excluding any
portions thereof used as a kitchen or cafeteria (other than a pantry)) to be
cleaned, substantially in accordance with the standards set forth in Exhibit E.
Any areas of the Premises requiring additional cleaning such as areas used for
preparation or consumption of food, shall be cleaned, at Tenant's expense, by
Landlord's employees or Landlord's contractor, at rates which shall be
competitive with rates of other cleaning contractors providing services to
Comparable Buildings. Landlord and its cleaning contractor and their respective
employees shall have access to the Premises at all times except between 8:00
A.M. and 5:30 P.M. on Business Days.
SECTION 11.5 WATER. Landlord will provide cold and hot water for
lavatory purposes in the Building restrooms. Landlord shall provide to the
Premises cold water for drinking, cleaning and lavatory purposes through
fixtures and pipes installed by Tenant at its expense. If Tenant requires or
uses cold water for any additional purposes, Landlord may install a meter to
measure the water furnished. Tenant shall pay the cost of such installation, and
for all maintenance, repairs and replacements thereto, and for the reasonable
charges of Landlord for the water furnished. Tenant shall also pay Landlord
reasonable charges for any required pumping or heating thereof, and any sewer
rent, tax and/or charge now or hereafter assessed or imposed upon the Premises
or the Real Property pursuant to any Requirement.
SECTION 11.6 REFUSE AND RUBBISH REMOVAL. Landlord shall provide refuse
and rubbish removal services at the Premises for ordinary office refuse and
rubbish pursuant to regulations reasonably established by Landlord. Tenant shall
pay to Landlord, within 10 Business Days of receipt of an invoice therefor,
Landlord's reasonable charge for such removal to the extent that the refuse
generated by Tenant exceeds the refuse and rubbish customarily generated by
executive and general office tenants. Tenant shall not dispose of any refuse and
rubbish in the public areas of the Building, and if Tenant does so, Tenant shall
be liable for Landlord's reasonable charge for such removal. Tenant shall cause
its employees, agents, contractors and business visitors to observe such
additional rules and regulations regarding rubbish removal and/or recycling as
Landlord may, from time to time, reasonably impose.
SECTION 11.7 SERVICE INTERRUPTIONS. Landlord reserves the right to
suspend any service when necessary, by reason of Unavoidable Delays, accidents
or emergencies, or for repairs, alterations or improvements which, in Landlord's
reasonable judgment, are necessary or appropriate until such Unavoidable Delay,
accident or emergency shall cease or such repairs, alterations or improvements
are completed and Landlord shall not be liable for any interruption, curtailment
or failure to supply services. Landlord shall use reasonable efforts to restore
such service, remedy such situation and minimize any interference with Tenant's
business, provided that Landlord shall have no obligation to employ contractors
or labor at overtime or other premium pay rates, or to incur any other overtime
costs or additional expenses whatsoever. The exercise of any such right or the
exercise of any such right or the occurrence of any such failure by Landlord
shall not constitute an actual or constructive eviction, in whole or in part,
entitle Tenant to any compensation, abatement or diminution of Rent, relieve
Tenant from any of its obligations under this Lease, or impose any liability
upon Landlord or its agents by reason of inconvenience to Tenant, or
interruption of Tenant's business, or otherwise.
SECTION 11.8 RENT ABATEMENT FOR INTERRUPTIONS AND REPAIRS.
Notwithstanding anything in Section 7.3, Section 11.7 and Article 26 to the
contrary, if (a) any repairs, alterations or improvements performed by Landlord
pursuant to Section 7.3 or any service interruption pursuant to Section 11.7
(collectively "Repairs/Interruptions") renders any portion of the Premises in
excess of 500 rentable square feet untenantable, (b) Tenant notifies Landlord in
writing of the Repairs/Interruptions and the portion of the Premises which is
untenantable, (c) such untenantability continues for 5 consecutive Business Days
after such notice to Landlord, (d) such Repairs/Interruption were not caused by
fire or casualty, the act or omission of Tenant, its employees or agents, or
Unavoidable Delays and (e) Tenant is not using the untenantable portion for
business purposes or its operations (other than access to other portions of the
Premises), then Rent shall abate on a per diem basis proportionately to the
portion of the Premises rendered untenantable and unused by Tenant from the 5th
Business Day after such notice to Landlord until said portion of the Premises
are again rendered tenantable or is used by Tenant. For purposes of this Section
11.8 a portion of the Premises shall be untenantable if Tenant does not have
access to such space.
ARTICLE 12
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INSURANCE; PROPERTY LOSS OR DAMAGE; REIMBURSEMENT
SECTION 12.1 TENANT'S INSURANCE.
(a) Tenant, at its expense, shall obtain and keep in full force and
effect during the Term:
(i) a policy of commercial general liability insurance on an
occurrence basis against claims for personal injury, death and/or property
damage occurring in or about the Premises or the Building, under which Tenant is
named as the insured and Landlord, Landlord's managing agent, any Lessors, any
Mortgagees and any other parties whose names shall have been furnished by
Landlord to Tenant from time to time are named as additional insureds, which
insurance shall provide primary coverage without contribution from any other
insurance carried by or for the benefit of Landlord, Landlord's managing agent
or any Lessors or Mortgagees named as additional insureds, and Tenant agrees to
obtain blanket broad-form contractual liability coverage to insure its indemnity
obligations set forth in Article 32 hereof. The minimum limits of liability
shall be a combined single limit with respect to each occurrence in an amount of
not less than $5,000,000, provided, however, that Landlord shall retain the
right to require Tenant to increase such coverage from time to time to that
amount of insurance which in Landlord's reasonable judgment is then being
customarily required by landlords for similar office space in first-class
buildings in the City of Chicago. The deductible or self insured retention for
such policy shall in no event exceed $10,000 at any time. If the aggregate limit
applying to the Premises is reduced by the payment of a claim or establishment
of a reserve equal to or greater than 50% of the annual aggregate, Tenant shall
immediately arrange to have the aggregate limit restored by endorsement to the
existing policy or the purchase of an additional insurance policy unless, in
Landlord's reasonable judgment, Tenant maintains sufficient excess liability
insurance to satisfy the liability requirements of this Lease without the
reinstatement of the aggregate limit;
(ii) insurance against loss or damage by fire, and such other
risks and hazards as are insurable under then available standard forms of "all
risk" property insurance policies with extended coverage, insuring Tenant's
Property, and all Specialty Alterations for the full insurable value thereof or
replacement cost value thereof, having a deductible amount, if any, as
reasonably determined by Landlord but not to exceed $25,000;
(iii) during the performance of any Alteration, until
completion thereof, Builder's risk insurance on an "all risk" basis and on a
completed value form including a Permission to Complete and Occupy endorsement,
for full replacement value covering the interest of Landlord and Tenant (and
their respective contractors and subcontractors), any Mortgagee and any Lessor
in all work incorporated in the Building and all materials and equipment in or
about the Premises;
(iv) Workers' Compensation Insurance, as required by law;
(v) Disability Benefits Policy Insurance, if required by law;
(vi) Business Interruption Insurance; and
(vii) such other insurance in such amounts as Landlord, any
Mortgagee and/or any Lessor may reasonably require from time to time.
(b) All insurance required to be carried by Tenant pursuant to the
terms of this Lease (i) shall contain a provision that (x) no act or omission of
Tenant shall affect or limit the obligation of the insurance company to pay the
amount of any loss sustained, (y) the policy shall be noncancellable and/or no
material change in coverage shall be made thereto unless Landlord, Lessors and
Mortgagees shall have received 30 days' prior notice of the same, by certified
mail, return receipt requested, and (z) Tenant shall be solely responsible for
the payment of all premiums under such policies and Landlord, Lessors and
Mortgagees shall have no obligation for the payment thereof, and (ii) shall be
effected under valid and enforceable policies issued by reputable and
independent insurers permitted to do business in the State of Illinois and rated
in Best's Insurance Guide, or any successor thereto (or if there be none, an
organization having a national reputation) as having a "Best's Rating" of "A-"
and a "Financial Size Category" of at least "X" or, if such ratings are not then
in effect, the equivalent thereof or such other financial rating as Landlord may
at any time consider appropriate.
(c) On or prior to the Commencement Date, Tenant shall deliver to
Landlord appropriate policies of insurance, including evidence of waivers of
subrogation required to be carried by each party pursuant to this Article 12.
Evidence of each renewal or replacement of a policy shall be delivered by Tenant
to Landlord at least 10 days prior to the expiration of such policy. In lieu of
the policy of insurance required to be delivered to Landlord pursuant to this
Article 12 (the "Policy"), Tenant may deliver
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to Landlord a certification from Tenant's insurance company (on the form
currently designated "Acord 25-S", or the equivalent) which shall be binding on
Tenant's insurance company, and which shall expressly provide that such
certification (i) conveys to Landlord and any other named insured and/or
additional insureds thereunder (the "Insured Parties") all the rights and
privileges afforded under the Policy as primary insurance, and (ii) contains an
unconditional obligation of the insurance company to advise all Insured Parties
in writing by mail, at least 30 days in advance of any termination or change to
the Policy that would affect the interest of any of the Insured Parties.
SECTION 12.2 WAIVER OF SUBROGATION. Landlord and Tenant shall each
procure an appropriate clause in or endorsement to any property insurance
covering the Premises, the Building and personal property, fixtures and
equipment located therein, wherein the insurance companies shall waive
subrogation or consent to a waiver of right of recovery, and Landlord and Tenant
agree not to make any claim against, or seek to recover from, the other for any
loss or damage to its property or the property of others resulting from fire or
other hazards to the extent covered by such property insurance; provided,
however, that the release, discharge, exoneration and covenant not to sue
contained herein shall be limited by and coextensive with the terms and
provisions of the waiver of subrogation or waiver of right of recovery. If
either party shall be unable to obtain the inclusion of such clause even with
the payment of an additional premium, then such party shall attempt to name the
other party as a loss payee under the policy. If the payment of an additional
premium is required for either (i) the inclusion of, or consent to, a waiver of
subrogation, or (ii) for naming any party a loss payee, each party shall advise
the other, in writing, of the amount of any such additional premiums and the
other party may pay such additional premium. If such other party shall not elect
to pay such additional premium or if it shall not be possible to have the other
party named as a loss payee, even with the payment of an additional premium,
then the first party shall not be required to obtain such waiver of subrogation
or consent to waiver provision and such party shall so notify the first party
and the first party's agreement to name the other party as an additional insured
shall be satisfied. Tenant acknowledges that Landlord shall not carry insurance
on, and shall not be responsible for, (A) damage to any Specialty Alterations,
(B) Tenant's Property, and (C) any loss suffered by Tenant due to interruption
of Tenant's business.
ARTICLE 13
DESTRUCTION - FIRE OR OTHER CAUSE
SECTION 13.1 RESTORATION. If the Premises are damaged by fire or other
casualty, or if the Building is damaged such that Tenant is deprived of
reasonable access to the Premises, Tenant shall give prompt notice to Landlord,
and the damage shall be repaired by Landlord, at its expense, to substantially
the condition of the Premises prior to the damage, subject to the provisions of
any Mortgage or Superior Lease, but Landlord shall have no obligation to repair
or restore (i) Tenant's Property or (ii) any Specialty Alterations. Until such
time as the restoration of the Premises is substantially completed, Rent shall
be reduced in the proportion by which the area of the part of the Premises which
is not usable (or accessible) and is not used by Tenant bears to the total area
of the Premises.
SECTION 13.2 LANDLORD'S TERMINATION RIGHT. Notwithstanding anything to
the contrary contained in Section 13.1, if the Premises are totally damaged or
are rendered wholly untenantable, or if the Building shall be so damaged that,
in Landlord's opinion, substantial alteration, demolition, or reconstruction of
the Building shall be required (whether or not the Premises are so damaged or
rendered untenantable), then in either of such events, Landlord may, not later
than 60 days following the date of the damage, give Tenant a notice terminating
this Lease, provided that if the Premises are not damaged, Landlord may not
terminate this Lease unless Landlord similarly terminates the leases of other
office tenants in the Building aggregating at least 50% of the portion of the
Building occupied for office purposes immediately prior to such damage. If this
Lease is so terminated, (a) the Term shall expire upon the 30th day after such
notice is given, (b) Tenant shall vacate the Premises and surrender the same to
Landlord, (c) Tenant's liability for Rent shall cease as of the date of the
damage, and (d) any prepaid Rent for any period after the date of the damage
shall be refunded by Landlord to Tenant.
SECTION 13.3 TENANT'S TERMINATION RIGHT. If the Premises are totally
damaged and are thereby rendered wholly untenantable, or if the Building shall
be so damaged that Tenant is deprived of reasonable access to the Premises, and
if Landlord elects to restore the Premises, Landlord shall, within 60 days
following the date of the damage, cause a contractor or architect selected by
Landlord to give notice (the "Restoration Notice") to Tenant of the date by
which such contractor or architect estimates the restoration of the Premises
shall be substantially completed. If such date, as set forth the Restoration
Notice, is more than 18 months from the date of such damage, then Tenant shall
have the right to terminate this Lease by giving notice (the "Termination
Notice") to Landlord not later than 30 days following Tenant's receipt of the
Restoration Notice. If Tenant delivers to Landlord a Termination Notice, this
Lease shall be deemed to have terminated as of the date of the giving of the
Termination Notice, in the manner set forth in the second sentence of Section
13.2.
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SECTION 13.4 FINAL 18 MONTHS. Notwithstanding anything set forth to the
contrary in this Article 13, in the event that any damage rendering the Premises
wholly untenantable occurs during the final 18 months of the Term, either
Landlord or Tenant may terminate this Lease by notice to the other party within
30 days after the occurrence of such damage and this Lease shall expire on the
30th day after the date of such notice. For purposes of this Section 13.4, the
Premises shall be deemed wholly untenantable if due to such damage Tenant shall
be precluded from using more than 50 percent of the Premises for the conduct of
its business and Tenant's inability to so use the Premises is reasonably
expected to continue until at least the earlier of the (a) Expiration Date and
(b) the 90th day after the date when such damage occurs.
SECTION 13.5 LANDLORD'S LIABILITY. Any Building employee to whom any
property shall be entrusted by or on behalf of Tenant shall be deemed to be
acting as Tenant's agent with respect to such property and neither Landlord nor
its agents shall be liable for any damage to such property, or for the loss of
or damage to any property of Tenant by theft or otherwise. None of Landlord, its
agents, any Mortgagee or Lessor shall be liable for any injury or damage to
persons or property or interruption of Tenant's business resulting from fire or
other casualty, any damage caused by other tenants or persons in the Building or
by construction of any private, public or quasi-public work, or any latent
defect in the Premises or in the Building (except that Landlord shall be
required to repair the same to the extent provided in Article 6). No penalty
shall accrue for delays which may arise by reason of adjustment of fire
insurance on the part of Landlord or Tenant, or for delay on account of "labor
troubles" or any other cause beyond Landlord's control arising from any repair
or restoration of any portion of the Premises or of the Building, provided that
Landlord shall use reasonable efforts to minimize interference with Tenant's use
and occupancy of the Premises during the performance of any such repair or
restoration, provided that Landlord shall have no obligation to employ
contractors or labor at overtime or other premium pay rates or to incur any
other overtime costs or additional expenses whatsoever. Nothing in this Section
13.5 shall affect any right of Landlord to the indemnity from Tenant to which
Landlord may be entitled under Article 32 in order to recoup for payments made
to compensate for losses of third parties. Subject to the provisions of Section
12.2, nothing herein shall release Landlord from liability for its own
negligence.
SECTION 13.6 WINDOWS. If at any time any windows of the Premises are
temporarily closed, darkened or covered over by reason of repairs, maintenance,
alterations or improvements to the Building, or any of such windows are
permanently closed, darkened or covered over due to any Requirement, Landlord
shall not be liable for any damage Tenant may sustain and Tenant shall not be
entitled to any compensation or abatement of any Rent, nor shall the same
release Tenant from its obligations hereunder or constitute an actual or
constructive eviction.
ARTICLE 14
EMINENT DOMAIN
SECTION 14.1 CONDEMNATION.
(a) TOTAL TAKING. If all or substantially all of the Real Property,
the Building or the Premises shall be acquired or condemned for any public or
quasi-public purpose, this Lease shall terminate and the Term shall end as of
the date of the vesting of title, with the same effect as if such date were the
Expiration Date, and Rent shall be prorated and adjusted as of such date.
(b) PARTIAL TAKING. If only a part of the Real Property, the
Building or the Premises shall be acquired or condemned then, except as
hereinafter provided in this Article 14, this Lease and the Term shall continue
in full force and effect, provided that from and after the date of the vesting
of title, the Rent and Tenant's Proportionate Share shall be modified to reflect
the reduction of the Premises and/or the Building as a result of such
acquisition or condemnation.
(c) LANDLORD'S TERMINATION RIGHT. Whether or not the Premises are
affected, Landlord may give to Tenant, within 60 days following the date upon
which Landlord receives notice that all or a portion of the Real Property, the
Building or the Premises has been acquired or condemned, a notice of termination
of this Lease, provided that Landlord elects to terminate leases (including this
Lease) affecting at least 50 percent of the rentable area of the Building
(excluding any rentable area leased by Landlord or its affiliates).
(d) TENANT'S TERMINATION RIGHT. If the part of the Real Property so
acquired or condemned contains more than 15 percent of the total area of the
Premises immediately prior to such acquisition or condemnation, or if, by reason
of such acquisition or condemnation, Tenant no longer has reasonable means of
access to the Premises, Tenant may terminate this Lease by notice to Landlord
given within 30 days following the date upon which Tenant received notice of
such acquisition or condemnation. If Tenant so notifies Landlord, this Lease
shall end and expire upon the 30th day following the giving of such notice.
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If a part of the Premises shall be so acquired or condemned and this Lease and
the Term shall not be terminated in accordance with this Section 14.1 Landlord,
at Landlord's expense, but without requiring Landlord to spend more than it
collects as an award, shall, subject to the provisions of any Mortgage or
Superior Lease, restore that part of the Premises not so acquired or condemned
to a self-contained rental unit substantially equivalent (with respect to
character, quality, appearance and services) to that which existed immediately
prior to such acquisition or condemnation, excluding Tenant's Property and/or
Specialty Alterations.
(e) APPORTIONMENT OF RENT. Upon any termination of this Lease
pursuant to the provisions of this Article 14, Rent shall be apportioned as of,
and shall be paid or refunded up to and including, the date of such termination.
SECTION 14.2 AWARDS. Upon any acquisition or condemnation of all or any
part of the Real Property, Landlord shall receive the entire award for any such
acquisition or condemnation, and Tenant shall have no claim against Landlord or
the condemning authority for the value of any unexpired portion of the Term,
Tenant's Alterations or improvements; and Tenant hereby assigns to Landlord all
of its right in and to such award. Nothing contained in this Article 14 shall be
deemed to prevent Tenant from making a separate claim in any condemnation
proceedings for the then value of any Tenant's Property or Specialty Alteration
included in such taking and for any moving expenses, provided any such award is
in addition to, and does not result in a reduction of, the award made to
Landlord.
SECTION 14.3 TEMPORARY TAKING. If all or any part of the Premises is
acquired or condemned temporarily during the Term for any public or quasi-public
use or purpose, Tenant shall give prompt notice to Landlord and the Term shall
not be reduced or affected in any way and Tenant shall continue to pay all Rent
payable by Tenant without reduction or abatement and to perform all of its other
obligations under this Lease, except to the extent prevented from doing so by
the condemning authority, and Tenant shall be entitled to receive any award or
payment from the condemning authority for such use, which shall be received,
held and applied by Tenant as a trust fund for payment of the Rent falling due.
ARTICLE 15
ASSIGNMENT AND SUBLETTING
SECTION 15.1 LANDLORD'S CONSENT.
(a) NO ASSIGNMENT OR SUBLETTING. Except as expressly set forth
herein, Tenant shall not assign, mortgage, pledge, encumber, or otherwise
transfer this Lease, whether by operation of law or otherwise, and shall not
sublet (or underlet), or permit, or suffer the Premises or any part thereof to
be used or occupied by others (whether for desk space, mailing privileges or
otherwise), without Landlord's prior consent in each instance. Any assignment,
sublease, mortgage, pledge, encumbrance or transfer in contravention of the
provisions of this Article 15 shall be void.
(b) COLLECTION OF RENT. If, without Landlord's consent, this Lease
is assigned, or any part of the Premises is sublet or occupied by anyone other
than Tenant or this Lease or the Premises or any of Tenant's Property is
encumbered (by operation of law or otherwise), Landlord may collect rent from
the assignee, subtenant or occupant, and apply the net amount collected to the
Rent herein reserved. No such collection shall be deemed a waiver of the
provisions of this Article 15, an acceptance of the assignee, subtenant or
occupant as tenant, or a release of Tenant from the performance of Tenant's
covenants hereunder. Tenant shall remain fully liable for the obligations under
this Lease.
(c) FURTHER ASSIGNMENT/SUBLETTING. Landlord's consent to any
assignment or subletting shall not relieve Tenant from the obligation to obtain
Landlord's express consent to any further assignment or subletting. In no event
shall any permitted subtenant assign or encumber its sublease or further sublet
any portion of its sublet space, or otherwise suffer or permit any portion of
the sublet space to be used or occupied by others.
SECTION 15.2 TENANT'S NOTICE. If Tenant desires to assign this Lease or
sublet all or any portion of the Premises, Tenant shall give notice thereof to
Landlord, which shall be accompanied by (a) with respect to an assignment of
this Lease, the date Tenant desires the assignment to be effective, and (b) with
respect to a sublet of all or a part of the Premises, (i) the material business
terms on which Tenant would sublet such premises, and (ii) a description of the
portion of the Premises to be sublet. Such notice shall be deemed an offer from
Tenant to Landlord whereby Landlord (or Landlord's designee) shall be granted
the right, at Landlord's option, (1) to terminate this Lease with respect to
such space as Tenant proposes to sublease (the "Partial Space"), upon the terms
and conditions hereinafter set forth, or (2) if the proposed transaction is an
assignment of this Lease or a subletting of 50% or more of the rentable square
footage of the Premises, to terminate this Lease with respect to the entire
Premises. Such option may be exercised by notice from Landlord to Tenant within
30 days after Landlord's receipt of Tenant's notice.
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SECTION 15.3 LANDLORD'S TERMINATION. If Landlord exercises its option to
terminate all or a portion of this Lease pursuant to Section 15.2, (a) this
Lease shall end and expire with respect to all or a portion of the Premises, as
the case may be, on the date that such assignment or sublease was to commence,
(b) Rent shall be apportioned, paid or refunded as of such date, (c) Tenant,
upon Landlord's request, shall enter into an amendment of this Lease ratifying
and confirming such total or partial termination, and setting forth any
appropriate modifications to the terms and provisions hereof, and (d) Landlord
shall be free to lease the Premises (or any part thereof) to Tenant's
prospective assignee or subtenant.
SECTION 15.4 CONDITIONS TO ASSIGNMENT/SUBLETTING.
(a) If Landlord does not exercise any of Landlord's options provided
under Sections 15.2, and provided that no Event of Default then exists,
Landlord's consent to the proposed assignment or subletting shall not be
unreasonably withheld or delayed. Such consent shall be granted or declined, as
the case may be, within 20 days after Landlord's receipt of (i) a true and
complete statement reasonably detailing the identity of the proposed assignee or
subtenant, the nature of its business and its proposed use of the Premises, (ii)
current financial information with respect to the proposed assignee or
subtenant, including its most recent financial statements, and (iii) any other
information Landlord may reasonably request, provided that:
(A) in Landlord's reasonable judgment, the proposed assignee
or subtenant is engaged in a business or activity, and the Premises will
be used in a manner, which (1) is in keeping with the then standards of
the Building, (2) limits the use of the Premises to general and executive
offices, and (3) does not violate any restrictions set forth in this
Lease, any Mortgage or Superior Lease or any negative covenant as to use
of the Premises required by any other lease in the Building;
(B) the proposed assignee or subtenant is a reputable person
or entity of good character with sufficient financial means to perform all
of its obligations under this Lease or the sublease, as the case may be,
and Landlord has been furnished with reasonable proof thereof;
(C) if Landlord has, or reasonably expects to have within six
months thereafter, comparable space available in the Building, neither the
proposed assignee or subtenant nor any person which, directly or
indirectly, controls, is controlled by, or is under common control with,
the proposed assignee or subtenant is then an occupant of the Building;
(D) the proposed assignee or subtenant is not a person or
entity (or affiliate of a person or entity) with whom Landlord or
Landlord's agent is then or has been within the prior six months
negotiating in connection with the rental of space in the Building;
(E) the form of the proposed sublease or instrument of
assignment shall be reasonably satisfactory to Landlord and shall comply
with the provisions of this Article 15;
(F) there shall be not more than two subtenants of the
Premises;
(G) Tenant shall, upon demand, reimburse Landlord for all
expenses incurred by Landlord in connection with such assignment or
sublease, including any investigations as to the acceptability of the
proposed assignee or subtenant, reviewing any plans and specifications for
Alterations proposed to be made in connection therewith, and all legal
costs reasonably incurred in connection with the granting of any requested
consent;
(H) the proposed subtenant or assignee shall not be entitled,
directly or indirectly, to diplomatic or sovereign immunity, regardless of
whether the proposed assignee or subtenant agrees to waive such diplomatic
or sovereign immunity, and shall be subject to the service of process in,
and the jurisdiction of the courts of, County of Cook and State of
Illinois; and
(I) in Landlord's reasonable judgment, the proposed assignee
or subtenant shall not be of a type or character, or engaged in a business
or activity, or owned or controlled by or identified with any entity,
which may result in protests or civil disorders or commotions at, or other
disruptions of the normal business activities in, the Building.
(b) With respect to each and every subletting and/or assignment
authorized by Landlord under the provisions of this Lease, it is further agreed
that:
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(i) the form of the proposed assignment or sublease shall be
reasonably satisfactory to Landlord and shall comply with the provisions of this
Article 15;
(ii) no sublease shall be for a term ending later than one day
prior to the Expiration Date of this Lease;
(iii) no subtenant shall take possession of any part of the
Premises, until an executed counterpart of such sublease has been delivered to
Landlord and approved in writing by Landlord as provided in Section 15.4(a);
(iv) if an Event of Default shall occur at any time prior to
the effective date of such assignment or subletting, then Landlord's consent
thereto, if previously granted, shall be immediately deemed revoked without
further notice to Tenant, and if such assignment or subletting would have been
permitted without Landlord's consent pursuant to Section 15.8, such permission
shall be void and without force and effect, and in either such case, any such
assignment or subletting shall constitute a further Event of Default hereunder;
(v) if an Event of Default shall occur under this Lease,
Landlord may require the subtenant under any sublease to pay the rent and other
sums due under the sublease directly to Landlord; and
(vi) each sublease shall be subject and subordinate to this
Lease and to the matters to which this Lease is or shall be subordinate, it
being the intention of Landlord and Tenant that Tenant shall assume and be
liable to Landlord for any and all acts and omissions of all subtenants and
anyone claiming under or through any subtenants which, if performed or omitted
by Tenant, would be a default under this Lease; and Tenant and each subtenant
shall be deemed to have agreed that upon the occurrence and during the
continuation of an Event of Default hereunder, Tenant has hereby assigned to
Landlord, and Landlord may, at its option, accept such assignment of, all right,
title and interest of Tenant as sublandlord under such sublease, together with
all modifications, extensions and renewals thereof then in effect and such
subtenant shall, at Landlord's option, attorn to Landlord pursuant to the then
executory provisions of such sublease, except that Landlord shall not be (A)
liable for any previous act or omission of Tenant under such sublease, (B)
subject to any counterclaim, offset or defense not expressly provided in such
sublease, which theretofore accrued to such subtenant against Tenant, (C) bound
by any previous modification of such sublease not consented to by Landlord or by
any prepayment of more than one month's Rent, (D) bound to return such
subtenant's security deposit, if any, except to the extent Landlord shall
receive actual possession of such deposit and such subtenant shall be entitled
to the return of all or any portion of such deposit under the terms of its
sublease, or (E) obligated to make any payment to or on behalf of such
subtenant, or to perform any work in the subleased space or the Building, or in
any way to prepare the subleased space for occupancy, beyond Landlord's
obligations under this Lease. The provisions of this Section 15.4(b)(vi) shall
be self-operative, and no further instrument shall be required to give effect to
this provision, provided that the subtenant shall execute and deliver to
Landlord any instruments Landlord may reasonably request to evidence and confirm
such subordination and attornment.
SECTION 15.5 BINDING ON TENANT; INDEMNIFICATION OF LANDLORD. Each
sublease pursuant to this Article 15 shall be subject to all of the covenants,
terms and conditions of this Lease. Notwithstanding any assignment or subletting
or any acceptance of Rent by Landlord from any assignee or subtenant, Tenant
shall remain fully liable for the payment of all Rent due and for the
performance of all the covenants, terms and conditions contained in this Lease
on Tenant's part to be observed and performed, and any default under any term,
covenant or condition of this Lease by any subtenant or assignee or anyone
claiming under or through any subtenant or assignee shall be deemed to be a
default under this Lease by Tenant. Tenant shall indemnify, defend, protect and
hold harmless Landlord from and against any and all losses, liabilities, damages
and expenses (including reasonable attorneys' fees and disbursements) resulting
from any claims that may be made against Landlord by the proposed assignee or
subtenant or anyone claiming under or through any subtenant or by any brokers or
other persons claiming a commission or similar compensation in connection with
the proposed assignment or sublease, irrespective of whether Landlord shall give
or decline to give its consent to any proposed assignment or sublease, or if
Landlord shall exercise any of its options under this Article 15.
SECTION 15.6 TENANT'S FAILURE TO COMPLETE. If Landlord consents to a
proposed assignment or sublease and Tenant fails to execute and deliver to
Landlord such assignment or sublease within 90 days after the giving of such
consent, then Tenant shall again comply with all of the provisions and
conditions of Section 15.2 hereof before assigning this Lease or subletting all
or part of the Premises.
SECTION 15.7 PROFITS. If Tenant shall enter into any assignment or
sublease permitted hereunder or consented to by Landlord, Tenant shall, within
60 days of Landlord's consent to such assignment or sublease, deliver to
Landlord a complete list of Tenant's reasonable third-party brokerage fees,
construction costs and allowances, legal fees and architectural fees paid or to
be paid in connection with such transaction, together with a list of all of
Tenant's Property to be transferred to such assignee or
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sublessee. Tenant shall deliver to Landlord evidence of the payment of such
fees, costs and allowances promptly after the same are paid. In consideration of
such assignment or subletting, Tenant shall pay to Landlord:
(a) In the case of an assignment, on the effective date of the
assignment, an amount equal to 50% of all sums and other consideration paid to
Tenant by the assignee for or by reason of such assignment (including sums paid
for the sale or rental of Tenant's Property, less the then fair market or rental
value thereof, as reasonably determined by Landlord, in connection with an
assignment or sublease requiring Landlord's consent) after first deducting
Tenant's reasonable third-party brokerage fees, construction costs and
allowances, legal fees and architectural fees in connection with such
transaction; or
(b) in the case of a sublease, 50% of any consideration payable
under the sublease to Tenant by the subtenant which exceeds on a per square foot
basis the Fixed Rent and Additional Rent accruing during the term of the
sublease in respect of the subleased space (together with any sums paid for the
sale or rental of Tenant's Property, less the then fair market or rental value
thereof, as reasonably determined by Landlord, in connection with an assignment
or sublease requiring Landlord's consent) after first deducting Tenant's
reasonable third-party brokerage fees, construction costs and allowances, legal
fees and architectural fees in connection with such transaction, and if such
sublease is less than the entire Premises, the actual cost incurred by Tenant in
separately demising the subleased space. The sums payable under this clause
shall be paid by Tenant to Landlord as and when paid by the subtenant to Tenant.
SECTION 15.8 OTHER TRANSFERS.
(a) Deemed and Permitted Transfers. If Tenant is a corporation, the
transfer (by one or more transfers) of a majority of the stock of Tenant shall
be deemed a voluntary assignment of this Lease; provided, however, that the
provisions of this Article 15 shall not apply to the transfer of shares of stock
of Tenant if and so long as Tenant is publicly traded on a nationally recognized
stock exchange. For purposes of this Section 15.8 the term "transfers" shall be
deemed to include the issuance of new stock which results in a majority of the
stock of Tenant being held by a person or entity which does not hold a majority
of the stock of Tenant on the date hereof. If Tenant is a partnership, the
transfer (by one or more transfers) of a majority interest in the partnership
shall be deemed a voluntary assignment of this Lease. If Tenant is a limited
liability company, trust, or any other legal entity, the transfer (by one or
more transfers) of a majority of the beneficial ownership interests in such
entity, however characterized, shall be deemed a voluntary assignment of this
Lease. The provisions of Section 15.1 and Section 15.3 shall not apply to
transactions with a corporation or other business entity into or with which
Tenant is merged or consolidated or to which substantially all of Tenant's
assets are transferred so long as (i) such transfer was made for a legitimate
independent business purpose and not for the purpose of transferring this Lease,
(ii) the successor to Tenant has a net worth computed in accordance with
generally accepted accounting principles at least equal to the greater of (1)
the net worth of Tenant immediately prior to such merger, consolidation or
transfer, and (2) the net worth of the original Tenant on the date of this
Lease, and (iii) proof satisfactory to Landlord of such net worth is delivered
to Landlord at least 10 days prior to the effective date of any such
transaction. Tenant may also, upon prior notice to and with the consent of
Landlord, which consent shall not be unreasonably withheld, permit any
corporation or other business entity which controls, is controlled by, or is
under common control with the original Tenant (a "Related Entity") to sublet all
or part of the Premises for any Permitted Use, provided the Related Entity is in
Landlord's reasonable judgment of a character and engaged in a business which is
in keeping with the standards for the Building and the occupancy thereof. Such
sublease shall not be deemed to vest in any such Related Entity any right or
interest in this Lease or the Premises nor shall it relieve, release, impair or
discharge any of Tenant's obligations hereunder. For the purposes hereof,
"control" shall be deemed to mean ownership of not less than 50 percent of all
of the voting stock of such corporation or not less than 50 percent of all of
the legal and equitable interest in any other business entity if Tenant is not a
corporation. Notwithstanding the foregoing, Tenant shall have no right to assign
this Lease or sublease all or any portion of the Premises without Landlord's
consent pursuant to this Section 15.8 if Tenant is not the initial Tenant herein
named or a person or entity who acquired Tenant's interest in this Lease in a
transaction permitted under this Section 15.8 without the express prior consent
of Landlord.
(b) APPLICABILITY. The limitations set forth in this Section 15.8
shall apply to subtenant(s), assignee(s) and guarantor(s) of this Lease, if any,
and any transfer by any such entity in violation of this Section 15.8 shall be a
transfer in violation of Section 15.1.
(c) MODIFICATIONS, TAKEOVER AGREEMENTS. Any modification, amendment
or extension of a sublease and/or any other agreement by which a landlord of a
building other than the Building agrees to assume the obligations of Tenant
under this Lease shall be deemed a sublease for the purposes of Section 15.1
hereof.
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SECTION 15.9 ASSUMPTION OF OBLIGATIONS. Any assignment or transfer,
whether made with Landlord's consent or without Landlord's consent, if and to
the extent permitted hereunder, shall not be effective unless and until the
assignee executes, acknowledges and delivers to Landlord an agreement in form
and substance satisfactory to Landlord whereby the assignee (a) assumes Tenant's
obligations under this Lease and (b) agrees that, notwithstanding such
assignment or transfer, the provisions of Section 15.1 hereof shall be binding
upon it in respect of all future assignments and transfers.
SECTION 15.10 TENANT'S LIABILITY. The joint and several liability of
Tenant and any successors-in-interest of Tenant and the due performance of
Tenant's obligations under this Lease shall not be discharged, released or
impaired by any agreement or stipulation made by Landlord, or any grantee or
assignee of Landlord, extending the time, or modifying any of the terms and
provisions of this Lease, or by any waiver or failure of Landlord, or any
grantee or assignee of Landlord, to enforce any of the terms and provisions of
this Lease.
SECTION 15.11 LISTINGS IN BUILDING DIRECTORY. The listing of any name
other than that of Tenant on the doors of the Premises, the Building directory
or elsewhere shall not vest any right or interest in this Lease or in the
Premises, nor be deemed to constitute Landlord's consent to any assignment or
transfer of this Lease or to any sublease of the Premises or to the use or
occupancy thereof by others. Any such listing shall constitute a privilege
revocable in Landlord's discretion by notice to Tenant.
SECTION 15.12 LEASE DISAFFIRMANCE OR REJECTION. If at any time after an
assignment by Tenant named herein, this Lease is disaffirmed or rejected in any
proceeding of the types described in Section 18.1(g) hereof or any similar
proceeding, or upon a termination of this Lease due to any such proceeding,
Tenant named herein, upon request of Landlord given after such disaffirmance,
rejection or termination (and actual notice thereof to Landlord in the event of
a disaffirmance or rejection or in the event of termination other than by act of
Landlord), shall (a) pay to Landlord all Rent and other charges due and owing by
the assignee to Landlord under this Lease to and including the date of such
disaffirmance, rejection or termination, and (b) as "tenant," enter into a new
lease of the Premises with Landlord for a term commencing on the effective date
of such disaffirmance, rejection or termination and ending on the Expiration
Date, unless sooner terminated in accordance therewith, at the same Rent and
upon the then executory terms, covenants and conditions contained in this Lease,
except that (i) the rights of Tenant named herein under the new lease shall be
subject to the possessory rights of the assignee under this Lease and the
possessory rights of any persons claiming through or under such assignee or by
virtue of any statute or of any order of any court, (ii) such new lease shall
require all defaults existing under this Lease to be cured by Tenant named
herein with due diligence, and (iii) such new lease shall require Tenant named
herein to pay all Rent which, had this Lease not been so disaffirmed, rejected
or terminated, would have become due under the provisions of this Lease after
the date of such disaffirmance, rejection or termination with respect to any
period prior thereto. If Tenant named herein defaults in its obligations to
enter into such new lease for a period of 10 days after Landlord's request,
then, in addition to all other rights and remedies by reason of default, either
at law or in equity, Landlord shall have the same rights and remedies against
Tenant named herein as if it had entered into such new lease and such new lease
had thereafter been terminated as of the commencement date thereof by reason of
Tenant's default thereunder.
ARTICLE 16
ELECTRICITY
SECTION 16.1 ELECTRICITY. Electricity shall be distributed to the
Premises either by the electric utility company serving the Building or, at
Landlord's option, by Landlord; and Landlord shall permit Landlord's wire and
conduits, to the extent available, suitable and safely capable, to be used for
such distribution. If and so long as Landlord is distributing electricity to the
Premises, Tenant shall obtain all of its electricity from Landlord and shall pay
all of Landlord's charges, which charges shall be determined pursuant to Section
16.4 based, at Landlord's option, either on meter readings or on a survey of
Tenant's electrical usage made by Landlord or on Tenant's prorata share of all
space, including the Premises, which is commonly metered with the Premises. If
the electric utility company is distributing electricity to the Premises, Tenant
at its cost shall make all necessary arrangements with the electric utility
company for metering and paying for electric current furnished to the Premises.
All electricity used during the performance of janitor service, or the making of
any alterations or repairs in the Premises, or the operation of any special air
conditioning systems serving the Premises, shall be paid for by Tenant.
SECTION 16.2 EXCESS ELECTRICITY. Tenant shall at all times comply with
the rules and regulations of the utility company supplying electricity to the
Building. Tenant shall not use any electrical equipment which, in Landlord's
judgment, would exceed the capacity of the electrical equipment serving the
Premises or interfere with the electrical service to other Building tenants. If
Landlord determines that Tenant's electrical requirements necessitate
installation of any additional risers, feeders or other electrical distribution
equipment (collectively, "Electrical Equipment"), or if Tenant provides Landlord
with evidence reasonably satisfactory to Landlord of Tenant's need for excess
electricity and requests that additional Electrical Equipment be installed,
Landlord
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shall, at Tenant's expense, install such additional Electrical Equipment,
provided that Landlord, in its sole judgment, considering the potential needs of
present and future Building tenants and of the Building itself, determines that
(a) such installation is practicable and necessary, (b) such additional
Electrical Equipment is permissible under applicable Requirements, and (c) the
installation of such Electrical Equipment will not cause permanent damage or
injury to the Building or the Premises, cause or create a dangerous or hazardous
condition, entail excessive or unreasonable alterations, interfere with or
disturb or limit electrical usage by other tenants or occupants of the Building
or exceed the limits of the switchgear or other facilities serving the Building,
or require power in excess of that available from the public utility serving the
Building. Any costs incurred by Landlord in connection therewith shall be paid
by Tenant within 30 days after the rendition of a bill therefor. Tenant shall
not make or perform, or permit the making or performance of, any Alterations to
wiring installations or other electrical facilities in or serving the Premises
or make any additions to the office equipment or other appliances in the
Premises which utilize electrical energy (other than ordinary small office
equipment) without the prior consent of Landlord, in each instance, and in
compliance with this Lease.
SECTION 16.3 SERVICE DISRUPTION. Landlord shall not be liable in any way
to Tenant for any failure, defect or interruption of, or change in the supply,
character and/or quantity of electric service furnished to the Premises for any
reason except if attributable to the gross negligence or willful misconduct of
Landlord, its agents, contractors and subcontractors, nor shall there be any
allowance to Tenant for diminution of rental value, nor shall the same
constitute an actual or constructive eviction of Tenant, in whole or part, or
relieve Tenant from any of its Lease obligations, and no liability shall arise
on the part of Landlord by reason of inconvenience, annoyance or injury to
business whether electricity is provided by public or private utility or by any
electricity generation system owned and operated by Landlord. Landlord shall use
reasonable efforts to minimize interference with Tenant's use and occupancy of
the Premises as a result of any such failure, defect or interruption of, or
change in the supply, character and/or quantity of, electric service, provided
that Landlord shall have no obligation to employ contractors or labor at
overtime or other premium pay rates or to incur any other overtime costs or
additional expenses whatsoever.
SECTION 16.4 ELECTRICITY ADDITIONAL RENT.
(a) Tenant shall pay to Landlord an annual amount ("Electricity
Additional Rent") equal to the product of (i) the Electrical Allocation set
forth in Article 2 and (ii) the Agreed Area of the Premises. The Electricity
Additional Rent shall be paid in equal monthly installments, in advance, on the
first day of each calendar month commencing on the Rent Commencement Date. If
the Rent Commencement Date shall occur on a date other than the first day of any
calendar month, Tenant shall pay to Landlord, on the Rent Commencement Date, a
sum equal to the Electricity Additional Rent for such month multiplied by a
fraction, the numerator of which shall be the number of calendar days in the
period from the Rent Commencement Date to the last day of the month in which the
Rent Commencement Date shall occur, both dates inclusive, and the denominator of
which shall be the number of calendar days in such month.
(b) The Electrical Allocation represents the amount per rentable
square foot Landlord estimates Tenant would pay to Commonwealth Edison Company
to contract directly for the electricity to be furnished by Landlord for
Tenant's Standard Electrical Requirements") from 8:00 a.m. to 6:00 p.m. on
Business Days and 8:00 a.m. to 1:00 p.m. on Saturdays that are not Holidays
("Normal Business Hours"). As used herein, Standard "Electrical Requirements"
means the electricity required for Tenant's Building Standard lighting fixtures
and for Tenant's incidental uses, provided that (i) the connected electrical
load of Tenant's incidental use equipment does not exceed an average of two
watts per square foot of the Premises; (ii) the electricity furnished for
incidental uses shall be at nominal 120 volts and no electrical circuit for the
supply of an incidental use shall have a current capacity exceeding 15 amperes;
(iii) the incidental use electricity shall be used only for customary office
equipment and accessories (excluding, without limitation, data processing,
computer (other than personal computers) and air conditioning equipment); and
(iv) the kilowatt-hours of incidental usage does not exceed five (5) percent of
the total kilowatt- hours of lighting usage in the Premises. In the event
Tenant's requirements for incidental usage of electricity exceed the foregoing
limitations, Landlord reserves the right to require Tenant to arrange with
Commonwealth Edison Company, or other approved local utility company, for the
supply of such excess incidental usage of electricity, at Tenant's expense.
(c) If, at any time during the Term (i) Landlord determines that it
has underestimated Tenant's Standard Electrical Requirements during Normal
Business Hours, or that Tenant is using the Standard Electrical Requirements
after Normal Business Hours; or (ii) the rate classification pursuant to which
Tenant would pay directly to Commonwealth Edison Company is increased; or (iii)
the rate classification pursuant to which Tenant would pay directly to
Commonwealth Edison Company is changed to another classification and such change
results in an increase; then, in any of such events, Landlord may, upon written
notice to Tenant, increase the Electrical Allocation to reflect the amount
Tenant would pay directly to Commonwealth Edison Company upon the occurrence of
any such events.
(d) If, at any time during the Term of the Lease, (i) Tenant
etermines that Landlord has overestimated Tenant's Electrical Requirements
during Normal Business Hours and Landlord agrees with such determination; (ii)
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the rate classification pursuant to which Tenant would pay directly to
Commonwealth Edison Company is decreased; or (iii) the rate classification
pursuant to which Tenant would pay directly to Commonwealth Edison Company is
changed to another classification and such change results in a decrease; then,
in any such events, Landlord shall, upon written notice from Tenant, decrease
the Electrical Allocation to reflect the lesser amount Tenant would pay directly
to Commonwealth Edison Company upon the occurrence of any such events.
(e) All increases or decreases in the Electrical Allocation shall
result in a corresponding increase or decrease, as the case may be, in the
Electrical Rent payable by Tenant effective on the first day of the first full
calendar month following the month in which the notice of increase or decrease
is received by Tenant or Landlord, as the case may be.
(f) If a dispute or disagreement shall arise between Tenant and
Landlord with respect to the propriety of an increase or decrease of Electricity
Additional Rent under this Section 16.4, the dispute or disagreement shall be
promptly referred to a mutually acceptable independent electrical engineer whose
decision, including any modification of an increase or decrease, will be binding
upon Tenant and Landlord, effective as provided above, and whose fee shall be
borne equally by Tenant and Landlord.
ARTICLE 17
ACCESS TO PREMISES
SECTION 17.1 LANDLORD'S ACCESS.
(a) Tenant shall permit Landlord, Landlord's agents and public
utility service providers servicing the Building to erect, use and maintain
concealed ducts, pipes and conduits in and through the Premises provided such
use does not cause the usable area of the Premises to be reduced by an amount
greater than two percent (2%). Landlord shall promptly repair any damage to the
Premises or Tenant's Property caused by any work performed pursuant to this
Article 17, and restore the Premises and Tenant's Property to its condition
immediately prior to such damage.
(b) Landlord, any Lessor or Mortgagee and any other party designated
by Landlord and their respective agents shall have the right to enter the
Premises at all reasonable times, upon reasonable notice (which notice may be
oral) except in the case of emergency, to examine the Premises, to show the
Premises to prospective purchasers, Mortgagees or Lessors of the Building and
their respective agents and representatives or others, to provide the services
to be provided by Landlord under this Lease, to make such repairs, alterations
or additions to the Premises or the Building (i) as Landlord may deem necessary
or appropriate, (ii) which Landlord may elect to perform following Tenant's
failure to perform, or (iii) to comply with any Requirements, and Landlord shall
be allowed to take all material into the Premises that may be required for the
performance of such work without the same constituting an actual or constructive
eviction of Tenant in whole or in part and without any abatement of Rent;
provided, however, that Landlord shall use reasonable efforts to minimize
interference with Tenant's use and occupancy of the Premises during such access
except that Landlord shall have no obligation to employ contractors or labor at
overtime or other premium pay rates or to incur any other overtime costs or
additional expenses whatsoever.
(c) All parts (except surfaces facing the interior of the Premises)
of all walls, windows and doors bounding the Premises (including exterior
Building walls, exterior core corridor walls, and doors and entrances other than
doors and entrances solely connecting areas within the Premises), all balconies,
terraces and roofs adjacent to the Premises, all space in or adjacent to the
Premises used for shafts, stacks, stairways, mail chutes, conduits and other
mechanical facilities, Building Systems and Building facilities are not part of
the Premises, and Landlord shall have the use thereof and access thereto through
the Premises for the purposes of Building operation, maintenance, alteration and
repair; provided, however, that Landlord shall use reasonable efforts to
minimize interference with Tenant's use and occupancy of the Premises during
such access except that Landlord shall have no obligation to employ contractors
or labor at overtime or other premium pay rates or to incur any other overtime
costs or additional expenses whatsoever.
SECTION 17.2 FINAL 12 MONTHS. If, during the last 12 months of the Term,
Tenant removes all or substantially all of Tenant's Property from the Premises,
Landlord may, upon prior notice (which notice may be oral) and at reasonable
hours, renovate and/or redecorate the Premises, without abatement of any Rent or
incurring any liability to Tenant. Such acts shall not be deemed an actual or
constructive eviction and shall have no effect upon this Lease.
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SECTION 17.3 ALTERATIONS TO BUILDING. Landlord has the right at any time
to (a) change the name, number or designation by which the Building is commonly
known, and (b) alter the Building to change the arrangement or location of
entrances or passageways, doors and doorways, and corridors, elevators, stairs,
toilets, or other public parts of the Building without any such acts
constituting an actual or constructive eviction and without incurring any
liability to Tenant, so long as such changes do not deprive Tenant of access to
the Premises.
ARTICLE 18
DEFAULT
SECTION 18.1 TENANT'S DEFAULTS. Each of the following events shall be an
"Event of Default" hereunder:
(a) Tenant fails to pay when due any installment of Rent and such
default shall continue for five (5) Business Days after notice of such default
is given to Tenant (which notice may be in the form of an Illinois Statutory
5-day notice utilized in Forcible Entry and Detainer Proceedings, except that if
Landlord shall have given three such notices of default in the payment of any
Rent in any twelve month period, Tenant shall not be entitled to any further
notice of its delinquency in the payment of any Rent or an extended period in
which to make payment until such time as twelve consecutive months shall have
elapsed without Tenant having failed to make any such payment when due, and the
occurrence of any default in the payment of any Rent within such twelve month
period after the giving of three such notices shall constitute an Event of
Default; or
(b) Tenant uses the Premises for a purpose which constitutes a
Prohibited Use and if such use continues for more than 10 days after notice by
Landlord to Tenant of such default; or
(c) Tenant fails to observe or perform any other term, covenant or
condition of this Lease to be observed or performed by Tenant and if such
failure continues for more than 10 Business Days after notice by Landlord to
Tenant of such failure, or if such failure is of such a nature that it cannot be
completely remedied within 10 days, failure by Tenant to commence to remedy such
failure within said 10 Business Days, and thereafter diligently prosecute to
completion all steps necessary to remedy such default; or
(d) Tenant defaults in the observance or performance of any term,
covenant or condition on Tenant's part to be observed or performed under any
other lease with Landlord or Landlord's predecessor-in-interest for space in the
Building and such default shall continue beyond any grace period set forth in
such other lease for the remedying of such default; or
(e) Tenant's interest in this Lease shall devolve upon or pass to
any person, whether by operation of law or otherwise, except as expressly
permitted under Article 15 hereof; or
(f) Tenant generally does not, or is unable to, or admits in writing
its inability to, pay its debts as they become due; or
(g) Tenant files a voluntary petition in bankruptcy or insolvency,
or is adjudicated a bankrupt or insolvent, or files any petition or answer
seeking any reorganization, liquidation, dissolution or similar relief under any
present or future federal bankruptcy act or any other present or future
applicable federal, state or other statute or law, or makes an assignment for
the benefit of creditors or seeks or consents to or acquiesces in the
appointment of any trustee, receiver, liquidator or other similar official for
Tenant or for all or any part of Tenant's property; or
(h) if, within 60 days after the commencement of any proceeding
against Tenant, whether by the filing of a petition or otherwise, seeking
bankruptcy, insolvency, reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under the present or any future
federal bankruptcy act or any other present or future applicable federal, state
or other statute or law, such proceeding shall not have been dismissed, or if,
within 60 days after the appointment of any trustee, receiver, liquidator or
other similar official for Tenant or for all or any part of Tenant's property,
without the consent or acquiescence of Tenant, as the case may be, such
appointment shall not have been vacated or otherwise discharged, or if any lien,
execution or attachment or other similar filing shall be made or issued against
Tenant or any of Tenant's property pursuant to which the Premises shall be taken
or occupied or attempted to be taken or occupied by someone other than Tenant.
Upon the occurrence of any one or more of such Events of Default, Landlord may,
at its sole option, give to Tenant notice of cancellation of this Lease (or of
Tenant's possession of the Premises), in which event this Lease and the Term (or
Tenant's possession
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of the Premises) shall come to an end and expire (whether or not the Term shall
have commenced) with the same force and effect as if the date set forth in the
notice was the Expiration Date stated herein; and Tenant shall then quit and
surrender the Premises to Landlord, but Tenant shall remain liable for damages
as provided in Article 19 hereof. Any notice of cancellation of the Term (or
Tenant's possession of the Premises) may be given simultaneously with any notice
of default given to Tenant.
SECTION 18.2 TENANT'S LIABILITY. If, at any time, (a) Tenant shall be
comprised of two or more persons, (b) Tenant's obligations under this Lease
shall have been guaranteed by any person other than Tenant, or (c) Tenant's
interest in this Lease shall have been assigned, the word "Tenant," as used in
Section 18.1(f), 18.1(g) and 18.1(h), shall be deemed to mean any one or more of
the persons primarily or secondarily liable for Tenant's obligations under this
Lease. Any monies received by Landlord from or on behalf of Tenant during the
pendency of any proceeding of the types referred to in this Article 18 shall be
deemed paid as compensation for the use and occupancy of the Premises and the
acceptance of any such compensation by Landlord shall not be deemed an
acceptance of Rent or a waiver on the part of Landlord of any rights under this
Lease.
ARTICLE 19
REMEDIES AND DAMAGES
SECTION 19.1 LANDLORD'S REMEDIES.
(a) POSSESSION/RELETTING. If any Event of Default occurs, and this
Lease and the Term, or Tenant's right to possession of the Premises, terminates
as provided in Article 18:
(i) SURRENDER OF POSSESSION. Tenant shall quit and surrender
the Premises to Landlord, and Landlord and its agents may immediately, or at any
time after such Event of Default, re-enter the Premises or any part thereof,
without notice, either by summary proceedings, or by any other applicable action
or proceeding, or by force (to the extent permitted by law) or otherwise in
accordance with applicable legal proceedings (without being liable to
indictment, prosecution or damages therefor), and may repossess the Premises and
dispossess Tenant and any other persons from the Premises and remove any and all
of their property and effects from the Premises.
(ii) LANDLORD'S RELETTING. Landlord, at Landlord's option, may
relet all or any part of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for any term ending before, on
or after the Expiration Date, at such rental and upon such other conditions
(which may include concessions and free rent periods) as Landlord, in its sole
discretion, may determine. Landlord shall have no obligation to accept any
tenant offered by Tenant and shall not be liable for failure to relet or, in the
event of any such reletting, for failure to collect any rent due upon any such
reletting; and no such failure shall relieve Tenant of, or otherwise affect, any
liability under this Lease. However, to the extent required by law, Landlord
shall use reasonable efforts to mitigate its damages but shall not be required
to divert prospective tenants from any other portions of the Building. Landlord,
at Landlord's option, may make such alterations, decorations and other physical
changes in and to the Premises as Landlord, in its sole discretion, considers
advisable or necessary in connection with such reletting or proposed reletting,
without relieving Tenant of any liability under this Lease or otherwise
affecting any such liability.
(b) TENANT'S WAIVER. Tenant, on its own behalf and on behalf of all
persons claiming through or under Tenant, including all creditors, hereby waives
all rights which Tenant and all such persons might otherwise have under any
Requirement (i) to the service of any notice of intention to re-enter or to
institute legal proceedings, (ii) to redeem, or to re-enter or repossess the
Premises, or (iii) to restore the operation of this Lease, after (A) Tenant
shall have been dispossessed by judgment or by warrant of any court or judge,
(B) any re-entry by Landlord, or (C) any expiration or early termination of the
term of this Lease, whether such dispossess, re-entry, expiration or termination
shall be by operation of law or pursuant to the provisions of this Lease. The
words "re-enter," "re-entry" and "re-entered" as used in this Lease shall not be
deemed to be restricted to their technical legal meanings.
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(c) TENANT'S BREACH. Upon the breach or threatened breach by Tenant,
or any persons claiming through or under Tenant, of any term, covenant or
condition of this Lease, Landlord shall have the right to enjoin such breach and
to invoke any other remedy allowed by law or in equity as if re-entry, summary
proceedings and other special remedies were not provided in this Lease for such
breach. The rights to invoke the remedies set forth above are cumulative and
shall not preclude Landlord from invoking any other remedy allowed at law or in
equity.
SECTION 19.2 LANDLORD'S DAMAGES.
(a) AMOUNT OF DAMAGES. If this Lease and the Term, or Tenant's right
to possession of the Premises, expire and come to an end as provided in Article
18, or by or under any summary proceeding or any other action or proceeding, or
if Landlord shall re-enter the Premises as provided in Section 19.1, then, in
any of such events:
(i) Tenant shall pay to Landlord all Fixed Rent, all sums
payable pursuant to Article 8 of this Lease (including Tenant's Tax Payment and
Tenant's Operating Payment) and all other items of Rent payable under this Lease
by Tenant to Landlord prior to the date of re-entry upon the Premises by
Landlord;
(ii) Landlord shall be entitled to retain all monies, if any,
paid by Tenant to Landlord, whether as prepaid Rent, a Security Deposit or
otherwise, which monies, to the extent not otherwise applied to amounts due and
owing to Landlord, shall be credited by Landlord against any damages payable by
Tenant to Landlord;
(iii) Tenant shall pay to Landlord, in monthly installments,
on the days specified in this Lease for payment of installments of Fixed Rent,
any Deficiency; it being understood that Landlord shall be entitled to recover
the Deficiency from Tenant each month as the same shall arise, and no suit to
collect the amount of the Deficiency for any month, shall prejudice Landlord's
right to collect the Deficiency for any subsequent month by a similar
proceeding; and
(iv) whether or not Landlord shall have collected any monthly
Deficiency, Tenant shall pay to Landlord, on demand, in lieu of any further
Deficiency and as liquidated and agreed final damages, a sum equal to the amount
by which the Rent for the period which otherwise would have constituted the
unexpired portion of the Term (assuming the Additional Rent during such period
to be the same as was payable for the year immediately preceding such
termination or re-entry), increased in each succeeding year by four percent (on
a compounded basis) exceeds the then fair and reasonable rental value of the
Premises, for the same period (with both amounts being discounted to present
value at a rate of interest equal to two percent below the then Base Rate) less
the aggregate amount of Deficiencies theretofore collected by Landlord pursuant
to the provisions of Section 19.2(a)(iii) for the same period. If, before
presentation of proof of such liquidated damages to any court, commission or
tribunal, the Premises, or any part thereof, shall have been relet by Landlord
for the period which otherwise would have constituted the unexpired portion of
the Term, or any part thereof, the amount of rent reserved upon such reletting
shall be deemed, prima facie, to be the fair and reasonable rental value for the
part or the whole of the Premises so relet during the term of the reletting.
(b) RELETTING. If the Premises, or any part thereof, shall be relet
together with other space in the Building, the rents collected or reserved under
any such reletting and the expenses of any such reletting shall be equitably
apportioned for the purposes of this Section 19.2. Tenant shall not be entitled
to any rents collected or payable under any reletting, whether or not such rents
exceed the Fixed Rent reserved in this Lease. Nothing contained in Articles 18
or 19 shall be deemed to limit or preclude the recovery by Landlord from Tenant
of the maximum amount allowed to be obtained as damages by any Requirement, or
of any sums or damages to which Landlord may be entitled in addition to the
damages set forth in this Section 19.2.
SECTION 19.3 DEFAULT INTEREST; OTHER RIGHTS OF LANDLORD. Any Rent or
damages payable under this Lease and not paid when due shall bear interest at
the Interest Rate from the due date until paid, and the interest shall be deemed
Additional Rent. If Tenant fails to pay any Additional Rent when due, Landlord,
in addition to any other right or remedy, shall have the same rights and
remedies as in the case of a default by Tenant in the payment of Fixed Rent. If
Tenant is in arrears in the payment of Rent, Tenant waives Tenant's right, if
any, to designate the items against which any payments made by Tenant are to be
credited, and Landlord may apply any payments made by Tenant to any items
Landlord sees fit, regardless of any request by Tenant. Landlord reserves the
right, without liability to Tenant and without constituting any claim of
constructive eviction, to suspend furnishing or rendering to Tenant any
property, material, labor, utility or other service, whenever Landlord is
obligated to furnish or render the same at the expense of Tenant, in the event
that (but only for so long as) Tenant is in arrears in paying Landlord for such
items for more than five (5) days after notice from Landlord to Tenant demanding
the payment of such arrears.
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ARTICLE 20
LANDLORD'S RIGHT TO CURE; FEES AND EXPENSES
If Tenant defaults in the performance of its obligations under this
Lease, Landlord, without thereby waiving such default, may perform such
obligation for the account and at the expense of Tenant: (a) immediately or at
any time thereafter, and without notice, in the case of emergency or in the case
the default (i) materially interferes with the use by any other tenant of any
space in the Building, (ii) materially interferes with the efficient operation
of the Building, (iii) will result in a violation of any Requirement, or (iv)
will result in a cancellation of any insurance policy maintained by Landlord,
and (b) in any other case if such default continues after 10 days from the date
Landlord gives notice of Landlord's intention so to perform the defaulted
obligation. All costs and expenses incurred by Landlord in connection with any
such performance by it for the account of Tenant and all costs and expenses,
including reasonable counsel fees and disbursements, incurred by Landlord in any
action or proceeding (including any summary dispossess proceeding) brought by
Landlord to enforce any obligation of Tenant under this Lease and/or right of
Landlord in or to the Premises, shall be paid by Tenant to Landlord on demand,
with interest thereon at the Interest Rate from the date incurred by Landlord.
Except as expressly provided to the contrary in this Lease, all costs and
expenses which, pursuant to this Lease (including the Rules and Regulations) are
incurred by Landlord and payable to Landlord by Tenant, and all charges, amounts
and sums payable to Landlord by Tenant for any property, material, labor,
utility or other services which, pursuant to this Lease or at the request and
for the account of Tenant, are provided, furnished or rendered by Landlord,
shall become due and payable by Tenant to Landlord in accordance with the terms
of the bills rendered by Landlord to Tenant.
ARTICLE 21
NO REPRESENTATIONS BY LANDLORD: LANDLORD'S APPROVAL
SECTION 21.1 NO REPRESENTATIONS. Except as expressly set forth herein,
Landlord and Landlord's agents have made no warranties, representations,
statements or promises with respect to the Building, the Real Property or the
Premises and no rights, easements or licenses are acquired by Tenant by
implication or otherwise. This Lease contains the entire agreement between the
parties and all understandings and agreements previously made between Landlord
and Tenant are merged in this Lease, which alone fully and completely expresses
their agreement. Tenant is entering into this Lease after full investigation and
is not relying upon any statement or representation made by Landlord not
embodied in this Lease.
SECTION 21.2 WRITTEN APPROVAL. All references in this Lease to the
consent or approval or Landlord mean the written consent or approval of
Landlord, duly executed by Landlord.
SECTION 21.3 NO MONEY DAMAGES. Wherever in this Lease Landlord's consent
or approval is required, if Landlord refuses to grant such consent or approval,
whether or not Landlord expressly agreed that such consent or approval would not
be unreasonably withheld, Tenant shall not make, and Tenant hereby waives, any
claim for money damages (including any claim by way of set-off, counterclaim or
defense) based upon Tenant's claim or assertion that Landlord unreasonably
withheld or delayed its consent or approval. Tenant's sole remedy shall be an
action or proceeding to enforce such provision, by specific performance,
injunction or declaratory judgment.
ARTICLE 22
END OF TERM
SECTION 22.1 EXPIRATION. Upon the expiration or other termination of
this Lease, or Tenant's right to possession of the Premises, Tenant shall quit
and surrender the Premises to Landlord vacant, broom clean and in good order and
condition, ordinary wear and tear and damage for which Tenant is not responsible
under the terms of this Lease excepted, and Tenant shall remove all of Tenant's
Property and Tenant's Alterations as may be required pursuant to Article 6 of
this Lease. The foregoing obligation shall survive the expiration or sooner
termination of the Term. If the last day of the Term or any renewal thereof
falls on Saturday or Sunday, this Lease shall expire on the immediately
preceding Business Day.
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SECTION 22.2 HOLDOVER RENT. Landlord and Tenant recognize that the
damage to Landlord resulting from any failure by Tenant to timely surrender
possession of the Premises may be substantial, may exceed the amount of the Rent
theretofore payable hereunder, and will be impossible to accurately measure.
Tenant therefore agrees that if possession of the Premises is not surrendered to
Landlord within 24 hours after the Expiration Date or sooner termination of the
Term, in addition to any other rights or remedies Landlord may have hereunder or
at law, Tenant shall (a) pay to Landlord for each month (or any portion thereof)
during which Tenant holds over in the Premises after the Expiration Date or
sooner termination of the Term, a sum equal to 150 percent of the Rent payable
under this Lease for the last full calendar month of the Term for the first 30
days of such holdover and 200 percent of such Rent for any period thereafter,
(b) if such holdover exceeds 30 days be liable to Landlord for (i) any payment
or rent concession which Landlord may be required to make to any tenant obtained
by Landlord for all or any part of the Premises (a "New Tenant") in order to
induce such New Tenant not to terminate its lease by reason of the holding-over
by Tenant, and (ii) the loss of the benefit of the bargain if any New Tenant
shall terminate its lease by reason of the holding-over by Tenant, and (c) if
such holdover exceeds 30 days, indemnify Landlord against all claims for damages
by any New Tenant. No holding-over by Tenant, nor the payment to Landlord of the
amounts specified above, shall operate to extend the Term hereof. Nothing herein
contained shall be deemed to permit Tenant to retain possession of the Premises
after the Expiration Date or sooner termination of this Lease, and no acceptance
by Landlord of payments from Tenant after the Expiration Date or sooner
termination of the Term shall be deemed to be other than on account of the
amount to be paid by Tenant in accordance with the provisions of this Article
22. All of Tenant's obligations under this Article 22 shall survive the
expiration or earlier termination of the Term of this Lease.
ARTICLE 23
QUIET ENJOYMENT
Provided this Lease is in full force and effect and no Event of
Default then exists, Tenant may peaceably and quietly enjoy the Premises without
hindrance by Landlord or any person lawfully claiming through or under Landlord,
subject to the terms and conditions of this Lease and to all Superior Leases and
Mortgages.
ARTICLE 24
NO SURRENDER; NO WAIVER
SECTION 24.1 NO SURRENDER OR RELEASE. No act or thing done by Landlord
or Landlord's agents or employees during the Term shall be deemed an acceptance
of a surrender of the Premises, and no provision of this Lease shall be deemed
to have been waived by Landlord, unless such waiver is in writing and is signed
by Landlord, and any such waiver shall be effective only for the specific
purpose and in the specific instance in which given. If Tenant at any time
desires to have Landlord sublet the Premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive Tenant's keys to the Premises for
such purpose without releasing Tenant from any of the obligations under this
Lease, and Tenant hereby relieves Landlord of any liability for loss of or
damage to any of Tenant's effects in connection with such subletting.
SECTION 24.2 NO WAIVER. The failure of either party to seek redress for
violation of, or to insist upon the strict performance of, any covenant or
condition of this Lease, or any of the Rules and Regulations, shall not be
construed as a waiver or relinquishment for the future performance of such
obligations of this Lease or the Rules and Regulations, or of the right to
exercise such election but the same shall continue and remain in full force and
effect with respect to any subsequent breach, act or omission. The receipt by
Landlord of any Rent payable pursuant to this Lease or any other sums with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly Fixed Rent or Additional Rent herein stipulated shall be
deemed to be other than a payment on account of the earliest stipulated Fixed
Rent or Additional Rent, or as Landlord may elect to apply such payment, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment as Fixed Rent or Additional Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Fixed Rent or Additional Rent or
pursue any other remedy provided in this Lease. The existence of a right of
renewal or extension of this Lease, or the exercise of such right, shall not
limit Landlord's right to terminate this Lease in accordance with the terms
hereof, or create any option for further extension or renewal of this Lease.
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ARTICLE 25
WAIVER OF TRIAL BY JURY
LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER ON ANY
MATTERS IN ANY WAY ARISING OUT OF OR CONNECTED WITH THIS LEASE, THE RELATIONSHIP
OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES, OR THE
ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE. If Landlord
commences any summary proceeding against Tenant, Tenant will not interpose any
counterclaim of any nature or description in any such proceeding (unless failure
to impose such counterclaim would preclude Tenant from asserting in a separate
action the claim which is the subject of such counterclaim), and will not seek
to consolidate such proceeding with any other action which may have been or will
be brought in any other court by Tenant.
ARTICLE 26
INABILITY TO PERFORM
This Lease and the obligation of Tenant to pay Rent and to
perform all of the other covenants and agreements of Tenant hereunder shall not
be affected, impaired or excused by any Unavoidable Delays. Landlord shall use
reasonable efforts to promptly notify Tenant of any Unavoidable Delay which
prevents Landlord from fulfilling any of its obligations under this Lease.
ARTICLE 27
NOTICES
Except as otherwise expressly provided in this Lease, consents,
notices, demands, requests, approval or other communications given under this
Lease shall be in writing and shall be deemed sufficiently given or rendered if
delivered by hand (provided a signed receipt is obtained) or if sent by
registered or certified mail (return receipt requested) or by a nationally
recognized overnight delivery service making receipted deliveries, addressed as
follows:
if to Tenant, (a) at Tenant's address set forth on the first page
of this Lease, Attn: CFO if mailed prior to Tenant's taking possession
of the Premises, or (b) at the Building, Attn: Chief Financial Officer
if mailed subsequent to Tenant's taking possession of the Premises, or
(c) at any place where Tenant or any agent or employee of Tenant may be
found if mailed subsequent to Tenant's vacating, deserting, abandoning
or surrendering the Premises, or
if to Landlord, at Landlord's address set forth on the first page
of this Lease, Attn: Chief Financial Officer, and with copies to (v)
Tishman Speyer Properties L.P., 55 East Monroe Street, Chicago,
Illinois, 60603 Attn: Property Manager, (w) Tishman Speyer Properties
L.P., 520 Madison Avenue, New York, New York 10022, Attn: General
Counsel, (x) Tishman Speyer Properties L.P., 520 Madison Avenue, New
York, New York 10022, Attn: Head of Management Department (y) Tishman
Speyer Properties, L.P., 500 West Monroe Street, Suite 2700, Chicago,
Illinois 60661, Attn: Regional Manager, and (z) any Mortgagee or Lessor
which shall have requested copies of notices, by notice given to Tenant
in accordance with the provisions of this Article 27 at the address
designated by such Mortgagee or Lessor;
or to such other address(es) as either Landlord or Tenant or any Mortgagee or
Lessor may designate as its new address(es) for such purpose by notice given to
the other in accordance with the provisions of this Article 27. Any such
approval, consent, notice, demand, request or other communication shall be
deemed to have been given on the date of receipted delivery or refusal to accept
delivery or three Business Days after it shall have been mailed as provided in
this Article 27.
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ARTICLE 28
RULES AND REGULATIONS
Tenant and Tenant's contractors, employees, agents, visitors and
licensees shall observe and comply with the Rules and Regulations, as
supplemented or amended from time to time, provided, that in case of any
conflict or inconsistency between the provisions of this Lease and any of the
Rules and Regulations as originally promulgated or as supplemented or amended
from time to time, the provisions of this Lease shall control. Landlord reserves
the right, from time to time, to adopt additional Rules and Regulations and to
amend the Rules and Regulations then in effect, which shall become effective
against Tenant upon delivery of such additional or amended Rules and Regulations
to Tenant. Nothing contained in this Lease shall impose upon Landlord any
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease against any other Building tenant, and Landlord
shall not be liable to Tenant for violation of the same by any other tenant, its
employees, agents, visitors or licensees, except that Landlord shall not enforce
any Rule or Regulation against Tenant in a discriminatory fashion.
ARTICLE 29
PARTNERSHIP TENANT
SECTION 29.1 PARTNERSHIP TENANT. If Tenant, or a permitted assignee of
this Lease pursuant to Article 15 hereof, is a partnership, or is comprised of
two or more persons, individually or as co-partners of a partnership (any such
partnership and such persons are referred to in this Article 29 as "Partnership
Tenant"), the following shall apply: (a) the liability of each of the general
partners comprising Partnership Tenant shall be joint and several; (b) each of
the parties comprising Partnership Tenant hereby consents in advance to, and
agrees to be bound by, any written instrument which may hereafter be executed by
Partnership Tenant or any of the parties comprising Partnership Tenant, which
shall modify, extend or discharge this Lease, in whole or in part, or surrender
all or any part of the Premises to Landlord; (c) any bills, statements, notices,
demands, requests or other communications given or rendered to Partnership
Tenant or to any of such parties shall be binding upon Partnership Tenant and
all such parties; (d) if Partnership Tenant shall admit new general partners,
all of such new general partners shall, by their admission to Partnership
Tenant, be deemed to have assumed joint and several liability for the
performance of all of the terms, covenants and conditions of this Lease on
Tenant's part to be observed and performed; (e) Partnership Tenant shall give
prompt notice to Landlord of the admission of any such new general partners, and
upon demand of Landlord, shall cause each such new partner to execute and
deliver to Landlord an agreement in form and substance satisfactory to Landlord,
wherein each such new partner shall assume joint and several liability for the
performance of all the terms, covenants and conditions of this Lease on Tenant's
part to be observed and performed (but neither Landlord's failure to request any
such agreement nor the failure of any such new partner to execute or deliver any
such agreement to Landlord shall vitiate the provisions of this Section 29.1(e);
and (f) no change in the partners of Partnership Tenant resulting from the
admission of a new partner, or the death, retirement or withdrawal of a partner
shall release Partnership Tenant or any partner or former partner from their
obligations under this Lease.
SECTION 29.2 CHANGE OF PARTNERS. If Tenant is a partnership, (a) the
admission of new partners, the withdrawal (in the ordinary course of business),
retirement, death, incompetency or bankruptcy of any partner, or the
reallocation of partnership interests among the general partners of Tenant (the
"Partners") shall not constitute an assignment of this Lease provided that
Partners holding in the aggregate not less than 80% of the partnership interests
in Tenant remain as Partners during any consecutive 12-month period (i.e., the
transfer, by any of the foregoing means, of more than 20% of the partnership
interests in Tenant in any consecutive 12-month period shall constitute an
assignment of this Lease subject to the provisions of Article 15), and (b) the
reorganization of Tenant into a professional corporation, a limited liability
company or a limited liability partnership, or the reorganization of Tenant from
a professional corporation, limited liability company or a limited liability
partnership into a partnership, shall not constitute an assignment of this
Lease, provided that immediately following such reorganization the members,
partners or shareholders, as the case may be, of Tenant shall be the same as
those existing immediately prior to such reorganization, and shall remain fully,
jointly and severally liable under this Lease as provided in this Section 29.2.
If Tenant shall become a professional corporation, each individual shareholder,
shareholder-employee, new individual shareholder and new shareholder-employee of
any professional corporation which is a shareholder in Tenant shall have the
same personal liability (if any) as such individual or shareholder-employee
would have under this Lease if Tenant were a partnership and such individual or
shareholder-employee were a Partner or admitted as a new Partner. If any
individual Partner in Tenant is or becomes a shareholder-employee of a
professional corporation or a member of a limited liability company, such
individual shall have the same personal liability under this Lease as such
individual would have if he and not the professional corporation or limited
liability company were a Partner of Tenant. If Tenant shall become a limited
liability company each individual member, member employee, new individual member
or new member employee of any limited liability company which is a member of
Tenant shall have the same personal liability (if any)
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as such individual or member employee would have under this Lease if Tenant were
a partnership and such individual or member employee were a Partner or admitted
as a new Partner. If Tenant shall become a limited liability partnership or
limited liability company, (i) each partner or member therein shall continue to
have the same personal liability as such partner had under this Lease prior to
Tenant becoming a limited liability partnership or company, and (ii) each new
partner or member admitted to such limited liability partnership or company
shall be bound by the provisions of Section 29.1, and shall execute and deliver
to Landlord the assumption agreement required pursuant to Section 29.1(e)
hereof.
ARTICLE 30
BROKER
SECTION 30.1 BROKER REPRESENTATIONS. Landlord has retained Landlord's
Agent as leasing agent in connection with this Lease and Landlord will be solely
responsible for any fee that may be payable to Landlord's Agent. Landlord agrees
to pay a commission to Broker pursuant to a separate agreement. Each of Landlord
and Tenant represents and warrants to the other that it has not dealt with any
broker in connection with this Lease other than Landlord's Agent and the Broker
and that to the best of its knowledge and belief, no other broker, finder or
like entity procured or negotiated this Lease or is entitled to any fee or
commission in connection herewith. The execution and delivery of this Lease by
each party shall be conclusive evidence that each party has relied upon the
foregoing representations and warranties.
SECTION 30.2 INDEMNITY. Each of Landlord and Tenant shall indemnify,
defend, protect and hold the other party harmless from and against any and all
costs expenses, claims and liabilities (including reasonable attorneys' fees and
disbursements) which the indemnified party may incur by reason of any claim of
or liability to any broker, finder or like agent (other than Landlord's Agent
and Broker) arising out of any dealings claimed to have occurred between the
indemnifying party and the claimant in connection with this Lease, and/or the
above representation being false. The provisions of this Article 31 shall
survive the expiration or earlier termination of the Term of this Lease.
ARTICLE 31
INDEMNITY
SECTION 31.1 INDEMNITY.
(a) TENANT'S INDEMNITY. Tenant shall not do or permit to be done any
act or thing upon the Premises or the Building which may subject Landlord to any
liability or responsibility for injury, damages to persons or property or to any
liability by reason of any violation of law or of any Requirement, and shall
exercise such control over the Premises as to fully protect Landlord against any
such liability. Tenant shall indemnify, defend, protect and hold harmless each
of the Indemnities from and against any and all Losses (as defined in subsection
32.1(c) hereof), resulting from any claims (i) against Indemnities arising from
any act, omission or negligence of (A) Tenant, its contractors, licensees,
agents, servants, employees, invitees or visitors or (B) both Landlord and
Tenant, provided, however, that Tenant's liability hereunder with respect to
matters judicially determined to have arisen out of the negligence of Landlord,
which determination shall not be subject to appeal, shall be limited to the
amount of insurance coverage carried by Tenant pursuant to Article 12 of this
Lease, (ii) against the Indemnities arising from any accident, injury or damage
whatsoever caused to any person or to the property of any person and occurring
during or (if Tenant shall continue to use and occupy the Premises) after the
expiration of the Term, in or about the Premises, and (iii) against the
Indemnities resulting from any breach, violation or nonperformance of any
covenant, condition or agreement of this Lease on the part of Tenant to be
fulfilled, kept, observed and performed.
(b) LANDLORD'S INDEMNITY. Landlord shall indemnify, defend and hold
harmless Tenant from and against all claims against Tenant arising from any
accident, injury or damage whatsoever caused to any person or the property of
any person in or about the common or public areas of the Building (specifically
excluding the Premises) not resulting from the negligence of Tenant, its
contractors, licensees, agents, servants, employees, invitees or visitors.
(c) INDEMNITY INCLUSIONS. For purposes of this Article 32, the term
"Losses" means any and all losses, liabilities, damages, claims, judgments,
fines, suits, demands, costs, interest and expenses of any kind or nature
(including reasonable attorneys' fees and disbursements) incurred in connection
with any claim, proceeding or judgment and the defense
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thereof, and including all costs of repairing any damage to the Premises or the
Building or the appurtenances of any of the foregoing to which a particular
Indemnity and hold harmless agreement applies.
SECTION 31.2 DEFENSE AND SETTLEMENT. If any claim, action or proceeding
is made or brought against any Indemnitee, then upon demand by an Indemnitee,
Tenant, at its sole cost and expense, shall resist or defend such claim, action
or proceeding in the Indemnitee's name (if necessary), by attorneys approved by
the Indemnitee, which approval shall not be unreasonably withheld. Attorneys for
Tenant's insurer shall hereby be deemed approved for purposes of this Section
32.2. Notwithstanding the foregoing, an Indemnitee may retain its own attorneys
to participate or assist in defending any claim, action or proceeding involving
potential liability of $5,000,000 or more, provided that Tenant shall control
the defense and Tenant shall pay the reasonable fees and disbursements of such
attorneys. Notwithstanding anything herein contained to the contrary, Tenant may
direct the Indemnitee to settle any claim, suit or other proceeding provided
that (a) such settlement shall involve no obligation on the part of the
Indemnitee other than the payment of money, (b) any payments to be made pursuant
to such settlement shall be paid in full exclusively by Tenant at the time such
settlement is reached, (c) such settlement shall not require the Indemnitee to
admit any liability, and (d) the Indemnitee shall have received an unconditional
release from the other parties to such claim, suit or other proceeding. The
provisions of this Article 32 shall survive the expiration or earlier
termination of this Lease.
ARTICLE 32
MISCELLANEOUS
SECTION 32.1 DELIVERY. This Lease shall not be binding upon Landlord or
Tenant unless and until Landlord shall have executed and delivered a fully
executed copy of this Lease to Tenant.
SECTION 32.2 TRANSFER OF REAL PROPERTY. Landlord's obligations under
this Lease shall not be binding upon the Landlord named herein after the sale,
conveyance, assignment or transfer (collectively a "Transfer") by such Landlord
(or upon any subsequent landlord after the Transfer by such subsequent landlord)
of its interest in the Building or the Real Property, as the case may be, and in
the event of any such Transfer, Landlord (and any such subsequent Landlord)
shall be entirely freed and relieved of all covenants and obligations of
Landlord hereunder, and the transferee of Landlord's interest (or that of such
subsequent Landlord) in the Building or the Real Property, as the case may be,
shall be deemed to have assumed all obligations under this Lease.
SECTION 32.3 LIMITATION ON LIABILITY. The liability of Landlord for
Landlord's obligations under this Lease shall be limited to Landlord's interest
in the Real Property and Tenant shall not look to any other property or assets
of Landlord or the property or assets of any partner, shareholder, director,
officer, principal, employee or agent, directly and indirectly, of Landlord
(collectively, the "Parties") in seeking either to enforce Landlord's
obligations under this Lease or to satisfy a judgment for Landlord's failure to
perform such obligations; and none of the Parties shall be personally liable for
the performance of Landlord's obligations under this Lease.
SECTION 32.4 RENT. Notwithstanding anything to the contrary contained in
this Lease, all amounts payable by Tenant to or on behalf of Landlord under this
Lease, whether or not expressly denominated Fixed Rent, Tenant's Tax Payment,
Tenant's Operating Payment, Electricity Additional Rent, Additional Rent or
Rent, shall constitute rent for the purposes of Section 502(b)(6) of the United
States Bankruptcy Code.
SECTION 32.5 ENTIRE DOCUMENT. This Lease (including any Schedules and
Exhibits referred to herein and all supplementary agreements provided for
herein) contains the entire agreement between the parties and all prior
negotiations and agreements are merged into this Lease. All of the Schedules and
Exhibits attached hereto are incorporated in and made a part of this Lease,
provided that in the event of any inconsistency between the terms and provisions
of this Lease and the terms and provisions of the Schedules and Exhibits hereto,
the terms and provisions of this Lease shall control. All Article and Section
references set forth herein shall, unless the context otherwise requires, be
deemed references to the Articles and Sections of this Lease.
SECTION 32.6 GOVERNING LAW. This Lease shall be governed in all respects
by the laws of the State of Illinois.
SECTION 32.7 UNENFORCEABILITY. If any provision of this Lease, or its
application to any person or circumstance, shall ever be held to be invalid or
unenforceable, then in each such event the remainder of this Lease or the
application of such provision to any other person or any other circumstance
(other than those as to which it shall be invalid or unenforceable) shall not be
thereby affected, and each provision hereof shall remain valid and enforceable
to the fullest extent permitted by law.
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SECTION 32.8 LEASE DISPUTES.
(a) Except as expressly provided to the contrary in this Lease,
Tenant agrees that all disputes arising, directly or indirectly, out of or
relating to this Lease, and all actions to enforce this Lease, shall be dealt
with and adjudicated in the state courts of the State of Illinois, County of
Cook or the United States District Court for the Northern District of Illinois
(Eastern Division) and for that purpose hereby expressly and irrevocably submits
itself to the jurisdiction of such courts. Tenant agrees that so far as is
permitted under applicable law, this consent to personal jurisdiction shall be
self-operative and no further instrument or action, other than service of
process in one of the manners specified in this Lease, or as otherwise permitted
by law, shall be necessary in order to confer jurisdiction upon it in any such
court.
(b) To the extent that Tenant has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Tenant irrevocably waives such immunity in respect of its obligations under this
Lease.
SECTION 32.9 LANDLORD'S AGENT. Unless Landlord shall render written
notice to Tenant to the contrary, Tishman Speyer Properties, L.P. is authorized
to act as Landlord's agent in connection with the performance of this Lease, and
Tenant shall direct all correspondence and requests to, and shall be entitled to
rely upon correspondence received from, Tishman Speyer Properties, L.P., as
agent for the Landlord in accordance with Article 27. Tenant acknowledges that
Tishman Speyer Properties, L.P. is acting solely as agent for Landlord in
connection with the foregoing; and neither Tishman Speyer Properties, L.P. nor
any of its direct or indirect partners, officers, shareholders, directors,
employees, principals, agents or representatives shall have any liability to
Tenant in connection with the performance of this Lease, and Tenant waives any
and all claims against any and all of such parties arising out of, or in any way
connected with, this Lease, the Building or the Real Property.
SECTION 32.10 ESTOPPEL.
(a) Within ten days following request from Landlord, any Mortgagee
or any Lessor, Tenant shall deliver to Landlord a written statement executed and
acknowledged by Tenant, in form reasonably satisfactory to Landlord, (i) stating
the Commencement Date and the Expiration Date, and that this Lease is then in
full force and effect and has not been modified (or if modified, setting forth
all modifications), (ii) setting forth the date to which the Fixed Rent and any
Additional Rent have been paid, together with the amount of monthly Fixed Rent
then payable, (iii) stating whether or not, to the best of Tenant's knowledge,
Landlord is in default under this Lease, and, if Landlord is in default, setting
forth the specific nature of all such defaults, (iv) stating the amount of the
Security Deposit, if any, under this Lease, (v) stating whether there are any
subleases or assignments affecting the Premises, (vi) stating the address of
Tenant to which all notices and communication under the Lease shall be sent, and
(vii) responding to any other matters reasonably requested by Landlord, such
Mortgagee or such Lessor. Tenant acknowledges that any statement delivered
pursuant to this Section 33.10 may be relied upon by any purchaser or owner of
the Real Property or the Building, or all or any portion of Landlord's interest
in the Real Property or the Building or any Superior Lease, or by any Mortgagee,
or assignee thereof or by any Lessor, or assignee thereof. Simultaneously with
the execution of this Lease, Tenant shall execute and deliver to Landlord the
Lease Estoppel Certificate attached hereto as Exhibit H.
(b) Within ten days following request from Tenant, Landlord shall
deliver to Tenant a written statement executed and acknowledged by Landlord, in
a form reasonably acceptable to Tenant, (i) stating the Commencement Date and
the Expiration Date, and that this Lease is then in full force and effect and
has not been modified (or if modified, setting forth all modifications), (ii)
setting forth the date to which the Fixed Rent and any Additional Rent have been
paid, together with the amount of monthly Fixed Rent then payable, (iii) stating
whether or not, to the best of Landlord's knowledge, Tenant is in default under
this Lease, and, if Tenant is in default, setting forth the specific nature of
all such defaults, (iv) stating the amount of the Security Deposit, if any,
under this Lease, (v) stating whether there are any subleases or assignments
affecting the Premises, (vi) stating the address of Tenant to which all notices
and communication under the Lease shall be sent, and (vii) responding to any
other matters regarding the Lease reasonably requested by Tenant.
SECTION 32.11 CERTAIN INTERPRETATIONAL RULES. For purposes of this
Lease, whenever the words "include", "includes", or "including" are used, they
shall be deemed to be followed by the words "without limitation" and, whenever
the circumstances or the context requires, the singular shall be construed as
the plural, the masculine shall be construed as the feminine and/or the neuter
and vice versa. This Lease shall be interpreted and enforced without the aid of
any canon, custom or rule of law requiring or suggesting construction against
the party drafting or causing the drafting of the provision in question.
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SECTION 32.12 CAPTIONS. The captions in this Lease are inserted only as
a matter of convenience and for reference and in no way define, limit or
describe the scope of this Lease or the intent of any provision hereof.
SECTION 32.13 PARTIES BOUND. The terms, covenants, conditions and
agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant and, except as otherwise provided in this Lease, to their
respective legal representatives, successors, and assigns.
SECTION 32.14 DIRECTORY. The lobby shall contain a directory wherein the
Building's tenants shall be listed.
SECTION 32.15 COUNTERPARTS. This Lease may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
SECTION 32.16 JOINT AND SEVERAL OBLIGATIONS. If Tenant is comprised of
more than one party, each party shall be jointly and severally liable for
Tenant's obligations under this Lease, and default in the performance by one of
them shall in no way affect the obligation of the other(s). The several
obligations and liabilities of each party hereunder shall not be released,
discharged or in any way affected by any reorganization, arrangement,
compromise, composition or plan affecting any other such party or any change,
waiver, extension, indulgence or other action or omission in respect of any
obligation of any other such party, whether or not each such party shall have
had any notice or knowledge of any of the foregoing. Each such party hereby
irrevocably appoints and authorizes the other to act as its agent hereunder with
full power and authority to act on its behalf in connection with this Lease.
Landlord shall be entitled to treat any notice from or consent or approval of
any such party as notice from or consent or approval of Tenant and any documents
delivered or payments made to any such party shall be deemed to be made to
Tenant.
SECTION 32.17 AMENDMENTS. No modification, waiver or amendment of this
Lease or any of its provisions shall be binding upon Landlord or Tenant unless
in writing and singed by Landlord and Tenant.
ARTICLE 33
TAX STATUS OF BENEFICIAL OWNERS
Tenant recognizes and acknowledges that Landlord and/or certain
beneficial owners of Landlord may from time to time qualify as real estate
investment trusts pursuant to Sections 856 et seq. of the Code or as entities
described in Section 51.1(a)(2) of the Code, and that avoiding (a) the loss of
such status, (b) the receipt of any income derived under any provision of this
Lease that does not constitute "rents from real property" (in the case of real
estate investment trusts) or that constitutes "unrelated business taxable
income" (in the case of entities described in Section 511 (a)(2) of the Code),
and (c) the imposition of penalty or similar taxes (each an "Adverse Event") is
of material concern to Landlord and such beneficial owners. In the event that
this Lease or any document contemplated hereby could, in the opinion of counsel
to Landlord, result in or cause an Adverse Event, Tenant agrees to cooperate
with Landlord in negotiating an amendment or modification thereof and shall at
the request of Landlord execute and deliver such documents reasonably required
to effect such amendment or modification. Any amendment or modification pursuant
to this Article 34 shall be structured so that the economic results to Landlord
and Tenant shall be substantially similar to those set forth in this Lease
without regard to such amendment or modification. Without limiting any of
Landlord's other rights under this Article 34, Landlord may waive the receipt of
any amount payable to Landlord hereunder and such waiver shall constitute an
amendment or modification of this Lease with respect to such payment. Tenant
expressly covenants and agrees not to enter into any sublease or assignment
which provides for rental or other payment for such use, occupancy, or
utilization based in whole or in part on the net income or profits derived by
any person from the property leased, used, occupied, or utilized (other than an
amount based on a fixed percentage or percentages of receipts or sales), and
that any such purported sublease or assignment shall be absolutely void and
ineffective as a conveyance of any right or interest in the possession, use,
occupancy, or utilization of any part of the Premises.
ARTICLE 34
SECURITY DEPOSIT
SECTION 34.1 SECURITY DEPOSIT. Tenant shall deposit the cash Security
Deposit with Landlord upon the execution of this Lease as security for the
faithful performance and observance by Tenant of the terms, covenants and
conditions of this Lease, including the surrender of possession of the Premises
to Landlord as herein provided.
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SECTION 34.2 LETTER OF CREDIT.
(a) In addition to the cash deposit, Tenant shall deliver to
Landlord within 5 days following Tenant's receipt of a fully executed copy of
this Lease and prior to the commencement of the Initial Installations, a clean,
irrevocable, non-documentary and unconditional letter of credit (the "Letter of
Credit") in the amount set forth in Article 1 of the Lease, issued by and
drawable upon any commercial bank, trust company, national banking association
or savings and loan association with offices for banking purposes in the City of
Chicago (the "Issuing Bank"), which has outstanding unsecured, uninsured and
unguaranteed indebtedness, or shall have issued a letter of credit or other
credit facility that constitutes the primary security for any outstanding
indebtedness (which is otherwise uninsured and unguaranteed), that is then
rated, without regard to qualification of such rating by symbols such as "+" or
"-" or numerical notation, "Aa" or better by Moody's Investors Service and "AA"
or better by Standard & Poor's Rating Service, and has combined capital, surplus
and undivided profits of not less than $500,000,000. Such Letter of Credit shall
(a) name Landlord as beneficiary, (b) be in the amount of the Security Deposit,
(c) have a term of not less than one year, (d) permit multiple drawings, (e) be
fully transferable by Landlord without the payment of any fees or charges by
Landlord, and (f) otherwise be in form and content satisfactory to Landlord. If
upon any transfer of the Letter of Credit, any fees or charges shall be so
imposed, then such fees or charges shall be payable solely by Tenant and the
Letter of Credit shall so specify. The Letter of Credit shall provide that it
shall be deemed automatically renewed, without amendment, for consecutive
periods of one year each thereafter during the Term unless the Issuing Bank
sends a notice (the "Non-Renewal Notice") to Landlord by certified mail, return
receipt requested, not less than 45 days next preceding the then expiration date
of the Letter of Credit stating that the Issuing Bank has elected not to renew
the Letter of Credit. Landlord shall have the right, upon receipt of the
Non-Renewal Notice, to draw the full amount of the Letter of Credit, by sight
draft on the Issuing Bank, and shall thereafter hold or apply the cash proceeds
of the Letter of Credit pursuant to the terms of this Article 35. The Issuing
Bank shall agree with all drawers, endorsers and bona fide holders that drafts
drawn under and in compliance with the terms of the Letter of Credit will be
duly honored upon presentation to the Issuing Bank at an office location in
downtown Chicago. The Letter of Credit shall be subject in all respects to the
Uniform Customs and Practice for Documentary Credits (1993 revision),
International Chamber of Commerce Publication No. 500.]
(b) Notwithstanding the foregoing to the contrary, the amount of the
Letter of Credit may be reduced by $85,443.00 on the first anniversary of the
Commencement Date and on each anniversary thereafter if on such date (i) Tenant
has paid all rent due and payable under this Lease prior to such date and (ii)
no Event of Default then exists under this Lease.
SECTION 34.3 APPLICATION OF SECURITY. If Tenant defaults in the payment
or performance of any of the terms, covenants or conditions of this Lease,
including the payment of Rent, Landlord may apply or retain the whole or any
part of the cash Security Deposit or may notify the Issuing Bank and thereupon
receive all or a portion of the Security Deposit represented by the Letter of
Credit and use, apply, or retain the whole or any part of such proceeds, as the
case may be, to the extent required for the payment of any Fixed Rent or any
other sum as to which Tenant is in default including (a) any sum which Landlord
may expend or may be required to expend by reason of Tenant's default, and/or
(b) any damages or Deficiency to which Landlord is entitled pursuant to this
Lease or applicable Requirements, whether such damages or Deficiency accrues
before or after summary proceedings or other reentry by Landlord. If Landlord
applies or retains any part of the Security Deposit or draws on the Letter of
Credit, Tenant, upon demand, shall deposit with Landlord the amount so applied
or retained or increase the amount of the Letter of Credit so that Landlord
shall have the full Security Deposit on hand at all times during the Term. If
Tenant shall fully and faithfully comply with all of the terms, covenants and
conditions of this Lease, the Security Deposit shall be returned to Tenant after
the Expiration Date and after delivery of possession of the Premises to Landlord
in the manner required by this Lease. Tenant expressly agrees that Tenant shall
have no right to apply any portion of the Security Deposit against any of
Tenant's obligations to pay Rent hereunder.
SECTION 34.4 TRANSFER. Upon a sale of the Real Property or the Building
or a leasing of the Building, or any financing of Landlord's interest therein,
Landlord shall have the right to transfer the cash Security Deposit or the
Letter of Credit, as applicable, to the vendee, lessee or lender. With respect
to the Letter of Credit, within five days after notice of such sale, leasing or
financing, Tenant, at its sole cost, shall arrange for the transfer of the
Letter of Credit to the new landlord or the lender, as designated by Landlord in
the foregoing notice or have the Letter of Credit reissued in the name of the
new landlord or the lender. Following a transfer of the Letter of Credit
pursuant to this Section 35.4, Landlord shall provide Tenant with reasonable
evidence of such transfer. Tenant shall look solely to the new landlord or
lender for the return of such cash Security Deposit or Letter of Credit and the
provisions hereof shall apply to every transfer or assignment made of the
Security Deposit to a new landlord. Tenant shall not assign or encumber or
attempt to assign or encumber the cash Security Deposit or Letter of Credit and
neither Landlord nor its successors or assigns shall be bound by any such action
or attempted assignment, or encumbrance.
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
as of the day and year first above written.
TENANT:
NETRIGHT TECHNOLOGIES, a Delaware Corporation
By: /s/ Mark A. Culhane
-----------------------------------------
Title: CFO
LANDLORD:
TST 55 EAST MONROE, L.L.C.,
a Delaware limited liability company
By: /s/ Bruce Saber
-----------------------------------------
Its: Authorized Signer
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<PAGE> 45
EXHIBIT A
FLOOR PLAN
This exhibit shows a rectangular floor plan with unspecified dimensions on the
17th floor. There is a directional indicator for north.
Approximately midway between the north and south borders of the entire floor,
and along the east side of that floor, is an area marked, "First Option Space."
That area is portrayed directly adjacent to another area which occupies the
entire south side of the floor. The area on the south side of the rectangle is
marked with seven diagonal lines. Immediately adjacent to the south side area,
but on the west side of the floor, is an area marked, "Second Optional Space."
Immediately north of and adjacent to the Second Optional Space is an area
marked with three diagonal lines. The word "Premises" is handwritten beside
southwest side of the floor plan.
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EXHIBIT B
DEFINITIONS
BASE RATE: The annual rate of interest publicly announced from time to
time by Citibank, N.A., or its successor, in New York, New York as its "base
rate" (or such other term as may be used by Citibank, N.A., from time to time,
for the rate presently referred to as its "base rate").
BUILDING SYSTEM: The mechanical, electrical, plumbing, sanitary,
sprinkler, heating, ventilation and air conditioning, security, life-safety,
elevator and other service systems or facilities of the Building up to the point
of localized distribution to the Premises (excluding, however, supplemental HVAC
systems of tenants (including Tenant), sprinklers and the horizontal
distribution systems within and servicing the Premises and by which mechanical,
electrical, plumbing, sanitary, heating, ventilating and air conditioning,
security, life-safety and other service systems are distributed from the base
Building risers, feeders, panelboards, etc.
for provision of such services to the Premises).
BUSINESS DAYS: All days, excluding Saturdays, Sundays and all Holidays.
CODE: The Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
COMPARABLE BUILDINGS: Office buildings in downtown Chicago which are a
comparable age, size and class with the Building.
DEFICIENCY: The difference between (a) the Fixed Rent and Additional
Rent for the period which otherwise would have constituted the unexpired portion
of the Term (assuming the Additional Rent for each year thereof to be the same
as was payable for the year immediately preceding such termination or re-entry),
and (b) the net amount, if any, of rents collected under any reletting effected
pursuant to the provisions of the Lease for any part of such period (after first
deducting from such rents all expenses incurred by Landlord in connection with
the termination of this Lease, Landlord's re-entry upon the Premises and such
reletting, including repossession costs, brokerage commissions, attorneys' fees
and disbursements, and alteration costs).
EXCLUDED EXPENSES: (a) Taxes; (b) franchise or income taxes imposed upon
Landlord; (c) mortgage amortization and interest; (d) leasing commissions; (e)
the cost of tenant installations and decorations incurred in connection with
preparing space for any Building tenant, including workletters and concessions;
(f) ground rent, if any; (g) management fees in excess of the greater of (A) 3%
of the gross rentals collected for the Building and (B) fees charged by Landlord
or related entities for the management by any of them of other first class
properties; (h) wages, salaries and benefits paid to any persons (other than
project accountants) above the grade of Building Manager; (i) legal and
accounting fees relating to (A) disputes with tenants, prospective tenants or
other occupants of the Building, (B) disputes with purchasers, prospective
purchasers, mortgagees or prospective mortgagees of the Building or the Real
Property or any part of either, or (C) negotiations of leases, contracts of sale
or mortgages; (j) costs of services provided to other tenants of the Building on
a "rent-inclusion" basis which are not provided to Tenant on such basis; (k)
costs that are reimbursed out of insurance, warranty or condemnation proceeds,
or which are reimbursable by Tenant or other tenants other than pursuant to an
expense escalation clause; (l) costs in the nature of penalties or fines; (m)
costs for services, supplies or repairs paid to any Related Entity in excess of
costs that would be payable in an "arm's length" or unrelated situation; (n)
allowances, concessions or other costs and expenses of improving or decorating
any demised or demisable space in the Building; (o) appraisal, advertising and
promotional expenses in connection with leasing of the Building; (p) the costs
of installing, operating and maintaining a specialty improvement, including a
cafeteria, lodging or private dining facility, or an athletic, luncheon or
recreational club; (q) any costs or expenses (including fines, interest,
penalties and legal fees) arising out of Landlord's failure to timely pay
Operating Expenses or Taxes; (r) costs incurred in connection with the removal,
encapsulation or other treatment of asbestos or any other Hazardous Materials
existing in the Premises as of the date hereof, (s) the cost of capital
improvements other than those expressly included in Operating Expenses pursuant
to Section 8.1 of this Lease, (t) political and charitable contributions and (u)
costs of selling, syndicating, financing or mortgaging the Real Property.
GOVERNMENTAL AUTHORITY (AUTHORITIES): The United States of America, the
City of Chicago, County of Cook, State of Illinois, or any political
subdivision, agency, department, commission, board, bureau or instrumentality of
any of the foregoing, now existing or hereafter created, having jurisdiction
over the Real Property or any portion thereof or the curbs, sidewalks, and areas
adjacent thereto.
HAZARDOUS MATERIALS: Any substances, materials or wastes currently or in
the future deemed or defined in any Requirement as "hazardous substances",
"toxic substances", "contaminants", "pollutants" or words of similar import.
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HOLIDAYS: For purposes of determining when services are to be provided
by Landlord, the days observed by either the State in which the Building is
located, the Federal Government or the labor unions servicing the Building as
legal holidays. For all other purposes, the days observed by the Federal
Government as legal holidays.
HVAC SYSTEMS: The Building System designed to provide heating,
ventilation and air conditioning.
INDEMNITEE(IES): Landlord, Landlord's Agent, each Mortgagee and Lessor,
and each of their respective direct or indirect partners, officers,
shareholders, directors, members, trustees, beneficiaries, employees,
principals, contractors, licensees, invitees, servants, agents, or
representatives.
LESSOR: A lessor under a Superior Lease.
MORTGAGE(S): Any mortgage, trust indenture or other financing document
which may now or hereafter affect the Premises, the Real Property, the Building
or any Superior Lease and the leasehold interest created thereby, and all
renewals, extensions, supplements, amendments, modifications, consolidations and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
MORTGAGEE(S): Any mortgagee, trustee or other holder of a Mortgage.
PROHIBITED USE: Any use or occupancy of the Premises that in Landlord's
reasonable judgment would: (a) cause damage to the Building, the Premises or any
equipment, facilities or other systems therein; (b) impair the appearance of the
Premises or the Building; (c) interfere with the efficient and economical
maintenance, operation and repair of the Premises or the Building or the
equipment, facilities or systems thereof; (d) adversely affect any service
provided to, and/or the use and occupancy by, any Building tenant or occupants;
(e) violate the certificate of occupancy issued for the Premises or the Building
or (f) adversely affect the image of the Building. Prohibited Use also includes
the use of any part of the Premises for: (i) a restaurant or bar; (ii) the
preparation, consumption, storage, manufacture or sale of food or beverages
(except in connection with vending machines and/or warming kitchens installed
for the use of Tenant's employees only), liquor, tobacco or drugs; (iii) the
business of photocopying, multilith or offset printing (except photocopying in
connection with Tenant's own business); (iv) a typing or stenography business;
(v) a school or classroom (except for classrooms used in connection with
employee or client training programs); (vi) lodging or sleeping; (vii) the
operation of retail facilities (meaning a business whose primary patronage
arises from the generalized solicitation of the general public to visit Tenant's
offices in person without a prior appointment) of a savings and loan association
or retail facilities of any financial, lending, securities brokerage or
investment activity; (viii) a payroll office; (ix) a barber, beauty or manicure
shop; (x) an employment agency, executive search firm or similar enterprise;
(xi) offices of any Governmental Authority, any foreign government, the United
Nations, or any agency or department of the foregoing; (xii) the manufacture,
retail sale, storage of merchandise or auction of merchandise, goods or property
of any kind to the general public which could reasonably be expected to create a
volume of pedestrian traffic substantially in excess of that normally
encountered in the Premises; (xiii) the rendering of medical, dental or other
therapeutic or diagnostic services; or (xiv) any illegal purposes or any
activity constituting a nuisance.
REQUIREMENTS: All present and future laws, rules, orders, ordinances,
regulations, statutes, requirements, codes and executive orders, extraordinary
and ordinary of (i) all Governmental Authorities, including the Americans With
Disabilities Act, 42 U.S.C. Section 12,101 (et seq.), the Environmental Barriers
Act, 410 ILCS, 25/1-8 (et seq.), and any law of like import, and all rules,
regulations and government orders with respect thereto, and any of the foregoing
relating to Hazardous Materials, environmental matters, public health and safety
matters, (ii) any applicable fire rating bureau or other body exercising similar
functions, affecting the Real Property or the maintenance, use or occupation
thereof, or any street, avenue or sidewalk comprising a part of or in front
thereof or any vault in or under the same and (iii) all requirements of all
insurance bodies affecting the Premises.
RULES AND REGULATIONS: The rules and regulations annexed to and made a
part of this Lease as Exhibit F, as they may be modified from time to time by
Landlord.
SPECIALTY ALTERATIONS: Alterations consisting of kitchens, pantries,
executive bathrooms, raised computer floors, computer installations, safe
deposit boxes, vaults, libraries or file rooms requiring reinforcement of
floors, internal staircases, conveyors, dumbwaiters, and other Alterations of a
similar character.
SUBSTANTIAL COMPLETION. As to any construction performed by any party in
the Premises, including the Initial Installations, any Alterations, or
Landlord's Work, "substantial completion" or "substantially completed" means
that such work has been completed, as reasonably determined by Landlord's
architect, in accordance with (a) the provisions of this Lease applicable
thereto, (b) the plans and specifications for such work, and (c) all applicable
Requirements, except for minor details of construction,
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decoration and mechanical adjustments, if any, the noncompletion of which does
not materially interfere with Tenant's use of the Premises.
SUPERIOR LEASE(S): Any ground or underlying lease of the Real Property
or any part thereof heretofore or hereafter made by Landlord and all renewals,
extensions, supplements, amendments, modifications, consolidations, and
replacements thereof.
TENANT'S PROPERTY: Tenant's movable fixtures and movable partitions,
telephone and other equipment, computer systems, trade fixtures, furniture,
furnishings, and other items of personal property which are removable without
material damage to the Premises or Building.
UNAVOIDABLE DELAYS: Landlord's inability to fulfill or delay in
fulfilling any of its obligations under this Lease expressly or impliedly to be
performed by Landlord or Landlord's inability to make or delay in making any
repairs, additions, alterations, improvements or decorations or Landlord's
inability to supply or delay in supplying any equipment or fixtures, if
Landlord's inability or delay is due to or arises by reason of strikes, labor
troubles or by accident, or by any cause whatsoever reasonably beyond Landlord's
control, including laws, governmental preemption in connection with a national
emergency, Requirements or shortages, or unavailability of labor, fuel, steam,
water, electricity or materials, or delays caused by Tenant or other tenants,
mechanical breakdown, acts of God, enemy action, civil commotion, fire or other
casualty.
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EXHIBIT C
[Intentionally Omitted]
C-1
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EXHIBIT D
HVAC SPECIFICATIONS
The HVAC System shall maintain the following temperature conditions in
the Premises (based on ASHRE guidelines 90 and 62 (1% outdoor criterial)).
<TABLE>
<CAPTION>
TEMPERATURE HEATING SEASON COOLING SEASON
----------- -------------- --------------
<S> <C> <C>
Outside: -10(degrees)F 94(degrees)F.DB
74(degrees)F.WB
Inside: 72(degrees)F
(-2(degrees)F) 74(degrees)F (+/-2F)
</TABLE>
Landlord shall not be responsible for failure to meet the above
performance standards in any portion of the Premises if such failure results
from (A) occupancy in excess of one person per 100 rsf, (B) and electrical load
in excess of six (6) watts per square foot, (C) Tenant's Work or alterations to
the Premises which adversely affects the operation of the system or (D)
installation or placement of equipment or personal property which adversely
affects the operation of the HVAC system.
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EXHIBIT E
CLEANING SPECIFICATIONS
GENERAL CLEANING
NIGHTLY
General Offices:
1. All hard surfaced flooring to be swept using approved dustdown
preparation.
2. Carpet sweep all carpets, moving only light furniture (desks, file
cabinets, etc. not to be moved).
3. Hand dust and wipe clean all furniture, fixtures and window sills.
4. Empty all waste receptacles and remove wastepaper.
5. Wash clean all Building water fountains and coolers.
6. Sweep all private stairways.
Lavatories:
1. Sweep and wash all floors, using proper disinfectants.
2. Wash and polish all mirrors, shelves, bright work and enameled
surfaces.
3. Wash and disinfect all basins, bowls and urinals.
4. Wash all toilet seats.
5. Hand dust and clean all partitions, tile walls, dispensers and
receptacles in lavatories and restrooms.
6. Empty paper receptacles, fill receptacles and remove wastepaper.
7. Fill toilet tissue holders.
8. Empty and clean sanitary disposal receptacles.
WEEKLY
1. Vacuum all carpeting and rugs.
2. Dust all door louvers and other ventilating louvers within a person's
normal reach.
3. Wipe clean all brass and other bright work.
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QUARTERLY
High dust premises complete including the following:
1. Dust all pictures, frames, charts, graphs and similar wall hangings
not reached in nightly cleaning.
2. Dust all vertical surfaces, such as walls, partitions, doors, bucks
and other surfaces not reached in nightly cleaning.
3. Dust all venetian blinds.
4. Wash all windows.
Landlord shall have the right to modify the foregoing specifications at
anytime and from time to time provided the level of cleaning is not materially
reduced.
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EXHIBIT F
RULES AND REGULATIONS
(1) Tenant will not make or permit to be made any use of the Premises or
Building which, directly or indirectly is forbidden by public law, ordinance or
governmental regulation or which may be dangerous to persons or property, or
which may invalidate or increase the premium cost of any policy of insurance
carried on the Building or covering its operations. Tenant shall not do, or
permit to be done, any act or thing upon the Premises which will be in conflict
with fire insurance policies covering the Building . Tenant, at its sole expense
shall comply with all rules, regulations or requirements of the State Inspection
and Rating Bureau, or any other similar body, and shall not do, or permit
anything to be done upon the premises, or bring or keep anything thereon in
violation of rules, regulations or requirements of the Fire Department, State
Inspection and Rating Bureau, Fire Insurance Rating Organization or other
authority having jurisdiction and then only in such quantity and manner of
storage as not to increase the rate of fire insurance applicable to the
Building.
(2) Tenant assumes full responsibility for: (a) protecting the Premises
from theft, robbery and pilferage (b) keeping the Premises secure and (c)
locking the doors in and to the Premises. All property belonging to Tenant or
any person in the Premises, which is in the Building or the Premises, shall be
there at the risk of Tenant or other person only, and Landlord and its agents
and employees shall not be liable for damage thereto or theft or
misappropriation thereof.
(3) Any person in the Building will be subject to identification by
employees and agents of Landlord. All persons in or entering Building shall be
required to comply with the security policies of the Building. Tenant shall keep
doors to unattended areas locked and shall otherwise exercise reasonable
precautions to protect property from theft, loss, or damage.
(4) Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 8:00 a.m. and at all hours on Saturdays, Sundays and
legal holidays all persons who do not present an approved pass to the Building
signed authorized tenant representative or approved by Landlord. Tenant shall be
responsible for all persons for whom a pass shall be issued at the request of
Tenant and shall be liable to Landlord for all acts of such persons.
(5) Subject to applicable laws and ordinances, all stairwell doors shall
be locked to prevent access from the stairwell side. Except to the extent
expressly permitted in the Lease, Tenant shall not use the stairwells to move
from floor to floor.
(6) After Building standard hours no person shall be allowed to gain
elevator access to any floor in the Building unless such person has adequate
Building identification and, if applicable, a card key.
(7) Landlord reserves the right to refuse any request by an employee,
agent, servant, visitor or licensee of Tenant to unlock doors to Tenant's suite
without proper authorization from a Tenant representative. Landlord reserves the
right to charge the Tenant for this service as it is performed.
(8) Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
(9) Tenant and Tenant's employees, directors and contractors shall
evacuate the Premises and the Building in the event of a life threatening
emergency which necessitates a general evacuation of the Building, and at such
time as evacuation is required in order to comply with fire or similar drills
required by applicable statues or codes.
(10) The sidewalks, walks, entries, corridors, concourses, ramps,
staircases, escalators, and elevators shall not be obstructed or used by Tenant,
or the employees, agents, servants, visitors, or licensees of Tenant for any
purpose other than ingress and egress to and from the Premises.
(11) Any hand trucks, carryalls, or similar appliances used for the
delivery or receipt of merchandise or equipment shall be equipped with rubber
tires, side guards, and such other safeguards as Landlord shall require.
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(12) All removals or the carrying in or out of any freight, furniture,
packages, boxes, crates or any other object or matter of any description must
take place during Building standard hours and in such manner and using such
elevators as Landlord or its Agent may determine from time to time. Landlord
reserves the right to require that any delivery of freight, furniture or bulky
material requiring exclusive use of the freight elevator and/or more than two
trips be scheduled in advance for after-hour delivery. A freight elevator
operator and dock guard must be posted during after-hour deliveries and/or
removals. The cost for this personnel will be set by the Landlord and subject to
revision from time to time. The Tenant shall pay all costs for the provision of
this personnel. Deliveries on Saturdays and Sundays are subject to a four hour
minimum charge for the freight operator and dock guard. Deliveries or move-ins
scheduled during the week but begin after 6:00 p.m. shall be subject to a four
hour minimum.
(13) Landlord reserves the right to inspect all objects and matter to be
brought into the Building and to exclude from the Building all objects and
matter which violate any of theses Rules and Regulations. Landlord may require
any person leaving the public areas of the Building with any package or other
object or matter to submit a pass, signed by an authorized representative of the
Tenant, listing such package or object matter being removed, but the
establishment and enforcement of such requirement shall not impose any
responsibility on the Landlord for the protection of any Tenant against the
removal of property from the premises of such Tenant.
(14) Tenant may, at its sole cost and expense and subject to compliances
with all applicable requirements of the Lease, install and maintain vending
machines for the exclusive use by Tenant, its officers, employees and business
guests, provided that each machine, where necessary shall have a waterproof mat
underneath and be connected to a drain. Tenant shall not permit the delivery of
any food or beverage to the Premises, except by such persons delivering the same
shall be approved by Landlord, which approval shall not be unreasonably withheld
or delayed.
(15) Tenant shall be responsible for the delivery and pick up of all
mail from the United States post Office.
(16) The requirements of Tenant will be attended to upon verbal and/or
written request at the Office of the Building. Employees shall not perform any
work or do anything outside of the regular duties, unless under special
instructions from the Office of the Landlord.
(17) Tenant may request heating and/or air conditioning for non-business
hours by submitting a written request therefor to the Office of the Building
during normal business hours at least twenty-four (24) hours prior to the time
such additional services are needed. If additional services are required for a
Sunday, then the request should be received in the Office of the Building no
later than the close of business on the preceding Friday. There is a four hour
minimum usage and charge for additional HVAC service requested and provided
after the equipment has been shut down. The costs for additional HVAC services
are published by the Office of the Building and such costs are revised from time
to time.
(18) No Tenant shall employ any person or persons other than the janitor
of Landlord for the purpose of cleaning the premises, unless otherwise agreed to
by Landlord in writing. No Tenant shall cause any unnecessary labor by reason of
such Tenant's carelessness or indifference in the preservation of good order and
cleanliness. Tenant shall not clean or permit the cleaning of any window in the
premises from the outside. Tenant shall at all times keep the Premises neat,
orderly and in good repair.
(19) Each Tenant shall, at its expense, provide artificial light for the
employees of Landlord while doing janitor service or other cleaning, and in
making repairs or alterations in said Premises.
(20) The work of the janitor or cleaning personnel shall not be hindered
by Tenant after 5:30 p.m. Landlord's cleaning personnel may clean the exterior
windows at any time. Tenant shall provide adequate waste receptacles and
recycling bins to prevent unreasonable hardship to Landlord in discharging its
obligation regarding cleaning services.
(21) Tenant shall not at any time, place, leave, or discard any rubbish,
paper, articles, or objects or any kind whatsoever outside the doors of the
Premises or in the corridors, freight elevator lobbies or passageways of the
Building. Tenant shall use its best efforts to cause its employees, agents,
servants, visitors, and licensees to comply with the foregoing.
(22) Each Tenant shall store all its trash, garbage and recyclables
within its Premises. No material shall be disposed of which may result in a
violation of any law or ordinance governing such disposal. All garbage and
refuse disposal shall be made
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only through entry ways and elevators provided for such purposes and at such
times as Landlord shall designate. Tenant shall use Building's hauler unless
otherwise stipulated in Lease.
(23) Landlord's compactor and dumpsters are to be used for normal paper
and wet waste associated with the Tenant's operation. Any excessive discarding
of refuse including file purging, "spring cleaning", furniture disposal,
equipment disposal and packaging from deliveries is considered to be beyond
normal use. The cost for such excess disposal shall be the sole responsibility
of the Tenant. Tenant will pay Landlord's published charges for the removal and
hauling of excess refuse. Such charges may be revised from time to time.
(24) The water and wash closets, electrical closets, mechanical rooms,
fire stairs, drinking fountains, toilets, urinals, sinks and other plumbing
fixtures shall not be used for any purpose other than those for which they were
constructed. No sweepings, rubbish, rags, coffee grounds, or other substances
shall be deposited therein. All damages resulting from the misuse of the
fixtures by the Tenant who or whose servants, employees, agents, visitors or
licensees shall have caused the same.
(25) Tenant shall not waste electricity or water and shall cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and air conditioning, and shall refrain from attempting to adjust any
controls.
(26) Tenant shall lower and adjust the Venetian blinds on the windows in
the Premises if such lowering and adjustments reduces the sun load.
(27) No awnings, shutters, or other projections shall be attached to the
outside walls of the Building. No draperies or other window coverings or
obstructions shall be attached to or hung in or used in connection with any
exterior window or entry door of the Premises without the prior written consent
of Landlord. Tenant shall not remove any Building standard window coverings
designated and approved by Landlord for exclusive use throughout the Building.
(28) In accordance with the Alteration section of the Lease, Landlord
shall review and approve architectural and engineering drawings. The
review/alteration of Tenant drawings and/or specifications by Tishman Speyer
Properties, L.P. and any of its representatives is not intended to verify the
Tenant's engineering or design requirements and/or solutions. The
review/alteration is performed to determine compatibility with the building's
systems and lease conditions.
(29) Tenant renovations are to be performed by those contractors and
subcontractors on the Landlord's approved contractors list, adhere to the
Building's applicable Standard Operating Procedures, be compatible with Building
systems and other common systems.
(30) Except as otherwise set forth in the Lease, and except for areas
designated by Tenant as "security areas," no additional locks or bolts of any
kind which are not operable by the master key or card for the Building shall be
placed on any door in the Building or the Premises and no lock on any door
therein shall be changed or altered in any respect which will make it inoperable
by the master key or card. Landlord shall furnish two keys for each lock on
exterior doors to the Premises and shall, on Tenant's request and at Tenant's
expense, provide additional duplicate keys at Landlord's published price. All
keys which can be collected by Tenant shall be returned to Landlord upon
termination of this Lease. Landlord may at all times keep a pass key to the
Premises except for security areas. In the event of an emergency that requires
Landlord to enter a security area by force, Tenant shall be responsible for any
and all repairs necessary to restore secured area to its original condition.
Except for reception areas, all entrance doors to the Premises shall be left
closed at all times, and left locked when the Premises are not in use.
(31) Except as provided in Article 6.1(a), no Tenant shall mark, paint,
drill into or in any way deface any part of the Premises or the Building, except
with the prior written consent of Landlord. Except as otherwise provided in the
Lease, Tenant shall not install any signal, communication, alarm or other
utility or service system or equipment without the prior written consent of
Landlord. If Tenant desires telegraphic, telephonic, burglar alarm or signal
service, Landlord will, upon request, direct where and how connections and all
wiring for such service shall be introduced and run. Without such directions, no
boring, cutting or installation of wires or cables is permitted.
(32) Tenant shall not place, or cause or allow to be placed, any sign,
advertisement, notice or lettering whatsoever in the Premises. Except as set
forth in the Lease, unless Tenant leases an entire floor, Tenant shall not place
any sign or lettering in or
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about the Premises except in and at such places as may be designated by Landlord
and consented to by Landlord in writing. All lettering and/or graphics on
multi-tenant floors shall confirm to the standards prescribed by Landlord.
(33) Landlord shall have the right to prohibit any advertising by Tenant
which, in Landlord's reasonable opinion, tends to impair the reputation of the
Building or its desirability for offices, and, upon written notice from
Landlord, Tenant will refrain from or discontinue such advertising. Tenant shall
not use the name of the Building except as an address or use pictures or
illustrations of the Building without the prior written consent of Landlord.
(34) Canvassing, soliciting, or peddling in the Building is prohibited
and Tenant shall cooperate to prevent same.
(35) Upon learning thereof, Tenant shall give reasonable, prompt notice
to Landlord in case of theft, unauthorized solicitation, or accident in the
Premises, the Garage or in the Building or for defects in the Building or any of
Landlord's fixtures or equipment, or any known emergency therein.
(36) Tenant shall not serve, nor permit the serving of, alcoholic
beverages in the Premises unless Tenant obtains appropriate host liquor
liability insurance in an amount determined by Landlord and naming Landlord and
its Agents as additional insureds. Certificates of such insurance shall be
provided to Landlord in the same manner and on the same conditions as set forth
in the Lease for Tenant's commercial general liability insurance.
(37) Except for material normally used in connection with the uses
permitted under the Lease, Tenant shall not, without Landlord's prior written
approval, bring or permit to be brought or kept in or on the Premises any
inflammable, combustible, corrosive, caustic, poisonous, explosive or hazardous
substances, or cause or permit any odors to permeate in or emanate from the
Premises, in violation of Hazardous Substances Laws. Any such substance allowed
in the Premises shall be stored in a cabinet and location approved by Landlord.
The Landlord shall require Tenant to provide Material Safety Data Sheets (MSDS)
on any such substance stored in the Premises. Such MSDS shall be updated
annually as required by the Landlord.
(38) No Tenant shall lay floor tile, or other similar floor covering so
that the same shall come in direct contact with the floor of the Premises and,
if such floor covering is desired to be used, an interlining of builder's
deadening felt shall be first affixed to the floor by a paste or other material,
soluble in water, the use of cement or other similar adhesive material being
expressly prohibited.
(39) Tenant shall, at its expense, cause the Premises to be
exterminated, from time to time as Landlord may reasonably direct or whenever
there is evidence of infestation to Landlord's reasonable satisfaction, by
licensed exterminators approved by Landlord.
(40) Tenant shall not overload floors. Tenant shall obtain Landlord's
prior written approval as to size, maximum weight, routing and location of
business machines, high density filing systems, safes and heavy objects. Tenant
shall not install or operate machinery or any mechanical devices of a nature not
directly related to Tenant's permitted use of the Premises.
(41) Except to the extent expressly provided in the Lease, no Tenant's
employee, visitor or contractor shall be permitted to have access to the
Building's roof, mechanical, electrical or telephone rooms/closets without
permission from the Landlord.
(42) Except to the extent expressly permitted by the Lease, the Premises
shall not be used for (i) a restaurant or bar; (ii) the preparation,
consumption, storage, manufacture or sale of food or beverages (except in
connection with vending machines and/or warming kitchens installed for the use
of Tenant's employees only), liquor, tobacco or drugs; (iii) the business of
photocopying, multilith or offset printing (except photocopying in connection
with Tenant's own business); (iv) a typing or stenography business; (v) a school
or classroom (except for classrooms used in connection with employee or client
training programs); (vi) lodging or sleeping; (vii) the operation of retail
facilities (meaning a business whose primary patronage arises from the
generalized solicitation of the general public to visit Tenant's offices in
person without a prior appointment of a savings and loan association or retail
facilities of any financial, lending, securities brokerage or investment
activity; (viii) a payroll office; (ix) a barber, beauty or manicure shop; (x)
an employment agency, executive search firm or similar enterprise; (xi) offices
of any Governmental Authority, any foreign government, the United Nations, or
any agency or department of the foregoing; (xii) the manufacture, retail sale,
storage of merchandise or auction of merchandise, goods or property of any kind
to the general public which could reasonably be expected to
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create a volume of pedestrian traffic substantially in excess of that normally
encountered int he premises; (xiii) the rendering of medical, dental or other
therapeutic or diagnostic services; (xiv) any illegal purposes or any activity
constituting a nuisance; or (xv) any purpose which violates the certificate of
occupancy issued for the Premises or the Building.
(43) Tenant shall not make excessive noises, cause disturbances or
vibrations or use or operate any electrical or mechanical devices that emit
excessive sound or other waves or disturbances, any of which may be offensive to
the other tenants and occupants of the Building, or that would interfere with
the operation of any device, equipment, radio, television broadcasting or
reception from or within the Building or elsewhere. Tenant shall not place or
install any antennas, aerials, microwave dishes or similar devices outside of
the Premises or on the Building without Landlord's prior written approval.
(44) Tenant shall not cause or permit any odors of cooking or other
processes or any unusual or objectionable odors to emanate from the Premises
which would annoy other tenants or create a public or private nuisance. No
cooking shall be done in the Premises except as is expressly permitted in the
foregoing lease.
(45) Tenant shall not invite to the Premises, or permit the visit of
persons in such number or under such conditions as to interfere with the use and
enjoyment of any of the plazas, entrances, corridors, elevators and other
facilities of the building by other Tenants.
(46) Tenant, its servants, employees, customers, invitees, and guests
shall, when using the parking facilities in and around the Building, observe and
obey all signs regarding fire lanes and no parking zones, and when parking,
always park between the designated lines. Landlord reserves the right to tow, at
the expense of the owner, any vehicle which is improperly parked or parked in a
no parking zone. All vehicles shall be parked at the sole risk of the owner, and
Landlord assumes no responsibility for any damage to or loss of vehicles except
as set forth in this Lease.
(47) Tenant shall be responsible for the actions of its employees,
invitees, vendors and contractors when they are in the Building and Premises
performing work or providing services for the Tenant.
(48) No bicycles, motorcycles, vehicles or animals of any kind (except
for an animal aiding a disabled person) shall be brought into or kept by any
Tenant the Premises or in the Building.
(49) Tenant shall not place or allow anything to be placed against or
near the glass or partitions or doors of the premises which may diminish the
light in, or be unsightly from public corridors, or exterior of the Building.
(50) Halogen desk lamps, space heaters, extension cords and decorative
lights such as those used to decorate holiday trees and wreaths are prohibited
in the Premises.
(51) No Tenant shall accept barbering or shoe shining services in the
Premises, from any company or persons not approved by Landlord, and at hours and
under regulations other than as fixed by Landlord.
(52) Smoking is prohibited in all public areas, including the entrance
doors. Landlord reserves the right to designate smoking areas around the outside
of the Building and prohibit smoking in certain areas around the outside of the
Building.
(53) All contractors and vendors performing work or services in the
Premises shall comply with the Contractor and Vendor Guidelines for the
Building, as in effect from time to time.
(54) Landlord reserves the right to amend, change or modify these Rules
and Regulations from time to time as it deems necessary. Any such amendment,
change or modification shall be effective upon written notice thereof to Tenant.
(55) Landlord reserves the right to change the name of the Building.
(56) Landlord may waive any one or more of these rules and Regulations
from time to time for the benefit of any particular tenant or tenants, but no
such waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor or any other tenant or tenants, nor prevent landlord from
thereafter enforcing any such rules and regulations against any or all or the
tenants of the Building.
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(57) Landlord shall not be responsible to Tenant or to any other person
for the non-observance or violation of these Rules and Regulations by any other
tenant or other person. Tenant shall be deemed to have read the rules and
Regulations and to have agreed to abide by them as a condition to its occupancy
of the space leased.
(58) In the event of a conflict between these Rules and Regulations and
terms of the Lease, the terms of the Lease shall control.
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EXHIBIT G
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
Tenant Name: NETRIGHT TECHNOLOGIES
Trade Name: ____________________________
Room/Unit No.: Portion of 17th Floor
THIS AGREEMENT is dated the _____ day of December, 1998, and is made by
and among CONNECTICUT GENERAL LIFE INSURANCE COMPANY, having an address c/o
CIGNA Investments, Inc., 900 Cottage Grove Road, Bloomfield, Connecticut 06002,
Attn: Real Estate Investment Services S-313 ("Mortgagee"), NETRIGHT TECHNOLOGIES
___________________________, having an address of 55 East Monroe Street,
Chicago, Illinois 60603 ("Tenant"), and TST 55 EAST MONROE, L.L.C., a Delaware
limited liability company, having an address c/o Tishman Speyer Properties, 520
Madison Avenue, New York, New York, 10022 ("Landlord").
RECITALS:
A. Tenant has entered into a lease ("Lease") dated December _____, 1998
with Landlord, covering a portion of the 17th floor (the "Premises") within the
building known as 55 East Monroe Street, Chicago, Illinois 60603 ("Building"),
located on the Real Property, more particularly described as shown on Exhibit A,
attached hereto (the "Real Property").
B. Mortgagee has made a mortgage loan in the amount of $60,000,000 to
Landlord, secured by a mortgage of the Landlord's leasehold interest in the Real
Property (the "Mortgage"), and the parties desire to set forth their agreement
herein.
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. The Lease and all extensions, renewals, replacements or modifications
thereof are and shall be subject and subordinate to the Mortgage and all terms
and conditions thereof insofar as it affects the Building of which the Premises
form a part, and to all renewals, modifications, consolidations, replacements
and extensions thereof, to the full extent of amounts secured thereby and
interest thereon.
2. Tenant shall attorn to and recognize any purchaser at a foreclosure
sale under the Mortgage, any transferee who acquires the Premises by deed in
lieu of foreclosure, and the successors and assigns of such purchaser(s), as its
landlord for the unexpired balance (and any extensions, if exercised) of the
term of the Lease on the same terms and conditions set forth in the Lease.
3. If it becomes necessary to foreclose the Mortgage, Mortgagee shall
neither terminate the Lease nor join Tenant in summary or foreclosure
proceedings so long as Tenant is not in default under any of the terms,
covenants, or conditions of the Lease.
4. If Mortgagee succeeds to the interest of Landlord under the Lease,
Mortgagee shall not be:
(a) liable for any act or omission of any prior landlord
(including Landlord);
(b) liable for the return of any security deposit unless such
deposit has been delivered to Mortgagee by Landlord or is an escrow fund
available to Mortgagee;
(c) subject to any offsets or defenses that Tenant might have
against any prior landlord (including Landlord);
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(d) bound by any rent or additional rent that Tenant might have
paid for more than the current month to any prior landlord (including Landlord);
(e) bound by any amendment, modification, or termination of the
Lease made without Mortgagee's consent;
(f) personally liable under the Lease, Mortgagee's liability
thereunder being limited to its interest in the Real Property; or
(g) bound by any notice of termination given by Landlord to
Tenant without Mortgagee's prior written consent thereto.
5. This Agreement shall be binding on and shall inure to the benefit of
the parties hereto and their successors and assigns.
6. Tenant shall give Mortgagee, by certified mail, return receipt
requested, or by commercial overnight delivery service, a copy of any notice of
default served on Landlord, at Mortgagee's address set forth above or at such
other address as to which Tenant has been notified in writing. If Landlord shall
have failed to cure such default within the time provided for in the Lease, then
Mortgagee shall have an additional ten (10) days within which to cure any
default capable of being cured by the payment of money and an additional thirty
(30) days within which to cure any other default or if such default cannot be
cured within that time, then such additional time as may be necessary to cure
such default shall be granted if within such thirty (30) days Mortgagee has
commenced and is diligently pursuing the remedies necessary to cure such default
(including, but not limited to, commencement of foreclosure proceedings, if
necessary to effect such cure), in which event the Lease shall not be terminated
while such remedies are being so diligently pursued.
7. Landlord has agreed under the Mortgage and other loan documents that
rentals payable under the Lease shall be paid directly by Tenant to Mortgagee
upon default by Landlord under the Mortgage. After receipt of notice from
Mortgagee to Tenant, at the address set forth above or at such other address as
to which Mortgagee has been notified in writing, that rentals under the Lease
should be paid to Mortgagee, Tenant shall pay to Mortgagee, or at the direction
of Mortgagee, all monies due or to become due to Landlord under the Lease.
Tenant shall have no responsibility to ascertain whether such demand by
Mortgagee is permitted under the Mortgage, or to inquire into the existence of a
default. Landlord hereby waives any right, claim, or demand it may now or
hereafter have against Tenant by reason of such payment to Mortgagee, and any
such payment shall discharge the obligations of Tenant to make such payment to
Landlord.
8. Tenant declares, agrees and acknowledges that Mortgagee, in making
disbursements pursuant to any agreement relating to the Loan, is under no
obligation or duty to, nor has Mortgagee represented that it will, see to the
application of such proceeds by the person or persons to whom Mortgagee
disburses such proceeds, and any application or use of such proceeds for
purposes other than those provided for in such agreement shall not defeat the
subordination herein made in whole or in part.
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IN WITNESS WHEREOF, the parties hereto have executed these presents as
of the day and year first above written.
Mortgagee:
CONNECTICUT GENERAL
LIFE INSURANCE COMPANY Date:
------------------------------
By:
--------------------------------
Its:
--------------------------------
Tenant:
NETRIGHT TECHNOLOGIES Date:
------------------------------
By:
--------------------------------
Its:
--------------------------------
Landlord:
TST 55 EAST MONROE, L.L.C.,
a Delaware limited liability
company Date:
------------------------------
By:
--------------------------------
Its: Authorized Signer
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STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
I, _____________________ a Notary Public in and for said County in the
State aforesaid, DO HEREBY CERTIFY THAT __________________________, an
authorized signer of TST 55 EAST MONROE, L.L.C., in whose name the above and
foregoing instrument is executed, appeared before me this day in person and
acknowledged himself to be authorized to do so, executed the foregoing
instrument for the purposes contained therein by signing the name of the
corporation by himself as such officer.
Given under my hand and Notarial seal this ____ day of ______________,
19__.
-----------------------------------------
Notary Public
My Commission Expires:
- ----------------------------
[Tenant-corporation]
STATE OF ___________ )
) SS.
COUNTY OF __________ )
On this ______ day of ______________________, 19__, before me, notary
public, the undersigned officer, personally appears __________________, who
acknowledged himself to be the ____________________ of _______________________,
a _________________ corporation, and the foregoing instrument for the purposes
therein contained by signing the name of the corporation by himself as such
officer.
Given under my hand and Notarial seal this ____ day of ______________,
19__.
-----------------------------------------
Notary Public
My Commission Expires:
- ----------------------------
G-4
<PAGE> 63
[Tenant-partnership]
STATE OF _____________ )
) SS.
COUNTY OF ____________ )
On this _____ day of ____________________ in the year ______ before me,
___________________________ a Notary Public of said State, duly commissioned and
sworn, personally appeared ___________________________, known to me (or proved
to me on the oath of _____________) to be a general partner venture of a limited
that executed the within instrument, and acknowledged to me that such
partnership executed the same.
Given under my hand and Notarial seal this ____ day of ______________,
19__.
-----------------------------------------
Notary Public
My Commission Expires:
- ----------------------------
[Tenant - Limited Liability Company]
STATE OF _____________ )
) SS.
COUNTY OF ____________ )
On this _____ day of ____________________ in the year ______ before me,
___________________________ a Notary Public of said State, duly commissioned and
sworn, personally appeared ___________________________, known to me (or proved
to me on the oath of _____________) to be a general partner of a limited
liability company that executed the within instrument, and acknowledged to me
that such limited liability company executed the same.
Given under my hand and notarial seal this _____ day of ______________,
19__.
-----------------------------------------
Notary Public
My Commission Expires:
- ----------------------------
G-5
<PAGE> 64
CII ON BEHALF OF CGLIC)
STATE OF CONNECTICUT )
) SS.
COUNTY OF HARTFORD )
On this _____ day of ____________________, personally appeared
___________________________, who acknowledged himself to be the _____________ of
CIGNA Investments, Inc., a corporation, and that he being authorized to do so,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand.
-----------------------------------------
Notary Public
My Commission Expires:
- ----------------------------
G-6
<PAGE> 65
EXHIBIT A
Description of Premises
PARCEL 1-A:
LOTS TWO AND THREE IN BLOCK FOUR IN FRACTIONAL SECTION 15 ADDITION TO CHICAGO,
IN SECTION 15, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN
IN COOK COUNTY, ILLINOIS.
PARCEL 1-B:
THE NORTH FIFTY-FOUR FEET OF LOT SIX IN BLOCK FOUR IN FRACTIONAL SECTION 15
ADDITION TO CHICAGO IN SECTION 15, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD
PRINCIPAL MERIDIAN IN COOK COUNTY, ILLINOIS.
PARCEL 2:
THE SOUTH 1/2 OF LOT 7 AND SUBLOTS 1, 2, 3, 4 AND 5 OF ASSESSOR'S DIVISION OF
LOT 10 IN BLOCK 4 IN FRACTIONAL SECTION 15; ADDITION TO CHICAGO, IN SECTION 15,
TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK
COUNTY, ILLINOIS.
PARCEL 3:
THE NORTH HALF OF LOT SEVEN AND THAT PART OF LOT SIX LYING SOUTH OF THE NORTH
FIFTY-FOUR FEET THEREOF (EXCEPT THE EAST NINE FEET OF SAID LOTS) IN BLOCK FOUR
IN FRACTIONAL SECTION FIFTEEN, ADDITION TO CHICAGO IN SECTION 15, TOWNSHIP 39
NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, IN COOK COUNTY, ILLINOIS.
PROPERTY ADDRESS: 55 East Monroe Street, Chicago, Illinois
PIN NOS.: 17-15-103-001-0000
17-15-103-002-0000
17-15-103-003-0000
17-15-103-009-8001
17-15-103-009-8002
This Agreement Prepared By and after Recording Return To:
David M. Arnburg
Gould & Ratner
222 North LaSalle Street
Suite 800
Chicago, IL 60601
G-7
<PAGE> 66
EXHIBIT H
LEASE ESTOPPEL CERTIFICATE
Landlord: TST 55 EAST MONROE, L.L.C.
Tenant: NETRIGHT TECHNOLOGIES
Tenant Trade
Name: ____________________________
Premises: 55 East Monroe Street, 17th Floor
Area: 11,500 Rentable Sq.Ft.
Lease Date: December _______, 1998
The undersigned Tenant of the above-referenced lease (the "Lease") hereby
ratifies the Lease and certifies to Lender as mortgagee of the Building (as
defined in the Lease) of which the premises demised under the Lease (the
"Premises") is a part, as follows:
1. That the term of the Lease will commence on delivery of possession of
the Premises.
2. That the Lease calls for Monthly Fixed Rent (as defined in the
Lease) installments of $10,505.25 as of the Commencement Date and
that the Tenant will be paying monthly installments of Rent (as
defined in the Lease) totaling $24,979.15 (which includes Fixed
Rent, Additional Rent and Electric Rent, if any) which will
commence to accrue on the Commencement Date.
3. That no advance rental or other payment has been made in
connection with the Lease, there is no "free rent" or other
concession under the remaining term of the lease except for:
_________________________________________________________________
_________________________________________________________________
4. That a cash security deposit in the amount of $23,450.00 and a
letter of credit in the amount of $427,215.00 is being held by
Landlord, which amount is not subject to any set-off or reduction
or to any increase for interest or other credit due to Tenant,
except for an annual reduction of the letter of credit in the
amount of $85,443.00.
5. That, to the knowledge of Tenant, all obligations and conditions
under said Lease to be performed to date by Landlord or Tenant
have been satisfied or are in the process of being satisfied,
free of defenses and set-offs including construction of
improvements in the Premises.
6. That the Lease is a valid lease and in full force and effect and
represents the entire agreement between the parties; that, to the
knowledge of Tenant, there is no existing default on the part of
the Landlord or the Tenant in any of the terms and conditions
thereof and no event has occurred which, with the passing of time
or giving of notice or both, would constitute an event of
default, and that said Lease has not been amended, modified,
supplemented, extended, renewed or assigned, except:_____________
_________________________________________________________________
_________________________________________________________________
7. That the Lease provides for a primary term of 120 months; the
term of the Lease expires on the 31st day of March, 2009; and
that: (initial one)
( ) neither the Lease nor any of the documents listed above in
Paragraph 6, (if any), contain an option for any additional
terms.
(X) the Lease and/or the documents listed above in Paragraph 6
contain an option for one (1) additional term(s) of five (5)
year(s) at a rent to be determined as follows: at market
H-1
<PAGE> 67
8. That Landlord has not rebated, reduced or waived any amounts due
from Tenant under the Lease, either orally or in writing, nor has
Landlord provided financing for, made loans or advances to, or
invested in the business of Tenant.
9. That, to the best of Tenant's knowledge, Tenant does not use, nor
has Tenant disposed of, Hazardous Materials in violation of
Environmental Laws on the Real Property or the Premises.
10. That there are no actions, voluntary or involuntary pending
against Tenant under the bankruptcy laws of the United States or
any state thereof.
11. That this certification is made knowing that Landlord's lender,
Connecticut General Life Insurance Company, is relying upon the
representations herein made.
Tenant
NETRIGHT TECHNOLOGIES
By:_________________________________
Its:________________________________
Date: ___________________
H-2
<PAGE> 68
EXHIBIT 10.6
FIRST AMENDMENT TO LEASE
THIS AMENDMENT is made as of the 1st day of October, 1999, between TST
55 E. Monroe, L.L.C., a Delaware limited liability company ("Landlord"), having
an office c/o Tishman Speyer Properties, L.P. 520 Madison Avenue, New York, New
York 10022 and IManage, Inc. (formerly known as Net Right Technologies).
("Tenant"), a Delaware corporation having an office at 2121 South El Camino
Real, San Mateo, CA 94430
RECITALS
Landlord and Tenant entered into that certain Office Building Lease
dated as of January 28, 1999 (the "Lease") for a portion of the 17th floor
("Premises") in the building located at 55 East Monroe Street, Chicago, Illinois
("Building"). Landlord and Tenant have agreed to add additional space to the
Premises under the Lease and Landlord and Tenant desire to amend the Lease upon
the terms and conditions set forth herein.
NOW, THEREFORE, for $10.00 in hand paid, and other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, and in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
1. DEFINED TERMS. All capitalized terms used herein shall have the same
meanings as in the Lease unless otherwise defined herein.
2. ARTICLE 1; BASIC LEASE PROVISIONS. The definitions of "Premises",
"Tenant's Proportionate Share", Agreed Area of the Premises" and "Fixed Rent"
and Landlord's Contribution set forth in Article 1 of the Lease are hereby
amended in their entirety to read as follows:
PREMISES The portion of the 17th Floor of
the Building as more particularly
described on Exhibit A ("Initial
Premises"), and the portions of the
17th Floor of the Building
designated as Area A and Area B as
more particularly described on
Exhibit A-1.
RENT COMMENCEMENT DATE
(RCD) Initial Space: April 15, 1999
Area B: The earlier of January 1,
2000 and the date Tenant occupies
Area B for the conduct of its
business.
Area A: The earlier of (i) the date
60 days after Landlord delivers
possession of Area A to Tenant and
(ii) the date Tenant occupies Area
A for the conduct of its business.
TENANT'S PROPORTIONATE
SHARE Prior to Area B RCD--0.916 percent
for Taxes and 0.971 for Operating
Expenses. From the Area B RCD to
the Area A RCD--1.261 percent for
Taxes and 1.337 for Operating
Expenses. From and after the Area A
RCD--1.416 percent
<PAGE> 69
for Taxes and 1.501 percent for
Operating Expenses.
AGREED AREA OF PREMISES 14,007 rentable square feet prior to
the Area B RCD: 19,288 rentable
square feet from the Area B RCD to
the Area A RCD; and 21,660 rentable
square feet from and after the Area
A RCD.
FIXED RENT
<TABLE>
<CAPTION>
Period Annual Fixed Rent Monthly Fixed Rent
------ ----------------- ------------------
<S> <C> <C> <C>
4/15/99-11/30/99 $126,063.00 $10,505.25
12/1/99-2/29/00 $192,075.50 $16,006.29
3/1/00-3/31/00 $215,795.50 $17,982.96
4/1/00-3/31/01 $222,799.00 $18,566.58
4/1/01-3/31/02 $233,629.00 $19,469.08
4/1/02-3/31/03 $244,459.00 $20,371.58
4/1/03-3/31/04 $255,289.00 $21,274.08
4/1/04-3/31/05 $266,119.00 $22,176.58
4/1/05-3/31/06 $276,949.00 $23,079.08
4/1/06-3/31/07 $287,779.00 $23,981.58
4/1/07-3/31/08 $298,609.00 $24,884.08
4/1/08-3/31/09 $309,439.00 $25,786.58
</TABLE>
If Tenant occupies Area B for the conduct
of its business prior to December 1, 1999,
then for each day of such occupancy Tenant
shall pay Fixed Rent to Landlord equal to
$181.20. If Tenant occupies Area A for the
conduct of its business prior to March 1,
2000, then for each day of such occupancy
Tenant shall pay to Landlord Fixed Rent
equal to $64.99. The foregoing amounts
shall be payable on the date Tenant
occupies the applicable space for the
conduct of business.
LANDLORD'S CONTRIBUTION $280,140 for Initial Premises;
$47,440 for Area A and $184,835 for
Area B
3. SECTION 2.1. FIXED OPTION SPACE. Section 2.1 of the Lease is null and
void.
4. SECTION 2.5. OPTION TO CANCEL. The reference to $265,714.66 in clause
(a) of Section 2.5 of the Lease is hereby changed to $451,418.33 and the last
sentence of said section is null and void.
5. ARTICLE 34 SECURITY DEPOSIT. Section 34.2(b) of the Lease is amended
in its entirety to read as follows and Tenant shall cause an amendment to the
Letter of Credit to be issued to reflect this change:
(b) Notwithstanding the foregoing to the contrary, the amount of
the Letter of Credit shall be reduced to zero on the fifth anniversary
of the Commencement Date if on such date (i) Tenant has paid all Rent
due and payable under this Lease prior to such date and (ii) no Event of
Default then exists under this Lease.
2
<PAGE> 70
6. EXHIBITS. Exhibit A-1 attached to this Amendment is hereby added as
Exhibit A-1 to the Lease.
7. ADDITIONAL PREMISES. Area B shall be added to the Premises under the
Lease on the date this Amendment is signed by Landlord and Tenant. Area A shall
be added to the Premises under the Lease on the date the current tenant's lease
for such space ends and such tenant vacates and delivers possession of such
space to Landlord. All the terms and conditions of the Lease, as amended by this
Amendment, shall apply to Area A and Area B. Landlord shall not be liable for
failure to deliver possess of Area A and Area B on the dates set forth above and
such failure shall not impair the validity of the Lease or extend the Term;
provided, however, the Rent payable hereunder for such space shall be abated
until possession of such space is delivered to Tenant.
8. CONDITION OF ADDITIONAL SPACE. Tenant has inspected Area A and Area B
and agrees that except for Landlord's Contribution as expressly set forth in
paragraph 9 hereof, (a) to accept possession of Area A and Area B in the
condition existing on the date delivered by Landlord "as is", (b) that neither
Landlord nor Landlord's agents have made any representations or warranties with
respect to Area A or Area B or the Building except as expressly set forth
herein, and (c) Landlord has no obligation to perform any work, supply any
materials, incur any expense or make any alterations or improvements to Area A
or Area B for Tenant's occupancy. Any work to be performed by Tenant in
connection with Tenant's initial occupancy of Area A and Area B shall be
referred to hereinafter as the "Initial Installations". Tenant's occupancy of
any part of the Area A or Area B shall be conclusive evidence, as against
Tenant, that Tenant has accepted possession of the space in its then current
condition and at the time such possession was taken, such space and the Building
were in a good and satisfactory condition as required by this.
9. LANDLORD'S CONTRIBUTION.
(a) Landlord agrees to pay to Tenant an amount not to exceed the
applicable Landlord's Contribution toward the cost of the Initial Installations
for Area A and Area B, provided as of the date on which Landlord is required to
make payment thereof pursuant to paragraph 9(b), (i) the Lease is in full force
and effect, and (ii) no Event of Default then exists. Tenant shall pay all costs
of the Initial Installations in excess of Landlord's Contribution. Landlord's
Contribution shall be payable solely on account of labor directly related to the
Initial Installations and materials delivered to Area A and Area B in connection
with the Initial Installations, except that Tenant may apply up to 5% of
Landlord's Contribution to pay "soft costs", consisting of architectural,
consulting, engineering and legal fees incurred in connection with the Initial
Installations. Tenant shall not be entitled to receive any portion of Landlord's
Contribution not actually expended by Tenant in the performance of the Initial
Installations in accordance with this paragraph 8, nor shall Tenant have any
right to apply any unexpended portion of Landlord's Contribution as a credit
against Rent or any other obligation of Tenant hereunder. Upon the completion of
the Initial Installations and satisfaction of the conditions set forth in
paragraph 9(b), or upon the occurrence of the date which is twelve months after
the Rent Commencement Date for the applicable space, whichever first occurs, any
amount of Landlord's Contribution which has not been previously disbursed shall
be retained by Landlord.
(b) Landlord shall pay Landlord's Contribution for Area A and
Area B to Tenant following commencement of Tenant's business operations in Area
A and Area B, respectively, and the final completion of the Initial
Installations in such space, within 30 days after submission by Tenant to
Landlord of a written requisition therefor, signed by the chief financial
officer of Tenant and accompanied by (i) copies of paid invoices covering all of
the Initial Installations, (ii) a written certification from Tenant's architect
stating that the Initial Installations described on such invoices have
3
<PAGE> 71
been completed in accordance with the plans and specifications approved by
Landlord, that such work has been paid in full by Tenant and that all
contractors, subcontractors and material suppliers have delivered to Tenant
waivers of lien with respect to such work (copies of which shall be included
with such architect's certification), (iii) proof of the satisfactory completion
of all required inspections and the issuance of any required approvals and
sign-offs by Governmental Authorities with respect thereto, (iv) final
"as-built" plans and specifications for the Initial Installations as required
pursuant to Section 6.1(c) of the Lease and (v) such other documents and
information as Landlord may reasonably request, including in connection with
title drawdowns and endorsements.
10. REAL ESTATE BROKERS. Landlord has retained Landlord's Agent as
leasing agent in connection with this Amendment and Landlord will be solely
responsible for any fee that may be payable to Landlord's Agent. Each of
Landlord and Tenant represents and warrants to the other that it has not dealt
with any broker in connection with this Amendment other than Landlord's Agent
and Broker and that to the best of its knowledge and belief, no other broker,
finder or like entity procured or negotiated this Amendment or is entitled to
any fee or commission in connection herewith. The execution and delivery of this
Amendment by each party shall be conclusive evidence that each party has relied
upon the foregoing representations and warranties. Each of Landlord and Tenant
shall indemnify, defend, protect and hold the other party harmless from and
against any and all costs expenses, claims and liabilities (including reasonable
attorneys' fees and disbursements) which the indemnified party may incur by
reason of any claim of or liability to any broker, finder or like agent (other
than Landlord's Agent and Broker) arising out of any dealings claimed to have
occurred between the indemnifying party and the claimant in connection with this
Amendment, and/or the above representation being false. The provisions of this
paragraph 6 shall survive the expiration or earlier termination of the Term of
the Lease.
11. BINDING EFFECT. The Lease, as amended hereby, shall continue in full
force and effect, subject to the terms and provisions thereof. In the event of
any conflict between the terms of the Lease and the terms of this Amendment, the
terms of this Amendment shall control. This Amendment shall be binding upon and
inure to the benefit of Landlord, Tenant and their respective successors and
permitted assigns.
12. SUBMISSION. Submission of this Agreement by Landlord to Tenant for
examination and/or execution shall not in any manner bind Landlord and no
obligations on Landlord shall arise under this Amendment unless and until this
Amendment is fully signed and delivered by Landlord and Tenant.
13. EXCULPATION. The liability of Landlord for Landlord's obligations
under the Lease, as amended by this Amendment (the "Amended Lease"), shall be
limited to Landlord's interest in the Building and the land thereunder and
Tenant shall not look to any other property or assets of Landlord or the
property or assets of any partner, shareholder, director, officer, principal,
employee or agent, directly and indirectly, of Landlord (collectively, the
"Parties") in seeking either to enforce Landlord's obligations under the Amended
Lease or to satisfy a judgment for Landlord's failure to perform such
obligations; and none of the Parties shall be personally liable for the
performance of Landlord's obligations under the Amended Lease.
4
<PAGE> 72
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed on the date first above written.
TENANT:
iMANAGE, INC., a Delaware corporation
By: /s/ Mark Culhane
------------------------------------
Mark Culhane
Title: Chief Financial Officer
--------------------------
LANDLORD:
TST 55 EAST MONROE, LLC,
a Delaware limited liability company
By: /s/ Andrew J. Nathan
------------------------------------
Its: Authorized Signer
5
<PAGE> 1
Exhibit 10.7
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (this "Sublease") is made this 5th day of December
1998, by and between NetRight Technologies, Inc. ("Sublessor"), and Q-Image,
Inc. ("Sublessee").
RECITALS
A. Cornerstone Properties, as Landlord, and Sublessor executed a Lease
Agreement, dated November 30, 1998, hereinafter called the "Master Lease" (a
copy of which is attached hereto as Exhibit A), for certain premises (the
"Premises") comprising approximately 11,516 square feet of rentable space in the
building (the "Building") located at 2121 South El Camino Real, San Mateo, CA
(the "Premises").
B. Sublessor desires to sublease to Sublessee a portion of the Premises
being leased by Sublessor under the terms of the Master Lease, consisting of
2,350 rentable square feet, as more particularly described on Exhibit B attached
hereto (the "Sublease Premises"), and Sublessee desires to lease such space from
Sublessor.
NOW, THEREFORE, Sublessor and Sublessee agree as follows:
AGREEMENT
1. Sublease of Sublease Premises. Sublessor hereby subleases to
Sublessee, and Sublessee hereby subleases from Sublessor, the Sublease Premises.
Except as otherwise expressed herein provided, such sublease of the Sublease
Premises shall be on all the terms, covenants, conditions and provisions in the
Master Lease, which terms, covenants, conditions and provisions are incorporated
herein and made a part hereof as if fully set forth herein, and are imposed upon
the respective parties to this Sublease, with Sublessor herein being substituted
for Landlord under the Master Lease, and Sublessee hereunder being substituted
for Tenant under the Master Lease. Notwithstanding the foregoing incorporation
of the Master Lease, Sublessor shall not be responsible for the performance of
any obligations to be performed by Landlord under the Master Lease, and
Sublessee agrees to look solely to Landlord for the performance of such
obligations. Provided that Sublessor has performed all obligations of Sublessor
as Tenant under the Master Lease (except for those obligations that have been
delegated to Sublessee hereunder), Sublessor shall not be liable to Sublessee
for any failure by Landlord to perform such obligations under the Master Lease,
nor shall failure by Landlord to perform its obligations under the Master Lease
excuse performance by Sublessee of its obligations hereunder. To the extent the
succeeding provisions of this Sublease are inconsistent with or different from
the provisions of the Master Lease, the provisions of this Sublease shall
control.
2. Term. The term of this Sublease (the "Term") shall commence on January
1, 1999 and shall continue until the first to occur of (i) the expiration or
prior termination of the term of the Master Lease, (ii) a date one hundred
twenty (120) days from the date of written notice given by Sublessor to
Sublessee terminating the Sublease, or (iii) December 31, 2000.
1
<PAGE> 2
3. Rent and Other Financial Obligations. Notwithstanding Section 3 of the
Master Lease or any other provision of the Master Lease to the contrary, the
monthly installment of Base Rent payable by Sublessee to Sublessor shall be for
the period January 1, 1999 - December 31, 1999 $7,050.00 per month and for the
period January 1, 2000 - December 31, 2000 $7,637.50 per month. Inasmuch as the
amount referred to in the preceding sentence is not sufficient to cover the
monthly installments of Base Rent under the Master Lease, Sublessor agrees to
pay Landlord the difference in a timely manner under the Master Lease. Sublessee
also shall pay its pro rata share (based on the ratio of the rentable square
footage of the Sublease Premises to the rentable square footage of the Premises)
of all amounts payable as operating expenses, common area expenses and other
"additional rent" payable under the Master Lease attributable to the Term.
4. Furnishings. Sublessee shall have the right to use all furniture,
trade fixtures and other personal property (collectively, "Personal Property")
belonging to Sublessor located in the Sublease Premises and, upon expiration or
prior termination of this Sublease, Sublessee shall return to Sublessor such
Personal Property in good condition and repair, normal wear and tear excepted.
5. Waiver of Subrogation. Notwithstanding any provision to the contrary
in the Master Lease, Sublessor and Sublessee each (i) hereby waives all claims
such party may have against the other to the extent such claims are covered by
insurance carried or required to be carried under the Master Lease, and (ii)
shall cause their respective insurers to similarly waive all rights of recovery
against the others, and against the officers, employees, partners, agents and
representatives of the others, for loss of or damage to the property of the
waiving party or the property of others under its control, to the extent such
loss or damage is (or would have been) insured against under any insurance
policy carried (or required to be carried) by Landlord, Sublessor, or Sublessee
hereunder. Each of Sublessee and Sublessor shall obtain a clause or endorsement
to the applicable insurance policies carried by such party denying its insurer
any rights of subrogation against the other parties.
6. Termination of Master Lease. This Sublease is and shall at all times
be subordinate to the Master Lease. In the event the Master Lease is terminated
for any reason, then, on the date of such termination, this Sublease
automatically shall terminate and be of no further force or effect. If the
termination of the Master Lease (and the resulting termination of this Sublease)
occurs through no fault of Sublessor, Sublessor shall have no liability therefor
to Sublessee.
7. Consent of Landlord. Whenever the consent of Landlord is required
under the Master Lease, Sublessee shall obtain the consent of Sublessor.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have caused this Sublease to be executed by
their duly authorized representatives as of the date first written above.
SUBLESSOR
NetRight Technologies, Inc.
By: /s/ Mark A. Culhane
---------------------------------
Name: Mark A. Culhane
-------------------------------
Title: Chief Financial Officer
-------------------------------
SUBLESSEE
Q-Image, Inc.
By: /s/ Akber Ali
---------------------------------
Name: Akber Ali
-------------------------------
Title: Contoller
-------------------------------
3
<PAGE> 4
EXHIBIT A
2121 S. El Camino Real Office Lease between Cornerstone Properties I, LLC, as
Landlord, and NetRight Technologies, Inc., a Delaware corporation, as Tenant,
dated November 30, 1998 (filed as Exhibit 10.5).
4
<PAGE> 5
EXHIBIT B
[FLOORPLAN]
This exhibit shows a retangular area which specifies one office containing 204
square feet, another office containing 144 square feet, and a 24 square feet
area immediately adjacent to the 204 square foot office.
At the top of the exhibit page, and handwritten, is the following:
"Useable 2,042 sq. ft."
"Rentable 2,350 sq. ft".
5
<PAGE> 1
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1 of our
reports dated August 20, 1999, except as to Note 10, which is as of August 30,
1999, relating to the financial statements and financial statement schedule of
iManage, Inc., which appears in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
November 11, 1999
