<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1999
REGISTRATION NO. 333-86353
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
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:
<TABLE>
<S> <C>
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 OCTOBER 8, 1999.
[LOGO]
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 $ and $ per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to 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 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
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.
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
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PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 6
Special Note Regarding Forward-Looking Statements........... 16
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 36
Management.................................................. 48
Certain Transactions........................................ 57
Principal Stockholders...................................... 61
Description of Capital Stock................................ 63
Shares Eligible for Future Sale............................. 67
Underwriting................................................ 69
Legal Matters............................................... 71
Experts..................................................... 71
Where You Can Find Additional Information................... 71
Index to Financial Statements............................... F-1
</TABLE>
2
<PAGE> 5
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.
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.
Initially, we targeted substantially all of our sales and marketing efforts on
the legal applications market. We have licensed our software to over 400
customers including Airtouch Communications Inc., America Online, Inc., Cleary,
Gottlieb, Steen & Hamilton, Charles Schwab & Company, Inc., Cravath, Swaine &
Moore, Fried, Frank, Harris, Shriver & Jacobson, Marriott International, Inc.,
Morgan, Lewis & Bockius LLP, Wal-Mart Stores Inc., and Wilson, Sonsini, Goodrich
& Rosati, Professional Corporation.
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 average employee receives a broad range of information,
content and documents, in multiple formats, through a variety of sources
including email, voicemail, enterprise and desktop applications, facsimiles and
photocopies, the Internet, and intranet and extranet web sites. The overwhelming
amount and variety of information that may be disseminated through these
disparate media sources 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
(i) offers a scalable and reliable platform; (ii) ensures timely delivery of
relevant information; and (iii) provides security and accountability. We sell
our software products, including the iManage e-business Server, iManage iSync,
iManage iTouch, and iManage iForm, 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................. shares
Common stock to be outstanding after the
offering........................................ shares
Use of proceeds................................. For general corporate
purposes, capital
expenditures and working
capital. See "Use of
Proceeds" on page 18.
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 June 30, 1999 and does not include 1,894,950
shares of common stock subject to options outstanding under our equity incentive
plans as of June 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)
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTH PERIOD
OCTOBER 10, 1995 YEAR ENDED DECEMBER 31, ENDED JUNE 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 $ 2,233 $ 7,874
Gross profit............... -- 32 1,231 6,114 1,584 6,374
Loss from operations....... (64) (688) (3,609) (2,979) (2,271) (2,116)
Net loss................... (64) (692) (3,596) (2,840) (2,237) (1,934)
Net loss per share -- basic
and diluted.............. $(0.01) $(0.12) $ (0.57) $ (0.38) $ (0.31) $ (0.24)
Shares used in net loss per
share -- basic and
diluted.................. 6,000 6,004 6,292 7,455 7,227 8,102
Pro forma net loss per
share -- basic and
diluted.................. $ (0.21) $ (0.12)
Shares used in pro forma
net loss per
share -- basic and
diluted.................. 13,489 16,135
</TABLE>
<TABLE>
<CAPTION>
JUNE 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.... $12,117 $12,117 $
Working capital...................................... 6,261 6,261
Total assets......................................... 18,560 18,560
Long-term debt....................................... 889 889
Total stockholders' equity........................... 7,445 7,445
</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 shares
of common stock that we are offering under this prospectus at an assumed initial
public offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses. See
"Capitalization" on page 19.
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.
5
<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 iSync which we expect
to release in October 1999 and an enhanced version of iManage e-business
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 to achieve profitability;
- we need to expand our sales and marketing and customer support
organization to focus on a broad range of markets, build strategic
relationships with information technology consultants, systems
integrators and unified messaging original equipment manufacturers and
strengthen our international operations in Europe and the Asia/Pacific
region in order to increase sales; and
- we need to effectively manage our anticipated growth, which may distract
management and increase our operating expenses, and attract and retain
key personnel.
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 $9.1 MILLION AS OF JUNE 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 $1.9 million for the six
month period ended June 30, 1999. As of June 30, 1999, we had an accumulated
deficit of $9.1 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. For a more detailed description of our operating results, please see
"Selected Financial Data" on page 21 and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" which begins on page 22.
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<PAGE> 9
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 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;
- our ability to expand our relationships with information technology
consultants, system integrators and unified messaging original equipment
manufacturers; 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 as to 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. For a more detailed description of our
quarterly results and the factors that may affect them, please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" which
begins on page 22.
OUR REVENUES WILL DECLINE SIGNIFICANTLY IF THE MARKET DOES NOT CONTINUE TO
ACCEPT OUR IMANAGE SUITE OF PRODUCTS.
In 1998 and the six month period ended June 30, 1999, we derived all of our
license revenues from the sale of licenses for our iManage e-business Server,
iManage iForm and iManage iSync 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. 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.
In 1998 and the six month period ended June 30, 1999, we derived 89.0% and
95.0% of our total revenues, respectively, from the sale of licenses to law
firms and professional service firms. As of June 30, 1999, 83.0% 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. In order 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
7
<PAGE> 10
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.
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. For example, we expect to sell licenses to large
multi-national corporations primarily through introductions from our existing
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 AND
OUR STOCK PRICE MAY DECLINE.
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
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<PAGE> 11
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.
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. For a further discussion
of the competitive markets in which we operate, please see
"Business -- Competition" on page 45.
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 iTouch, 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 iTouch 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 certain 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
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<PAGE> 12
implementation. In fact, only a limited number of our customers have more than
one thousand concurrent users who use our software to manage their information
and content needs. As a result, it is possible that if our software solution is
widely deployed, it may not perform adequately or fail entirely. 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.
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, uncertainties related to the timing and nature of new product
announcements, introductions or modifications by vendors of operating systems,
back-end supporting applications and browsers and other Internet-related
applications could hurt our business, as customers delay purchases until they
determine how our products will operate with these updated platforms or
applications.
In addition, our iManage e-business 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. To date, we have not identified any material defects in our products
that have affected their performance. However, we may discover material defects
in the future. Additionally, 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. In addition, since many
of our customers use our products for critical applications, errors, defects or
other performance problems with our products could result in financial or other
damage to our customers and could significantly impair their operations.
10
<PAGE> 13
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;
- 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;
- the price of the products provided by us is expected to decline as
rapidly as the cost of any competitive alternatives; and
- the development, acquisition and implementation of new technologies and
equipment are likely to continue to require significant capital
investment by us, but capital may not be available for this purpose in
the future.
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
February 2002, but may be extended to January 2003 at our option, and our
agreement with INSO terminates in December 2001 and each 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, OUR BUSINESS MAY SUFFER
AS 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 also 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
11
<PAGE> 14
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 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 suite of e-business content and collaboration
management 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. Our software products are complex and
sophisticated and may contain design defects or software errors that are
difficult to detect and correct. 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
12
<PAGE> 15
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. Any failure to
manage growth effectively could seriously harm our business and operating
results.
We have grown from 29 employees at January 1, 1998 to 87 employees at June
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. Our failure to do any of these
measures will hurt our business and reduce our total revenues.
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 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, like the euro, the largely
untested currency of the European Union.
Our failure to successfully address any of these risks will hurt our operations
and may prevent our total revenues from growing.
Our international activities also face foreign currency-related risks. To
date, all of our revenues have been denominated in U.S. dollars, but we believe
that an increasing portion of our revenues may be denominated in foreign
currencies. We currently do not engage in foreign exchange hedging activities.
For additional information on our foreign currency risks, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which begins on page 22.
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.
Although we believe that our internally-developed proprietary systems are
year 2000 compliant, that is, that they will recognize date information
correctly when the year changes to 2000, these systems could be substantially
impaired or cease to operate due to year 2000 problems. In addition,
13
<PAGE> 16
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.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF IMANAGE AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK.
Provisions of our certificate of incorporation and bylaws may discourage,
delay or prevent a merger or acquisition that a stockholder may consider
favorable. These provisions include those that:
- authorize the issuance of preferred stock without stockholder approval;
- prohibit cumulative voting in the election of directors;
- require super-majority voting to effect amendments to our certificate of
incorporation and bylaws;
- limit the persons who may call special meetings of stockholders; and
- prohibit stockholder actions by written consent.
Provisions of Delaware law also may discourage, delay or prevent someone
from acquiring or merging with us.
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 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
14
<PAGE> 17
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 % 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 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 as we expand into other
markets or adopt other pricing structures such as subscription or
services-based licensing;
- 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, including Mahmood Panjwani, our
president and chief executive officer, and Rafiq Mohammadi, our chief
technology officer;
- 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.
OUR STOCK PRICE COULD FALL WHEN SHARES OF OUR COMMON STOCK BECOME AVAILABLE FOR
SALE IN THE FUTURE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. In addition, the sale of these shares could impair our ability to
raise capital through the sale of additional stock. Based on shares
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<PAGE> 18
outstanding as of June 30, 1999, upon completion of this offering, we will have
shares of common stock outstanding, or shares if the
underwriters' overallotment is exercised in full. Other than the shares sold in
this offering, no shares will be immediately eligible for sale in the public
market. Our directors, executive officers and current stockholders will be
subject to agreements with the underwriters or us that restrict their ability to
transfer their stock for 180 days from the date of this prospectus. After these
agreements expire, an additional shares will be eligible for sale in
the public market, in some cases subject only to the volume, manner of sale and
notice requirements of Rule 144 of the Securities Act. The increase in the
shares eligible for sale upon expiration of these agreements may cause the price
of our stock to decline.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING.
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate and
substantial dilution. In addition, we have issued options to acquire common
stock at prices significantly below the initial public offering price. To the
extent outstanding options are ultimately exercised, there will be further
dilution to investors in this offering.
MANAGEMENT CAN SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH THE
STOCKHOLDERS MAY NOT AGREE.
We plan to use the net proceeds from this offering for general corporate
purposes. Therefore, we will have broad discretion as to how we will spend these
proceeds, and stockholders may not agree with the ways in which we use the
proceeds. We may not be successful in investing the net proceeds from this
offering, in our operations or external investments, to yield a favorable return
or result.
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.
IF OUR STOCK PRICE FALLS SIGNIFICANTLY, WE MAY BECOME THE SUBJECT OF A
SECURITIES CLASS-ACTION LAWSUIT THAT COULD RESULT IN SUBSTANTIAL COSTS AND
DISTRACTION TO MANAGEMENT.
In the past, securities class-action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.
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
16
<PAGE> 19
other factors 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, among others, 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.
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<PAGE> 20
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock we are offering will be approximately $ million, at an
assumed initial public offering price of $ 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 $ million.
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 with respect to 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> 21
CAPITALIZATION
The following table presents the capitalization of iManage as of June 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 shares
of common stock that we are offering at an assumed initial public
offering price of $ 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 1,894,950 shares of
common stock issuable upon exercise of outstanding options at June 30,
1999 at a weighted average exercise price of $0.58.
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. For more
information regarding our capitalization, please see "Use of Proceeds" on page
18 and "Certain Transactions" on page 57.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt............................................ $ 889 $ 889 $
------- -------
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; 8,745,413 shares issued and
outstanding, actual; 16,778,530 issued and
outstanding, pro forma; shares issued
and outstanding, pro forma as adjusted............... 8 16
Additional paid-in capital................................ 20,100 20,100
Deferred stock-based compensation......................... (3,047) (3,047)
Notes receivable for common stock......................... (498) (498)
Accumulated deficit....................................... (9,126) (9,126)
------- -------
Total stockholders' equity...................... 7,445 7,445
------- -------
Total capitalization............................ $ 8,334 $ 8,334
======= =======
</TABLE>
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<PAGE> 22
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of 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. In the table below, we have calculated pro forma net
tangible book value per share by dividing the net tangible book value, tangible
assets less total liabilities, by the number of outstanding shares of common
stock as adjusted for the conversion of 8,033,117 shares of preferred stock into
common stock upon consummation of this offering. If you participate in this
offering, you could pay as much as $ per share, which substantially exceeds
$ per share, which is the pro forma per share value of our tangible assets
after deducting our liabilities. Additionally, as detailed below, new investors
purchasing shares in this offering at the initial public offering price will
contribute % of the total consideration paid to us but will own only %
of our shares.
Our pro forma net tangible book value as of June 30, 1999 was approximately
$ , or $ per share of common stock. Pro forma net tangible book value
per share represents the amount of our total tangible assets less total
liabilities divided by the pro forma number of shares of common stock
outstanding. After giving effect to the receipt of the estimated net proceeds
from this offering, based upon an assumed initial public offering price of
$ 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 June 30, 1999 would have been approximately $ , or
$ per share. This represents an immediate increase in pro forma as adjusted
net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ 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............. $
Pro forma net tangible book value per share as of June 30,
1999................................................... $
Increase per share attributable to new investors..........
-------
Pro forma as adjusted net tangible book value per share
after the offering........................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>
The following table summarizes as of June 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:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
----------------- ----------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New investors.............................
------- --- ------- ----
Total........................... 100% $ 100%
======= === ======= ====
</TABLE>
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SELECTED FINANCIAL DATA
The following data have been derived from financial statements audited
by
PricewaterhouseCoopers LLP, independent accountants, except for the data for the
six month period ended June 30, 1998. Balance sheets at December 31, 1997 and
1998 and at June 30, 1999, the related statements of operations and of cash
flows for the three years ended December 31, 1998 and the six month period ended
June 30, 1999 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>
PERIOD FROM SIX MONTH PERIOD
OCTOBER 10, 1995 YEAR ENDED DECEMBER 31, ENDED JUNE 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 $ 1,849 $ 6,159
Support and services................... -- 4 358 1,232 384 1,715
------ ------ ------- ------- ------- -------
Total revenues.................. -- 74 1,530 7,741 2,233 7,874
------ ------ ------- ------- ------- -------
Cost of revenues:
License................................ -- 4 136 414 150 327
Support and services................... -- 38 163 1,213 499 1,173
------ ------ ------- ------- ------- -------
Total cost of revenues.......... -- 42 299 1,627 649 1,500
------ ------ ------- ------- ------- -------
Gross profit............................. -- 32 1,231 6,114 1,584 6,374
Operating expenses:
Sales and marketing.................... 19 335 1,120 4,393 1,798 3,677
Research and development............... 24 113 935 2,351 1,058 1,884
General and administrative............. 21 272 706 1,295 577 938
Stock-based compensation............... -- -- 2,079 1,054 422 1,991
------ ------ ------- ------- ------- -------
Total operating expenses........ 64 720 4,840 9,093 3,855 8,490
------ ------ ------- ------- ------- -------
Loss from operations..................... (64) (688) (3,609) (2,979) (2,271) (2,116)
Interest income (expense), net........... -- (4) 13 139 34 186
------ ------ ------- ------- ------- -------
Loss before provision for income taxes... (64) (692) (3,596) (2,840) (2,237) (1,930)
------ ------ ------- ------- ------- -------
Provision for income taxes............... -- -- -- -- -- 4
------ ------ ------- ------- ------- -------
Net loss................................. $ (64) $ (692) $(3,596) $(2,840) $(2,237) $(1,934)
====== ====== ======= ======= ======= =======
Net loss per share -- basic and
diluted................................ $(0.01) $(0.12) $ (0.57) $ (0.38) $ (0.31) $ (0.24)
Shares used in net loss per
share -- basic and diluted............. 6,000 6,004 6,292 7,455 7,227 8,102
Pro forma net loss per share -- basic and
diluted................................ $ (0.21) $ (0.12)
Shares used in pro forma net loss per
share -- basic and diluted............. 13,489 16,135
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ JUNE 30,
1995 1996 1997 1998 1999
---- ---- ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEETS DATA:
Cash, cash equivalents and short term investments........... $ 10 $359 $1,789 $ 7,617 $12,117
Working capital (deficit)................................... (18) 17 1,740 6,119 6,261
Total assets................................................ 44 511 3,260 13,495 18,560
Long-term debt.............................................. -- -- -- -- 889
Total stockholders' equity.................................. 17 90 1,986 7,360 7,445
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes included elsewhere in this prospectus.
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 e-business Server and iManage iForm,and sold them through
a small sales force and support staff. In June 1997, we enhanced our iManage
suite of products and shipped iManage iSync. In March 1998, we released an
enhanced version of iManage e-business Server. We began shipping our iManage
iTouch 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 $7.9 million in the six month period ended June 30, 1999.
Through June 30, 1999, substantially all of our total revenues were derived from
licenses of the iManage e-business Server, iManage iForm and iManage iSync and
related services. We currently expect that substantially all of our total
revenues will be derived from our iManage e-business Server, iManage iForm and
iManage iSync 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 e-business Server, iManage iForm and iManage iSync 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.
22
<PAGE> 25
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 objective evidence of its fair
value, which is specific to 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 $8.2 million through June 30, 1999, of which approximately $3.0
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 and $1.1 million
in 1997 and 1998, respectively, and approximately $2.0 million for the six month
period ended June 30, 1999, which includes stock-based compensation amounts for
services not initially deferred. We expect to record additional deferred
stock-based compensation for stock option grants made subsequent to June 30,
1999 of at least $1.3 million. The amortization of the remaining deferred
stock-based compensation at June 30, 1999 will result in additional charges to
operations through 2002. The stock-based compensation expense is included in our
operating expenses.
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 87 as of June 30, 1999. We will seek to hire additional employees
in the future. As a result of
23
<PAGE> 26
investments relating to the expansion of our business, we have incurred net
losses in each quarter since inception and, as of June 30, 1999, had an
accumulated deficit of $9.1 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.
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>
SIX MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 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% 82.8% 78.2%
Support and services............... 5.4 23.4 15.9 17.2 21.8
------- ------- ------ ------- ------
Total revenues............. 100.0 100.0 100.0 100.0 100.0
------- ------- ------ ------- ------
Cost of revenues:
License............................ 5.4 8.9 5.3 6.7 4.2
Support and services............... 51.4 10.7 15.7 22.3 14.9
------- ------- ------ ------- ------
Total cost of revenues..... 56.8 19.5 21.0 29.1 19.1
------- ------- ------ ------- ------
Gross profit......................... 43.2 80.5 79.0 70.9 80.9
Operating expenses:
Sales and marketing................ 452.7 73.2 56.7 80.5 46.7
Research and development........... 152.7 61.1 30.4 47.4 23.9
General and administrative......... 367.6 46.1 16.7 25.8 11.9
Stock-based compensation........... 0.0 135.9 13.6 18.9 25.3
------- ------- ------ ------- ------
Total operating expenses... 973.0 316.3 117.5 172.6 107.8
------- ------- ------ ------- ------
Loss from operations................. (929.7) (235.9) (38.5) (101.7) (26.9)
------- ------- ------ ------- ------
Interest income (expense), net....... (5.4) 0.8 1.8 1.5 2.4
------- ------- ------ ------- ------
Loss before provision for income
taxes.............................. (935.1) (235.0) (36.7) (100.2) (24.5)
------- ------- ------ ------- ------
Provision for income taxes........... 0.0 0.0 0.0% 0.0 0.1
------- ------- ------ ------- ------
Net loss............................. (935.1)% (235.0)% (36.7)% (100.2)% (24.6)%
======= ======= ====== ======= ======
</TABLE>
24
<PAGE> 27
SIX MONTH PERIOD ENDED JUNE 30, 1998 AND 1999
REVENUES
Our total revenues are derived from software licenses and related support
and services. Our revenues were $2.2 million and $7.9 million for the six month
period ended June 30, 1998 and 1999, respectively, representing an increase of
$5.7 million, or 259.1%. International revenues were not significant for the six
month period ended June 30, 1998 and 1999.
License Revenues. Our license revenues were $1.8 million and $6.2 million
for the six month period ended June 30, 1998 and 1999, respectively,
representing an increase of $4.4 million, or 244.4%. License revenues
represented 82.8% and 78.2% of total revenues for the six month period ended
June 30, 1998 and 1999, respectively. This increase was primarily a result of
increased sales of iManage e-business Server, iManage iForm and iManage iSync,
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 e-business Server, iManage
iForm and iManage iSync during these periods. Our support and services revenues
were $384,000 and $1.7 million for the six month period ended June 30, 1998 and
1999, respectively, representing an increase of $1.3 million, or 342.7%. Support
and services revenues represented 17.2% and 21.8% of total revenues for the six
month period ended June 30, 1998 and 1999, respectively. The increase in support
and services revenues for the six month period ended June 30, 1999 compared to
the six month period ended June 30, 1998 was primarily a result of increased
licenses of iManage e-business Server, iManage iForm and iManage iSync 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 $150,000 and
$327,000 for the six month period ended June 30, 1998 and 1999, respectively,
representing an increase of $177,000, or 118.0%. 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 8.1% and 5.3% of license
revenues for the six month period ended June 30, 1998 and 1999, respectively. 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 $499,000 and $1.2 million for the six month period ended June 30,
1998 and 1999, respectively, representing an increase of $701,000, or 140.5%.
This increase was primarily a result of an increase of $308,000 in technical
support and training personnel costs and headcount, an increase of $240,000 in
facility-related overhead costs and an increase of $74,000 in travel-related
costs, all of which were necessary to manage and support our growing customer
base. Cost of support and services revenues was 129.9% and 68.4% of support and
services revenues for the six month period ended June 30, 1998 and 1999,
respectively. 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.
25
<PAGE> 28
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses were $1.8 million and
$3.7 million for the six month period ended June 30, 1998 and 1999,
respectively, representing an increase of $1.9 million, or 105.6%. This increase
was primarily a result of investments in sales and marketing, which included an
increase of $1.2 million in personnel-related costs to recruit and hire sales
and marketing personnel an increase of $249,000 in facility-related overhead
expenses and an increase of $229,000 in professional service expenses primarily
related to third-party consultants. Sales and marketing employees increased from
17 as of June 30, 1998 to 35 as of June 30, 1999, an increase of 18, or 105.9%.
Sales and marketing expenses represented 80.5% and 46.7% of total revenues for
the six month period ended June 30, 1998 and 1999, respectively. 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.
Accordingly, 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 $1.1
million and $1.9 million for the six month period ended June 30, 1998 and 1999,
respectively, representing an increase of $800,000, or 72.7%. 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 16 as of June 30, 1998 to 23 as of June 30, 1999, an increase of seven, or
43.8%. Research and development costs represented 47.4% and 23.9% of total
revenues for the six month period ended June 30, 1998 and 1999, respectively. 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. Accordingly, we anticipate that we will continue to invest
significantly in product research and development for the foreseeable future,
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
$577,000 and $938,000 for the six month period ended June 30, 1998 and 1999,
respectively, representing an increase of $361,000, or 62.6%. This increase was
primarily a result of an increase of $182,000 related to additional finance,
executive, information services and human resources personnel needed to support
the growth of our business, an increase of $143,000 in facility-related overhead
costs and an increase of $67,000 in outside contractors expense associated with
expanded human resources programs. General and administrative costs represented
25.8% and 11.9% of our total revenues for the six month period ended June 30,
1998 and 1999, respectively. 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 $39,000 and $204,000
for the six month period ended June 30, 1998 and 1999, respectively,
representing an increase of $165,000, or 423.1%. This increase reflects the
higher cash and short-term investment base as a result of proceeds we received
in September 1998 from 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 $5,000 and $18,000 for
the six month period ended June 30, 1998 and 1999, respectively, with the
increase primarily the result of borrowings under our equipment line of credit
in March 1999.
Provision for Income Taxes. As of June 30, 1999, we had estimated net
operating loss carryforwards for federal and state income tax reporting purposes
of approximately $3.2 million and federal and state tax credit carryforwards of
$350,000, which expire through 2018. The U.S. tax laws
26
<PAGE> 29
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 interests. We had deferred tax assets, including our net
operating loss carryforwards and tax credits, totaling approximately $1.9
million as of June 30, 1999. A valuation allowance has been recorded for the
entire deferred tax asset as a result of uncertainties regarding the realization
of the asset balance. See note 7 to financial statements on page F-21.
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%, 76.6% and 84.1% of our total revenues in
1996, 1997 and 1998, respectively. The increase in our license revenues from
1996 to 1997 was primarily the result of the initial shipment in October 1996 of
iManage e-business Server, iManage iForm and iManage iSync. 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%, 23.4% and 15.9% of our total revenues in 1996, 1997 and 1998,
respectively. The increase in absolute dollars in support and services revenues
from 1997 to 1998 reflects increasing licenses of our iManage e-business Server,
iManage iForm and iManage iSync.
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 e-business 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.
27
<PAGE> 30
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, nine and 23 as of December 31, 1996, 1997 and 1998,
respectively, 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 iForm, iManage iSync and iManage iTouch as well as
enhancements to iManage e-business Server. Our research and development
employees totaled three, 12 and 16 as of December 31, 1996, 1997 and 1998,
respectively, 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.
28
<PAGE> 31
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited statement of operations data for
the six quarters ended June 30, 1999, as well as such data expressed as a
percentage of our total revenues for the periods indicated. You should read this
information in conjunction with our financial statements and related notes
appearing elsewhere in this prospectus. 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,
1998 1998 1998 1998 1999 1999
------- -------- -------- ------- ------- --------
(UNAUDITED AND IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
License................................. $ 564 $1,285 $2,195 $2,465 $2,805 $ 3,354
Support and services.................... 206 178 382 466 774 941
------- ------ ------ ------ ------ -------
Total revenues................... 770 1,463 2,577 2,931 3,579 4,295
------- ------ ------ ------ ------ -------
Cost of revenues:
License................................. 53 97 112 152 149 178
Support and services.................... 233 266 289 425 526 647
------- ------ ------ ------ ------ -------
Total cost of revenues........... 286 363 401 577 675 825
------- ------ ------ ------ ------ -------
Gross profit.............................. 484 1,100 2,176 2,354 2,904 3,470
------- ------ ------ ------ ------ -------
Operating expenses:
Sales and marketing..................... 810 988 1,212 1,383 1,707 1,970
Research and development................ 487 571 595 698 900 984
General and administrative.............. 280 297 331 387 440 498
Stock-based compensation................ 249 173 390 242 527 1,464
------- ------ ------ ------ ------ -------
Total operating expenses......... 1,826 2,029 2,528 2,710 3,574 4,916
------- ------ ------ ------ ------ -------
Loss from operations...................... (1,342) (929) (352) (356) (670) (1,446)
Interest income (expense), net............ 2 32 27 78 77 109
------- ------ ------ ------ ------ -------
Loss before provision for income taxes.... (1,340) (897) (325) (278) (593) (1,337)
------- ------ ------ ------ ------ -------
Provision for income taxes................ -- -- -- -- 1 3
------- ------ ------ ------ ------ -------
Net loss.................................. $(1,340) $ (897) $ (325) $ (278) $ (594) $(1,340)
======= ====== ====== ====== ====== =======
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
-----------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30,
1998 1998 1998 1998 1999 1999
------- -------- -------- ------- ------- --------
(UNAUDITED)
<S> <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%
Support and services.................... 26.8 12.2 14.8 15.9 21.6 21.9
------- ------ ------ ------ ------ -------
Total revenues................... 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
Support and services.................... 30.3 18.2 11.2 14.5 14.7 15.1
------- ------ ------ ------ ------ -------
Total cost of revenues........... 37.1 24.8 15.6 19.7 18.9 19.2
------- ------ ------ ------ ------ -------
Gross profit.............................. 62.9 75.2 84.4 80.3 81.1 80.8
------- ------ ------ ------ ------ -------
Operating expenses:
Sales and marketing..................... 105.2 67.5 47.0 47.2 47.7 45.9
Research and development................ 63.2 39.0 23.1 23.8 25.1 22.9
General and administrative.............. 36.4 20.3 12.8 13.2 12.3 11.6
Stock-based compensation................ 32.3 11.8 15.1 8.3 14.7 34.1
------- ------ ------ ------ ------ -------
Total operating expenses......... 237.1 138.7 98.1 92.5 99.9 114.5
------- ------ ------ ------ ------ -------
Loss from operations...................... (174.3) (63.5) (13.7) (12.2) (18.7) (33.7)
Interest income (expense), net............ 0.3 2.2 1.0 2.7 2.2 2.5
------- ------ ------ ------ ------ -------
Loss before provision for income taxes.... (174.0) (61.3) (12.6) (9.5) (16.6) (31.1)
------- ------ ------ ------ ------ -------
Provision for income taxes................ 0.0 0.0 0.0 0.0 0.0 0.1
------- ------ ------ ------ ------ -------
Net loss.................................. (174.0)% (61.3)% (12.6)% (9.5)% (16.6)% (31.2)%
======= ====== ====== ====== ====== =======
</TABLE>
Revenues. Our total revenues increased in each of the six 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 e-business 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 six quarterly
periods ended June 30, 1999 as a result of the growth of revenues.
Operating Expenses. Operating expenses increased significantly in each of
the six quarterly periods presented above 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.
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
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<PAGE> 33
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 iSync planned for October
1999 and our iManage e-business 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 subsequent to those anticipated by us. 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
June 30, 1999. To a lesser extent, we have financed our operations through
lending arrangements. As of June 30, 1999, we had cash, cash equivalents and
short-term investments of $12.1 million, and approximately $3.5 million of
available borrowings under a line of credit.
Net cash used in operating activities was $412,000, $1.8 million and
$622,000 in 1996, 1997 and 1998, respectively. For the six month period ended
June 30, 1999, net cash provided by operations was $4.7 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 six
month period ended June 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, $192,000 and $431,000 in
1996, 1997 and 1998, respectively, and $4.7 million in the six month period
ended June 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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<PAGE> 34
Our financing activities provided $820,000, $3.4 million and $6.9 million
in 1996, 1997 and 1998, respectively, and $1.0 million in the six month period
ended June 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 six month period ended June 30, 1999, cash
provided by financing activities consisted primarily of $1.0 million in
borrowings under our equipment line of credit.
As of June 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 June 30,
1999, we had not borrowed under the revolving line of credit. We could borrow
approximately $2.5 million under this line as of June 30, 1999. In addition, as
of June 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
June 30, 1999, we had borrowed $1.0 million under the equipment line of credit.
This line of credit includes covenant restrictions requiring us to maintain
certain minimum financial ratios, including a liquidity ratio test and liquidity
coverage, and profitability levels and limits 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.
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 prior to 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 such 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 such year 2000 requirements.
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 in accordance with 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
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<PAGE> 35
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
such problems. We believe that the Verity and INSO software that we incorporate
into our iManage e-business 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 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
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<PAGE> 36
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 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. 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 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.
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ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, member states of the European Economic Community, or
the EEC, fixed their respective currencies to a new currency, the euro. On that
day, the euro became a functional legal currency within these countries. 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 400 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
e-business 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 400 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 iTouch 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. and Canada. 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
e-business Server and iManage iSync, iManage iTouch and iManage iForm
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 e-business Server Application server Ensures server uptime by splitting server
Content and collaboration failover processes across multiple servers so that if
server any one server fails, users are automatically
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 iTouch 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 via 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 iSync 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.
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
PRODUCT FEATURES BENEFITS
- -------------------------------------------------------------------------------------------------
iManage iForm 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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<PAGE> 43
Our iManage e-business Server provides the core functionality of our
content and collaboration management solution. Each of our application modules,
iManage iTouch, iManage iSync and iManage iForm, work in conjunction with the
iManage e-business 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 iSync, iManage iForm
and iManage iTouch with the iManage e-business Server as its needs dictate.
Additionally, multiple organizations using iManage iSync with iManage e-business
Server enjoy the benefits of using an iManage virtual private network upon which
they can collaborate and share information.
iManage iTouch, 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
iSync is a web-based user interface that provides full access to all iManage
e-business Server content through a web browser. iManage iForm 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 e-business 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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<PAGE> 44
Technology Platform.
iManage Components Architecture
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 e-business 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 e-business 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.
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
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Internet Explorer and Netscape Navigator web browsers, as well as other
browsers, can access information contained within iManage e-business Server
repositories.
Microsoft Office 2000 integration. We designed interfaces to our server
that enable users of Microsoft Office 2000 and previous Microsoft Office
versions the ability 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 June 30, 1999, we employed
34 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 400 customers. To date, we have
focused our sales and marketing resources primarily on law firms. In 1998 and
the six month period ended June 30, 1999, we derived 89.0% and 95.0% of our
total revenues, respectively, 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
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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. McCutchen, Doyle, Brown & Enersen, LLP
America Online, Inc. McDermott, Will & Emery
Barnes & Thornburg Minter Ellison
Charles Schwab & Company, Inc. Morgan, Lewis & Bockius LLP
City of Phoenix Paul, Weiss, Rifkind, Wharton & Garrison
Cleary, Gottlieb, Steen & Hamilton Pillsbury Madison & Sutro LLP
Commodities Corporation LLC Ropes & Gray
Cravath, Swaine & Moore State of California
Federal Home Loan Bank Chicago State of Indiana
Fraser Milner Stoel Rives LLP
Fried, Frank, Harris, Shriver & Jacobson TIAA-CREF
Gibson, Dunn & Crutcher LLP 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
</TABLE>
In 1996, Hahn Leeser & 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 six month period
ended June 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 18 employees at June 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 June 30, 1999, our product
development organization consisted of 22 employees.
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
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<PAGE> 47
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 $1.9 million for the six
month period ended June 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 certain 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 otherwise, 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.
We believe we compete favorably with our competitors with respect to each
of the foregoing 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
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<PAGE> 48
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 with respect to 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
otherwise be successfully challenged. It is also possible that any patent issued
to us may not provide us with any competitive advantages, that we may not
develop future proprietary products or technologies that are patentable, and
that the patents of others may seriously limit our ability to do business. In
this regard, we have not performed any comprehensive analysis of patents of
others that may limit or 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. A discussion of risks associated with the protection
of our intellectual property rights and the intellectual property right of
others is presented in "Risk Factors" included elsewhere in this prospectus.
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 with respect 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> 49
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 e-business Server. This agreement
expires in February 2002 and is renewable with the written agreement of the
parties. Either party may terminate the agreement for cause prior to the
expiration date with 90 days written notice. We are currently negotiating an
addendum to the Verity license that would give us the option to extend the term
of the agreement through January 31, 2003. 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 prior to 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. For a
discussion of the risks associated with our intellectual property, please see
"Risk Factors -- Our products may lack essential functionality if we are unable
to obtain and maintain licenses to third-party software and applications" on
page 11.
EMPLOYEES
As of June 30, 1999, we had 87 full-time employees. Of these employees, 22
were in product development, 34 in sales, marketing and business development, 18
in customer support and training and 13 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 are in the process of exercising 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 June 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............................ 43 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 May
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 consisting of
four members, divided into three classes, each serving staggered three-year
terms: 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. 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 respective terms. Effective upon the closing of this
offering, Rafiq Mohammadi will serve as a Class I director, Mahmood Panjwani and
Moez Virani will serve as Class II directors and Mark Perry and DuWayne Peterson
will serve as Class III directors.
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.
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Our amended 1997 option plan will provide that each nonemployee director
will automatically be granted a nonstatutory stock option to purchase 30,000
shares of common stock upon his initial election or appointment to the board.
Subject to the director's continuous service, one-third of the shares subject to
this initial option 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 for a number of shares of common stock equal to (a)
10,000 shares 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, if a director is reelected
to a two year or one year term, the size of the option grant would be 20,000 or
10,000 shares, respectively. Each of these additional options will vest in equal
monthly increments over the director's elected term, although vesting will
accelerate in full if a change in control occurs before the optionee's
termination of service. 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.
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 with respect to 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 directors. Neither Mr. Panjwani nor Mr. Mohammadi participated
in discussions by our board of directors with respect to his own compensation.
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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 optionee's employment with us.
Our repurchase right generally lapses as to 25% of the shares subject to the
option one year from the date of grant and as to 2.083% of the shares each
succeeding 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, on stock option exercises will be dependent on the future performance of
our common stock. The
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<PAGE> 54
assumed 5% and 10% rates of stock appreciation are based on the assumed offering
price of $ 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 $ $
Mark Culhane......... 180,000 15.7 0.40 10/13/08
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 of $ 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 -- $ $
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 to be paid in accordance 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 in accordance with 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 constructive termination or
(B) the number of his remaining unvested shares subject to options as of the
date of the constructive termination.
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<PAGE> 55
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.
With respect to nonstatutory stock options granted under the amended 1997
stock option plan, the exercise price 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 such 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.
Options generally expire not later than 30 days following a termination of
employment or six months following the optionee's termination date if the
termination was due to the optionee's 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 by will or the laws of
descent and distribution, although the board or committee may grant nonstatutory
stock options which allow for limited transferability.
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<PAGE> 56
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 June 30, 1999, there were
outstanding options to purchase 1,894,950 shares of common stock at exercise
prices ranging from $0.20 to $1.65 per share, or a weighted average exercise
price per share of $0.58. Options to acquire 2,274,333 shares have been
exercised. As of June 30, 1999, a total of 830,717 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
January 1 thereafter 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, respectively. 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.
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
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<PAGE> 57
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 or her 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.
Prior to 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 may require us, among other things, to indemnify such executive
officers and directors against liabilities that may arise by reason of status or
service as directors or executive officers and to advance expenses they spend as
a result of any proceeding against them as to which they could be indemnified.
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<PAGE> 58
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 such 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 such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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<PAGE> 59
CERTAIN 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....................... -- -- -- 750,000
Owen Carton...................... -- -- -- 305,000
Mark Culhane and related
entities(1).................... -- -- -- 180,000
Entities and individuals
affiliated with Louis Leitz
Digital Systems
GmbH & Co...................... -- 1,273,885 -- 20,000
Rafiq Mohammadi.................. -- -- -- 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(2)...................... 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 5,000 shares held by Mark and Michele Culhane as trustees of the
Michael D. Culhane 1999 Irrevocable Trust; 5,000 shares held by Mark and
Michele Culhane as trustees of the Maxwell A. Culhane 1999 Irrevocable
Trust; and 5,000 shares held by Mark and Michele Culhane as trustees of the
Monica G. Culhane 1999 Irrevocable Trust.
(2) Includes 29,295 shares of series A preferred stock held jointly by Akber
Panjwani and Karim Panjwani, both brothers of Mr. Panjwani; 6,000 shares of
common stock held by Akber Panjwani and his spouse as custodians for their
children; 21,000 shares of common stock held jointly by Akber Panjwani and
his spouse; 9,000 shares of common stock held by Karim Panjwani and his
spouse as custodians for their children; 6,000 shares of common stock held
jointly by Karim
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<PAGE> 60
Panjwani and his spouse; 53,000 shares of common stock held by Sherbanu
Panjwani, Mr. Panjwani's mother; 174,875 shares of common stock held by
Samia Rashid, the sister of Ms. Shamshad Rashid; 3,000 shares of common
stock held by Samia Rashid's husband; 9,000 shares of common stock held by
Aftab Rashid, the brother of Ms. Shamshad Rashid, and his spouse as
custodians for their children; 6,000 shares of common stock held jointly by
Aftab Rashid and his spouse; 9,000 shares of common stock held by Altaf
Rashid, the brother of Ms. Shamshad Rashid, and his spouse as custodians for
their children; 6,000 shares of common stock held jointly by Altaf Rashid
and his spouse; 6,000 shares of common stock held by Naushad Rashid, the
brother of Ms. Shamshad Rashid, and his spouse as custodians for their
children; 6,000 shares of common stock held jointly by Naushad Rashid and
his spouse; 35,211 shares of series A preferred stock held by Naushad
Rashid; 6,000 shares of common stock held by Yasmeen Rashid, the sister of
Ms. Shamshad Rashid; and 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.
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 Ractzsch, acquired upon exercise
of an option granted at $0.30 per share. All other holders of common
stock set forth in the table above acquired their shares upon exercise of
stock options as described below.
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<PAGE> 61
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 and May 1999 promissory notes accrue interest at rates of 4.71%
and 4.83% per year, respectively, and are due on March 31, 2003 and May 30,
2003, respectively.
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 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.
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<PAGE> 62
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 six month period ended June 30, 1999,
we paid a total of $141,250 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 and the six month period ended June 30, 1999, we paid
Q-Image $365,826 and $279,148, respectively, for the services of these
consultants.
On November 14, 1996, December 12, 1996 and December 19, 1996, Mahmood
Panjwani loaned us $25,000, $10,000 and $15,000, respectively. Each loan accrued
interest at the rate of 10% per year. Both loans were repaid in full on
September 14, 1998.
On October 10, 1995 and June 25, 1996, Rafiq Mohammadi loaned us $24,010
and $5,000, respectively. Each loan accrued interest at the rate of 10% per
year. Mr. Mohammadi was repaid $10,000 of this loan in 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.
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 June 30, 1999, and as adjusted
to reflect the sale of shares of common stock in this offering assuming (a)
16,778,530 shares of common stock outstanding as of June 30, 1999, (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 June 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 PRIOR TO AFTER THE
NAME AND ADDRESS BENEFICIALLY OWNED THE OFFERING OFFERING
---------------- ------------------ ------------ ---------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Rafiq Mohammadi................................... 3,000,000 17.9%
Mahmood Panjwani(1)............................... 2,978,000 17.6
Shamshad Rashid(2)................................ 2,978,000 17.6
Mark Perry(3)..................................... 2,840,000 16.8
c/o New Enterprise Associates
2490 Sand Hill Road
Menlo Park, CA 94025
Moez Virani(4).................................... 329,930 2.0
c/o Mohr Davidow Ventures
2775 Sand Hill Road, Suite 240
Menlo Park, CA 94025
Owen Carton(5).................................... 305,000 1.8
Mark Culhane(6)................................... 180,000 1.1
OTHER 5% STOCKHOLDERS
New Enterprise Associates(7)...................... 2,740,000 16.3
Attn: Mark Perry
2490 Sand Hill Road
Menlo Park, CA 94025
Entities and individuals associated with C.E.
Unterberg, Towbin, L.P.(8)...................... 2,031,931 12.1
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
Entities and individuals associated with Louis
Leitz Digital Systems GmbH & Co.(9)............. 1,283,885 7.7
Seimenstrasse 64,
70469 Stuttgart Germany
All executive officers and directors as a group (8
persons)(10).................................... 9,862,930 57.0
</TABLE>
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<PAGE> 64
(1) Includes 2,648,000 shares held in joint tenancy with Ms. Rashid, Mr.
Panjwani's wife, 50,000 shares registered in the name of Mr. Panjwani and
Ms. Rashid as the trustees of the Danyal M. Panjwani Trust and 100,000
shares registered in the name of Mr. Panjwani and Ms. Rashid as the
trustees of the Panjwani Irrevocable Trust dated December 31, 1998. Also
includes 180,000 shares subject to options held by Ms. Rashid, exercisable
within 60 days of June 30, 1999, of which 86,250 are subject to a right of
repurchase in favor of iManage which lapses over time.
(2) Includes 2,648,000 shares held in joint tenancy with Mr. Panjwani, Ms.
Rashid's husband, 50,000 shares registered in the name of Mr. Panjwani and
Ms. Rashid as the trustees of the Danyal M. Panjwani Trust and 100,000
shares registered in the name of Mr. Panjwani and Ms. Rashid as the
trustees of the Panjwani Irrevocable Trust dated December 31, 1998. Also
includes 180,000 shares subject to options held by Ms. Rashid, exercisable
within 60 days of June 30, 1999, of which 86,250 are subject to a right of
repurchase in favor of iManage which lapses over time.
(3) Mr. Perry is a general partner of New Enterprise Associates and a director
of iManage. Includes 100,000 shares subject to options exercisable within
60 days of June 30, 1999, all of which are subject to a right of repurchase
in favor of iManage which lapses over time. Also includes 2,783 shares held
by NEA Ventures 1998, Limited Partnership, 27,828 shares held by NEA
Presidents Fund, L.P. and 2,709,389 shares held by New Enterprise
Associates VIII, Limited Partnership. 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.
(4) 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.
(5) Includes 111,198 shares subject to a right of repurchase in favor of
iManage which lapses over time.
(6) Represents 180,000 shares subject to a right of repurchase in favor of
iManage which lapses over time. Includes 5,000 shares registered in the
name of Mark and Michele Culhane as trustees of the Michael D. Culhane 1999
Irrevocable Trust, 5,000 shares registered in the name of Mark and Michele
Culhane as trustees of the Maxwell A. Culhane 1999 Irrevocable Trust and
5,000 shares registered in the name of Mark and Michele Culhane as trustees
of the Monica G. Culhane 1999 Irrevocable Trust.
(7) Represents 2,783 shares held by NEA Ventures 1998, Limited Partnership,
27,828 shares held by NEA Presidents Fund, L.P. and 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.
(8) Includes 127,388 shares held by C.E. Unterberg, Towbin LLC, 1,016,786
shares held by Unterberg Harris Private Equity Partners, L.P., 323,940
shares held by C.E. Unterberg, Towbin, L.P., 217,177 shares held by
Unterberg Harris Private Equity Partners, C.V., 63,694 shares held by A.
Robert Towbin, a managing director of C.E. Unterberg, Towbin L.P., and 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.
(9) Includes 10,000 shares held by Harold Raetzsch, a former executive officer
of Louis Leitz Digital Systems GmbH & Co.'s U.S. subsidiary. These 10,000
shares are subject to a repurchase option in favor of iManage in the event
Mr. Raetzsch ceases to serve as a consultant or advisor to us.
(10) Includes 707,448 shares subject to a right of repurchase in favor of
iManage which lapses over time. Also includes 510,000 shares subject to
options exercisable within 60 days of June 30, 1999.
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<PAGE> 65
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 June 30, 1999, and assuming the conversion of all
outstanding preferred stock into common stock upon the closing of this offering,
there were outstanding 16,778,530 shares of common stock held of record by
approximately 93 stockholders and options to purchase 1,894,950 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, among other things, 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
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<PAGE> 66
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.
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 with
respect to 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.
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<PAGE> 67
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN 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.
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 prior to 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, accordingly, 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 in order
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.
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<PAGE> 68
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 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 in the event 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> 69
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 at such time 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
June 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 such 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 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 with respect 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 prior to 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 shares immediately after this
offering; or
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<PAGE> 70
- 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 with respect to the sale.
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 certain rights 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 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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UNDERWRITING
The underwriters named below have entered into an underwriting agreement
with us to purchase the number of shares of common stock set forth 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.............................................
========
</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 such 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 additional shares of common stock at the same price per
share as we will receive for the 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 shares in this offering. If purchased, these
additional shares will be sold by the underwriters on the same terms as those on
which the shares are being sold.
Qualified Independent Underwriter. The offering is being conducted in
accordance with Rule 2720 of the National Association of Securities Dealers,
Inc. which provides that, among other things, when an NASD member firm
participates in the offering of equity securities of a company with whom such
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 deemed 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
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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 during the period of 180
days following the effective date of this prospectus, we will not, without the
prior written consent of BancBoston Robertson Stephens, subject to limited
exceptions, including in connection with acquisitions, dispose of or hedge any
shares of common stock, or any securities convertible into, exercisable for or
exchangeable for shares of common stock, other than our sales of shares in this
offering, the issuance of common stock upon the exercise of outstanding options
or our issuance of options or shares under existing stock option or stock
purchase plans.
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 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 the offering
may engage in transactions including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids that may have the effect of
stabilizing or maintaining the market price of the common stock at a level above
that which might otherwise prevail in the open market. A stabilizing bid is a
bid for or the purchase of the common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A syndicate
covering transaction is the bid for the purchase of the common stock on behalf
of the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A penalty bid is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by this 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 or otherwise 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. In the event
that 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.
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
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<PAGE> 73
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
June 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 June 30, 1999
and for each of the three years in the period ended December 31, 1998 and the
six month period ended June 30, 1999 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 certain 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>
Washington, D.C. New York, New York Chicago, Illinois
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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[LOGO]
<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 June 30, 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 and the six month period ended June 30, 1999, 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
------------------ JUNE 30, JUNE 30,
1997 1998 1999 1999
------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,789 $ 7,617 $ 8,622
Short-term investments............................... -- -- 3,495
Trade accounts receivable, net of allowance for
doubtful accounts of $75 in 1997, $175 in 1998 and
$115 in 1999...................................... 1,124 4,194 4,120
Other current assets................................. 101 443 250
------- ------- -------
Total current assets......................... 3,014 12,254 16,487
Property and equipment, net............................ 237 483 1,478
Other assets........................................... 9 758 595
------- ------- -------
Total assets................................. $ 3,260 $13,495 $18,560
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 188 $ 595 $ 763
Accrued liabilities.................................. 347 2,190 1,343
Advances from stockholders........................... 69 -- --
Equipment line of credit, current portion............ -- -- 111
Deferred revenue..................................... 670 3,350 8,009
------- ------- -------
Total current liabilities.................... 1,274 6,135 10,226
Equipment line of credit, less current portion......... -- -- 889
------- ------- -------
Total liabilities............................ 1,274 6,135 11,115
------- ------- -------
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 in 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, 8,745 shares
in 1999 and 16,778 shares pro forma............... 6 7 8 16
Additional paid-in capital........................... 6,810 15,679 20,100 20,100
Deferred stock-based compensation.................... (482) (770) (3,047) (3,047)
Notes receivable for common stock.................... -- (372) (498) (498)
Accumulated deficit.................................. (4,352) (7,192) (9,126) (9,126)
------- ------- ------- -------
Total stockholders' equity................... 1,986 7,360 7,445 $ 7,445
------- ------- ------- -------
Total liabilities and stockholders' equity... $ 3,260 $13,495 $18,560
======= ======= =======
</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>
SIX MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------------
1996 1997 1998 1998 1999
------ ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses............................ $ 70 $ 1,172 $ 6,509 $ 1,849 $ 6,159
Support and services................ 4 358 1,232 384 1,715
------ ------- ------- ------- -------
Total revenues................... 74 1,530 7,741 2,233 7,874
------ ------- ------- ------- -------
Cost of revenues:
Licenses............................ 4 136 414 150 327
Support and services................ 38 163 1,213 499 1,173
------ ------- ------- ------- -------
Total cost of revenues........... 42 299 1,627 649 1,500
------ ------- ------- ------- -------
Gross profit.......................... 32 1,231 6,114 1,584 6,374
Operating expenses:
Sales and marketing................. 335 1,120 4,393 1,798 3,677
Research and development............ 113 935 2,351 1,058 1,884
General and administrative.......... 272 706 1,295 577 938
Stock-based compensation............ -- 2,079 1,054 422 1,991
------ ------- ------- ------- -------
Total operating expenses......... 720 4,840 9,093 3,855 8,490
------ ------- ------- ------- -------
Loss from operations.................. (688) (3,609) (2,979) (2,271) (2,116)
Interest income....................... -- 22 153 39 204
Interest expense...................... (4) (9) (14) (5) (18)
------ ------- ------- ------- -------
Loss before provision for income
taxes............................... (692) (3,596) (2,840) (2,237) (1,930)
------ ------- ------- ------- -------
Provision for income taxes............ -- -- -- -- 4
------ ------- ------- ------- -------
Net loss.............................. $ (692) $(3,596) $(2,840) $(2,237) $(1,934)
====== ======= ======= ======= =======
Net loss per share -- basic and
diluted............................. $(0.12) $ (0.57) $ (0.38) $ (0.31) $ (0.24)
====== ======= ======= ======= =======
Shares used in net loss per
share -- basic and diluted.......... 6,004 6,292 7,455 7,227 8,102
====== ======= ======= ======= =======
Pro forma net loss per share -- basic
and diluted (unaudited)............. $ (0.21) $ (0.12)
======= =======
Shares used in pro forma net loss per
share -- basic and diluted
(unaudited)......................... 13,489 16,135
======= =======
</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............... -- -- -- -- 2,514 (2,514) -- -- --
Amortization of deferred
stock-based compensation... -- -- -- -- -- 1,951 -- -- 1,951
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............... -- -- -- -- 1,253 (1,253) -- -- --
Amortization of deferred
stock-based compensation... -- -- -- -- -- 866 -- -- 866
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.................... -- -- 547 1 153 -- (126) -- 28
Options issued in exchange
for services............... -- -- -- -- 208 -- -- -- 208
Deferred stock-based
compensation............... -- -- -- -- 4,060 (4,060) -- -- --
Amortization of deferred
stock-based compensation... -- -- -- -- -- 1,760 -- -- 1,760
Amortization of non-employee
stock-based compensation... -- -- -- -- -- 23 -- -- 23
Net loss..................... -- -- -- -- -- -- -- (1,934) (1,934)
----- ---- ----- --- ------- ------- ----- ------- -------
Balances, June 30, 1999...... 8,033 $ 8 8,745 $ 8 $20,100 $(3,047) $(498) $(9,126) $ 7,445
===== ==== ===== === ======= ======= ===== ======= =======
</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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 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) $(2,237) $(1,934)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization.......... 19 61 313 71 300
Amortization of prepaid rent........... -- -- 12 -- 180
Amortization of deferred stock-based
compensation......................... -- 2,032 965 422 1,783
Stock issued for services.............. -- 47 89 -- 208
Provision for doubtful accounts........ 10 65 100 50 --
Changes in operating assets and
liabilities:
Trade accounts receivable............ (79) (1,170) (3,195) (2,113) 74
Accounts payable..................... 178 6 407 229 168
Accrued liabilities.................. 80 284 1,868 647 (847)
Deferred revenue..................... 81 589 2,680 1,787 4,659
Other assets......................... (9) (99) (1,021) (12) 105
----- ------- ------- ------- -------
Net cash (used in) provided by
operating activities............ (412) (1,781) (622) (1,156) 4,696
----- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITY:
Purchase of property and equipment........ (59) (192) (431) (248) (1,224)
Purchase of short-term investments........ -- -- -- -- (3,495)
----- ------- ------- ------- -------
Net cash used in investing
activity........................ (59) (192) (431) (248) (4,719)
----- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) advances and
loans from stockholders................ 55 (10) (69) -- --
Proceeds from equipment line of credit.... -- -- -- -- 1,000
Contributed capital....................... 120 -- -- -- --
Issuance of common stock, net............. 20 45 -- -- 28
Issuance of preferred stock, net.......... 625 3,368 6,950 1,399 --
----- ------- ------- ------- -------
Net cash provided by financing
activities...................... 820 3,403 6,881 1,399 1,028
----- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................... 349 1,430 5,828 (5) 1,005
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 $ 1,784 $ 8,622
===== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest.................... $ -- $ 2 $ 17 $ 4 $ 17
===== ======= ======= ======= =======
Cash paid for income taxes................ $ $ 3 $ 2 $ 1 $ 42
===== ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES:
Issuance of common stock in exchange for
notes receivable....................... $ -- $ -- $ 372 $ 300 $ 126
===== ======= ======= ======= =======
Issuance of Series C preferred stock to
prepay rent............................ $ -- $ -- $ 210 $ -- $ --
===== ======= ======= ======= =======
Deferred stock based compensation......... $ -- $ 2,514 $ 1,253 $ 394 $ 4,060
===== ======= ======= ======= =======
</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 an 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 six month period ended
June 30, 1999, 87%, 58%, 55% and 81% 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 e-business Server, iManage iForm and iManage iSync, 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 six month period
ended June 30, 1998, 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 the six month period ended
June 30, 1999 and, in the opinion of management, reflect all adjustments, which
include only normal recurring adjustments, necessary to present fairly the
Company's results of operations and its cash flows for the six month period
ended June 30, 1998.
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. Realized gains and losses in the six month period ended
June 30, 1999 and unrealized holding gains and losses at June 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 12% of trade accounts
receivable at June 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 six month period ended June 30,
1999, respectively. Additionally, 58%, 84%, 89% and 95% of the Company's
revenues for the years ended December 31, 1996, 1997 and 1998 and the six month
period ended June 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.
F-8
<PAGE> 83
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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, which is specific to 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.
F-9
<PAGE> 84
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of June 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.
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 and the six month period ended June 30, 1999, the Company incurred $83,000,
$88,000, $286,000 and $301,000 of advertising cost.
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 six month period ended June 30, 1998 and 1999 and
comprehensive loss for each of these periods.
F-10
<PAGE> 85
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 June 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 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>
SIX MONTH PERIOD
ENDED JUNE 30,
---------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss............................... $ (692) $(3,596) $(2,840) $(2,237) $(1,934)
Shares used in net loss per
share -- basic and diluted........... 6,004 6,292 7,455 7,227 8,102
------- ------- ------- ------- -------
Net loss per share -- basic and
diluted.............................. $ (0.12) $ (0.57) $ (0.38) $ (0.31) $ (0.24)
======= ======= ======= ======= =======
Anti-Dilutive Securities:
Convertible preferred stock.......... 12 2,074 6,034 5,009 8,033
Options to purchase common stock..... -- 261 1,154 1,036 1,720
Common stock subject to repurchase... -- 2 458 532 360
------- ------- ------- ------- -------
12 2,337 7,646 6,577 10,113
======= ======= ======= ======= =======
</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 six month period ended June 30, 1999.
F-11
<PAGE> 86
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
SIX MONTH
PERIOD ENDED
JUNE 30,
1998 1999
------- ------------
<S> <C> <C>
Net loss.................................................... $(2,840) $(1,934)
------- -------
Shares used in net loss per common share, basic and
diluted................................................... 7,455 8,102
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 16,135
------- -------
Pro forma net loss per common share, basic and diluted...... $ (0.21) $ (0.12)
======= =======
</TABLE>
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 June 30, 1999. Unaudited pro forma stockholders' equity at June 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
F-12
<PAGE> 87
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
evaluate the impact of the requirements of SFAS No. 133 and SFAS No. 137 will
have on its financial statements and related disclosures.
NOTE 3 -- BALANCE SHEET ACCOUNTS:
FINANCIAL INSTRUMENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1997 1998 1999
-------------------- -------------------- --------------------
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS
Cash.............................. $ -- $ -- $ 57 $ 57 $ 352 $ 352
Time deposits..................... 1,789 1,789 4,842 4,842 450 450
Money market...................... -- -- 2,718 2,718 332 332
Commercial paper.................. -- -- -- -- 7,488 7,488
------ ------ ------ ------ ------ ------
$1,789 $1,789 $7,617 $7,617 $8,622 $8,622
====== ====== ====== ====== ====== ======
SHORT-TERM INVESTMENTS
Federal government obligations.... $ -- $ -- $ -- $ -- $ 984 $ 984
Commercial paper.................. -- -- -- -- 2,511 2,511
------ ------ ------ ------ ------ ------
$ -- $ -- $ -- $ -- $3,495 $3,495
====== ====== ====== ====== ====== ======
</TABLE>
PROPERTY AND EQUIPMENT, NET:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1997 1998 1999
---- ---- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and fixtures...................................... $ 64 $198 $ 544
Computer software and equipment............................. 253 550 825
Leasehold improvements...................................... -- -- 603
---- ---- ------
317 748 1,972
Less accumulated depreciation............................... 80 265 494
---- ---- ------
$237 $483 $1,478
==== ==== ======
</TABLE>
Depreciation expense was $19,000, $60,000, $185,000 and $229,000 for 1996,
1997, 1998 and the six month period ended June 30, 1999, respectively.
F-13
<PAGE> 88
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OTHER ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
------------ JUNE 30,
1997 1998 1999
---- ---- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Technology licenses......................................... $-- $725 $725
Less accumulated amortization............................... -- (128) (199)
-- ---- ----
-- 597 526
-- ---- ----
Other assets................................................ 9 161 69
-- ---- ----
$9 $758 $595
== ==== ====
</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 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,
-------------- JUNE 30,
1997 1998 1999
---- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Technology licenses......................................... $ 50 $ 425 $ --
Payroll and related......................................... 198 1,276 1,102
Other....................................................... 99 489 241
---- ------ ------
$347 $2,190 $1,343
==== ====== ======
</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.
F-14
<PAGE> 89
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum payments under the non-cancelable operating leases as of
June 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
---------
<S> <C>
Six Month Period Ending December 31, 1999................... $ 278
YEAR
2000...................................................... 546
2001...................................................... 567
2002...................................................... 145
2003...................................................... 153
and thereafter............................................ 425
------
$2,114
======
</TABLE>
Rent expense was $30,000, $111,000, $216,000 and $326,000 for 1996, 1997
and 1998 and the six month period ended June 30, 1999, 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 from its bank.
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 ($2,500,000 at June 30, 1999), bear interest at prime plus 0.25%
(8.00% at June 30, 1999) and are due at March 31, 2000. At June 30, 1999, no
amounts have been drawn against this facility.
The equipment line of credit, which bears interest at prime plus 0.50%
(8.25% at June 30, 1999), provides for borrowings of up to $2,000,000 to finance
the Company's purchases of property and equipment. At June 30, 1999, $1,000,000
has been drawn against this facility, of which $111,000 is currently payable.
Principal repayment begins in February 2000 and continues through February 2002
in equal monthly installments of principal and interest. In July 1999, the
Company borrowed an additional $396,000 for equipment purchases.
Principal payments due under the facility as of June 30, 1999 are as
follows (in thousands):
<TABLE>
<S> <C>
SIX MONTH PERIOD ENDING DECEMBER 31, 1999................... $ --
YEAR ENDING DECEMBER 31,
2000...................................................... 306
2001...................................................... 333
2002...................................................... 333
2003...................................................... 28
------
$1,000
======
</TABLE>
F-15
<PAGE> 90
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- STOCKHOLDERS' EQUITY:
CONVERTIBLE PREFERRED STOCK
At June 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 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 June 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
F-16
<PAGE> 91
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 June 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. 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 June 30, 1999, approximately $32,000 representing the
unamortized portion of prepaid rent, is 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
F-17
<PAGE> 92
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
to dividends. No dividends have been declared or paid on the Company's common
stock as of June 30, 1999.
At December 31, 1997 and 1998 and June 30, 1999, 150,000, 428,000 and
368,000 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.
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..................... 1,000 -- -- --
Options granted................................ (828) 828 0.60 - 1.65 0.99
Options exercised.............................. -- (547) 0.20 - 0.60 0.28
Options canceled............................... 6 (6) 0.40 - 0.60 0.47
------ ------
Balances, June 30, 1999........................ 831 1,895 $0.20 - $1.65 $0.58
------ ------
</TABLE>
F-18
<PAGE> 93
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The options outstanding and currently exercisable by exercise price at June
30, 1999 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 - $0.30 938,000 8.5 $0.25 525,000 $0.24
$0.40 155,000 9.3 $0.40 20,000 $0.40
$0.60 274,000 9.6 $0.60 37,000 $0.60
$0.90 302,000 9.8 $0.90 -- $0.90
$1.50 - $1.65 226,000 9.9 $1.62 96,000 $1.63
--------- -------
1,895,000 9.1 $0.58 678,000 $0.46
========= =======
</TABLE>
At December 31, 1997 and 1998, options to purchase 1,152,000 and 775,000
shares of the Company's common stock, respectively, were exercisable at weighted
average exercise prices of $0.20 and $0.24 per share, respectively.
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 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
addition, two other 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 in equal
installments through September 1, 2001. These notes receivable bear interest at
4.5% to 4.83% per annum.
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 and the six month period ended June 30, 1999
F-19
<PAGE> 94
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
SIX MONTH
PERIOD ENDED
JUNE 30,
1997 1998 1999
------- ------- ------------
<S> <C> <C> <C>
Net loss:
As reported......................................... $(3,596) $(2,840) $(1,934)
======= ======= =======
Pro forma........................................... $(3,686) $(2,882) $(2,037)
======= ======= =======
Net loss per share -- basic and diluted as reported... $ (0.57) $ (0.38) $ (0.24)
======= ======= =======
Net loss per share -- basic and diluted pro-forma..... $ (0.59) $ (0.39) $ (0.25)
======= ======= =======
</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.
The estimated weighted average minimum value of options granted during
1997, 1998 and the six month period ended June 30, 1999 was $0.05, $0.06 and
$0.25 per share. 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>
SIX MONTH
PERIOD ENDED
JUNE 30,
1997 1998 1999
-------- ---------- ------------
<S> <C> <C> <C>
Expected life of option............................. 5 years 5 years 5 years
Risk-free interest rate............................. 5.66% 4.96% 5.65%
Dividend yield...................................... 0% 0% 0%
</TABLE>
DEFERRED STOCK COMPENSATION
During 1997 and 1998 and the six month period ended June 30, 1999, the
Company issued options to purchase its common stock to certain employees
totaling 2,401,000, 967,000 and 828,000 , respectively under the Plan and
outside the Plan with weighted average exercise prices of $0.20, $0.32 and $0.99
per share, respectively, below the deemed fair value of the Company's common
stock at the date of grant. The weighted average fair value of the underlying
common stock was $1.26, $1.47 and $6.09 in 1997 and 1998, and the six month
period ended June 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 June 30, 1999, the Company had recorded deferred compensation related to
these options in an amount of $7,619,000, of which $1,951,000, $866,000 and
$1,760,000 had been amortized to expense during 1997 and 1998 and the six month
period ended June 30, 1999, respectively.
F-20
<PAGE> 95
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future compensation expense from options granted through June 30, 1999 is
estimated to be $1,121,000, $1,242,000, $505,000 and $167,000 for the remainder
of 1999, 2000, 2001 and 2002, respectively.
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,
---------------- JUNE 30,
1997 1998 1999
----- ------- --------
<S> <C> <C> <C>
Net operating loss carryforwards........................... $ 521 $ 991 $ 670
Deferred compensation...................................... 53 140 259
Depreciation............................................... 5 64 68
Allowance for doubtful accounts............................ 47 87 97
Accrued liabilities........................................ 23 265 535
Research and development credit............................ 62 195 307
----- ------- -------
Total deferred tax assets.................................. 711 1,742 1,936
Less valuation allowance................................... (711) (1,742) (1,936)
----- ------- -------
Net deferred tax asset................................... $ -- $ -- $ --
===== ======= =======
</TABLE>
The valuation allowance increased by $683,000, $1,031,000 and $194,000 for
1997 and 1998 and the six month period ended June 30, 1999.
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.
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>
SIX MONTH
PERIOD
ENDED
JUNE 30,
1996 1997 1998 1999
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Federal statutory rate................................. 34% 34% 34% 34%
State taxes............................................ 6 6 5 5
Tax credits............................................ -- 2 5 6
Other.................................................. -- -- 4 --
Deferred compensation.................................. -- (22) (12) (35)
Net operating losses and tax credits, not benefited.... (40) (20) (36) (10)
--- --- --- ---
--% --% --% --%
=== === === ===
</TABLE>
F-21
<PAGE> 96
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company's provision for income taxes for the six month period ended
June 30, 1999 consists of $4,000 of currently payable state income taxes. The
tax provision is net of the benefit for the utilization of state and federal net
operating loss carryforwards of $344,000.
At June 30 1999, the Company has federal and state net operating loss
carryforwards of approximately $1,755,000 and $1,448,000 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 $220,000 for federal income tax purposes and $130,000 for Illinois
purposes at June 30, 1999, 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>
SIX MONTH
PERIOD ENDED
JUNE 30,
1996 1997 1998 1999
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Sublease rent expense............................... $18 $ 45 $ 54 $ --
Sublease rent income................................ -- -- -- 42
Consulting and other service expense................ 70 284 467 420
</TABLE>
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,
------------ JUNE 30,
1997 1998 1999
---- ---- --------
<S> <C> <C> <C>
Receivables................................................. $-- $-- $ 46
Payables.................................................... 27 -- 159
</TABLE>
F-22
<PAGE> 97
IMANAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 EVENT
In September 1999, the Company borrowed an additional $604,000 for
equipment purchases under the equipment line of credit.
F-23
<PAGE> 98
Description of Graphics
INSIDE FRONT COVER:
There is a large letter "i" centered in the middle of the page. To the right of
the letter "i" are the words "business," "information" and "commerce." 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 circle which contains within it pictures of a telephone, a group of
people, a stack of documents and an envelope with the letter "e" coming out of
it. Around the circle are the words "voicemail," "new media," "collaboration,"
"documents," "faxes" and "e-mail." To the right of the circle are the words "on
demand," "scalable" and "e-business." To the right of these words are pictures
of multiple buildings. On top of each building is a circle which contains
within it pictures of a telephone, a group of people, a stack of documents and
an envelope with the letter "e" coming out of it. Each building is linked to
the other buildings next to it with a line.
INSIDE BACK COVER:
Centered on the top of the page are the words "E-Business Information
Commerce." Below these words are pictures of three different iManage screens.
The words "Web access to the e-business server via our user customizable portal
interface" are next to the first picture of an iManage screen. The words "Email
integration allows users to send URL 'links' and use rules to auto notify
subscribers about folder content changes" are next to the second picture of an
iManage screen. The words "Dedicated content authoring interface provides
online research integration and other tools to accelerate the production and
organization of new server content" are next to the third picture of an iManage
screen.
<PAGE> 99
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 OCTOBER 8, 1999.
[LOGO]
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 $ and $ per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.
-------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to 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 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> 100
UNDERWRITING
The underwriters named below have entered into an underwriting agreement
with us to purchase the number of shares of common stock set forth 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......................................
--------
Total.............................................
========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL UNDERWRITERS SHARES
-------------------------- ---------
<S> <C>
BancBoston Robertson Stephens International Ltd. ...........
U.S. Bancorp Piper Jaffray Inc. ............................
C.E. Unterberg, Towbin......................................
--------
Total.............................................
========
</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 such 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 additional shares of common stock at the same price per
share as we will receive for the 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 shares in this offering. If purchased, these
additional shares will be sold by the underwriters on the same terms as those on
which the shares are being sold.
Qualified Independent Underwriter. The offering is being conducted in
accordance with Rule 2720 of the National Association of Securities Dealers,
Inc. which provides that, among other things, when an NASD member firm
participates in the offering of equity securities of a company with whom such
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 deemed 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
<PAGE> 101
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 during the period of 180
days following the effective date of this prospectus, we will not, without the
prior written consent of BancBoston Robertson Stephens, subject to limited
exceptions, including in connection with acquisitions, dispose of or hedge any
shares of common stock, or any securities convertible into, exercisable for or
exchangeable for shares of common stock, other than our sales of shares in this
offering, the issuance of common stock upon the exercise of outstanding options
or our issuance of options or shares under existing stock option or stock
purchase plans.
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, pursuant to
Regulation M under the Exchange Act, some persons participating in the offering
may engage in transactions including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids that may have the effect of
stabilizing or maintaining the market price of the common stock at a level above
that which might otherwise prevail in the open market. A stabilizing bid is a
bid for or the purchase of the common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A syndicate
covering transaction is the bid for the purchase of the common stock on behalf
of the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A penalty bid is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by this 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 or otherwise and, if
commenced, may be discontinued at any time.
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.
<PAGE> 102
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............................................ $ 11,120
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............................................... 18,380
--------
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 June 30, 1999, we granted stock options to purchase
4,501,325 shares of our common stock at exercise prices ranging from $0.20
to $1.65 per share to our employees, consultants and directors under our
amended 1997 stock option plan.
II-1
<PAGE> 103
(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 June 30, 1999, we issued and sold an aggregate of
2,274,333 shares of our common stock to employees, consultants and
directors at prices ranging from $0.20 to $1.50 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> 104
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 (see page II-4).
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.
** To be filed by amendment.
(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> 105
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
Increase to allowance.................... 15,000 -- 194,000
Decrease to allowance.................... (5,000) (60,000) --
--------- --------- ----------
Balance, June 30, 1999..................... $ 85,000 $ 115,000 $1,936,000
========= ========= ==========
</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> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Amendment No. 1 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 7th day of October,
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. 1 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 Officer October 7, 1999
- ------------------------------------------ and Chairman of the Board
Mahmood Panjwani (Principal Executive Officer)
/s/ MARK CULHANE Chief Financial Officer and October 7, 1999
- ------------------------------------------ Secretary (Principal Financial and
Mark Culhane Accounting Officer)
/s/ RAFIQ MOHAMMADI* Chief Technology Officer, Vice October 7, 1999
- ------------------------------------------ President, Engineering and Director
Rafiq Mohammadi
/s/ MARK PERRY* Director October 7, 1999
- ------------------------------------------
Mark Perry
/s/ MOEZ VIRANI* Director October 7, 1999
- ------------------------------------------
Moez Virani
/s/ DUWAYNE PETERSON Director October 7, 1999
- ------------------------------------------
DuWayne Peterson
*By /s/ MARK CULHANE
-------------------------------------
Mark Culhane
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 107
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 (see page II-4).
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.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF iMANAGE, INC.
FIRST: The name of the Corporation is iManage, Inc. (hereinafter sometimes
referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the State
of Delaware is Incorporating Services, Ltd., 15 East North Street,
in the City of Dover, County of Kent. The name of the registered
agent at that address is Incorporating Services, Ltd.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is One Hundred and Two
Million Shares (102,000,000) consisting of:
1. One Hundred Million (100,000,000) shares of Common Stock, par
value one-tenth of one cent ($.001) per share (the "Common
Stock"); and
2. Two Million (2,000,000) shares of Preferred Stock, par value
one-tenth of one cent ($.001) per share (the "Preferred
Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of
Preferred Stock in series and, by filing a certificate pursuant to
the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and
to fix the designation, powers, preferences and rights of the shares
of each such series and any qualifications, limitations or
restrictions thereon. The number of authorized shares of Preferred
Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a
vote of any such holders is required pursuant to the certificate or
certificates establishing the series of Preferred Stock.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for
further
<PAGE> 2
definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by
this Certificate of Incorporation or the By-laws of the Corporation,
the directors are hereby empowered to exercise all such powers and
do all such acts and things as may be exercised or done by the
Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the By-laws so provide.
C. Effective upon the closing of the Corporation's initial public
offering of its common stock, any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a
duly called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by
such stockholders. At all times prior to the closing of the
Corporation's initial public offering of its common stock, any
action which may be taken at any annual or special meeting of
stockholders may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the actions so taken,
is signed by the holders of outstanding shares having not less than
the minimum number of votes which would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote
thereon were present and voted. All such consents shall be filed
with the Secretary of the Corporation and shall be maintained in the
corporate records. Prompt notice of the taking of a corporate action
without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
D. Special meetings of stockholders of the Corporation may be called
only by either the Board of Directors, the Chairman of the Board of
Directors or the President and Chief Executive Officer.
SIXTH:
A. The number of directors shall initially be four (4) and thereafter
shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any
such resolution is presented to the Board of Directors for
adoption). Effective upon the closing of the closing of the
Corporation's initial public offering of its common stock, the Board
of Directors shall be divided into three classes with the term of
office of the first class to
<PAGE> 3
expire at the first annual meeting of the stockholders following the
Effective Date, the term of office of the second class to expire at
the second annual meeting of stockholders held following the
Effective Date, the term of office of the third class to expire at
the third annual meeting of stockholders following the Effective
Date, and thereafter for each such term to expire at each third
succeeding annual meeting of stockholders after such election. All
directors shall hold office until the expiration of the term for
which elected, and until their respective successors are elected,
except in the case of the death, resignation, or removal of any
director.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies
in the Board of Directors resulting from death, resignation or other
cause (including removal from office by a vote of the stockholders)
may be filled only by a majority vote of the directors then in
office, though less than a quorum, or by the sole remaining
director, and directors so chosen shall hold office for a term
expiring at the next annual meeting of stockholders at which the
term of office of the class to which they have been elected expires,
and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director.
C. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least a
majority of the voting power of all of the then outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors, voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal By-laws of the Corporation. The stockholders shall also have
power to adopt, amend or repeal the By-laws of the Corporation. Any
adoption, amendment or repeal of By-laws of the Corporation by the
stockholders shall require, in addition to any vote of the holders
of any class or series of stock of the Corporation required by law
or by this Certificate of Incorporation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
EIGHTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involved intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the
<PAGE> 4
Delaware General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit
If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of
a director, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this
Article EIGHTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
NINTH: The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights
conferred upon stockholders are granted subject to this reservation;
provided, however, that, notwithstanding any other provision of this
Certificate of Incorporation or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any
vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation,
the affirmative vote of the holders of at least 66-2/3% of the
voting power of all of the then outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class, shall be required
to amend or repeal this Article NINTH, Article FIFTH, Article SIXTH,
Article SEVENTH or Article EIGHTH.
<PAGE> 1
EXHIBIT 3.2
BY-LAWS OF iMANAGE, INC.
Article 1. Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President and Chief Executive
Officer or, if not so designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President and Chief Executive Officer at the time and place to
be fixed by the Board of Directors or the President and stated in the notice of
the meeting. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the Board of Directors, the Chairman of the Board or the President
and Chief Executive Officer. Business transacted at any special meeting of
stockholders shall be confined to the purpose or purposes stated in the notice
of meeting.
1.4 Notice of Meetings. Written notice of each meeting of stockholders,
whether annual or special, shall be given not less than ten (10) nor more than
sixty (60) days before the date on which the meeting is to be held, to each
stockholder entitled to vote at such meeting, except as otherwise provided
herein or as required by law (meaning here and hereafter, as required from time
to time by the Delaware General Corporation Law or the Certificate of
Incorporation). The notices of all meetings shall state the place, date and hour
of the meeting. The notice of a special meeting shall state, in addition, the
purpose or purposes for which the meeting is called. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least ten (10) days before each meeting of
stockholders, a complete list. of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present. This list shall preemptively determine the identity of the stockholders
entitled to vote at the meeting and the number of shares held by each of then.
<PAGE> 2
1.6 Quorum. Except as otherwise provided by law or these By-laws, the
holders of a majority of the shares of the capital stock of the corporation
entitled to vote at the meeting, present in person or represented by proxy,
shall constitute a quorum for the transaction of business. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the holders of a majority of the shares of stock present
or represented at the meeting and entitled to vote, although less than a quorum,
or, if no stockholder is present, by any officer entitled to preside at or to
act as Secretary of such meeting. When a meeting is adjourned to another place,
date or time, written notice need not be given of the adjourned meeting if the
place, date and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the date of any adjourned
meeting is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written notice of the place, date, and time of the adjourned meeting shall be
given in conformity herewith. At the adjourned meeting, the corporation may
transact any business which might have been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by law. Each stockholder of record entitled to vote at a meeting of
stockholders, may vote in person or may authorize any other person or persons to
vote or act for him by written proxy executed by the stockholder or his
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the corporation. No stockholder may authorize more than one proxy
for his shares. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this Section may
be substituted or used in lieu of the original writing or transmission for any
and all purposes for which the original writing or transmission could be used,
provided that such copy, facsimile transmission or other reproduction shall be a
complete reproduction of the entire original writing or transmission.
1.9 Action at Meeting. When a quorum is present at any meeting, any
election shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election, and all other matters shall be
determined by a majority of the votes cast affirmatively or negatively on the
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, a majority of each such
class present or represented and voting affirmatively or negatively on the
matter) shall decide such matter, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-laws.
<PAGE> 3
All voting, including on the election of directors, but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballots shall be counted by an inspector or inspectors
appointed by the chairman of the meeting. The corporation may, and to the extent
required by law, shall, in advance of any meeting of stockholders, appoint one
or more inspectors to act at the meeting and make a written report thereof. The
corporation may designate one or more persons as an alternate inspector to
replace any inspector who fails to act. If no inspector or alternate is able to
act at a meeting of stockholders, the person presiding at the meeting may, and
to the extent required by law, shall, appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to faithfully execute the duties of inspector with
strict impartiality and according to the best of his or her ability.
1.10 Notice of Stockholder Business. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) properly brought before an annual meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder proposal to be presented at an
annual meeting shall be received at the Corporation's principal executive
offices not less than 120 calendar days in advance of the date that the
Corporation's (or the Corporation's predecessor's) proxy statement was released
to stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been advanced by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
notice by the stockholders to be timely must be received not later than the
close of business on the tenth day following the day on which the date of the
annual meeting is publicly announced.
A stockholder's notice to the Secretary of the Corporation shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting, (ii) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (iii) the class and number of
shares of the Corporation which are beneficially owned by the stockholder, and
(iv) any material interest of the stockholder in such business.
1.11 Conduct of Business. At every meeting of the stockholders, the
Chairman of the Board, if there is such an officer, or if not, the person
appointed by the Board of Directors, shall act as Chairman. The Secretary of the
corporation or a person designated by the Chairman of the meeting shall act as
Secretary of the meeting. Unless otherwise approved by the Chairman of the
meeting, attendance at the stockholders' meeting is restricted to stockholders
of record, persons authorized in accordance with Section 1.8 of these By-laws to
act by proxy, and officers of the corporation.
<PAGE> 4
The Chairman of the meeting shall call the meeting to order, establish
the agenda, and conduct the business of the meeting in accordance therewith or,
at the Chairman's discretion, it may be conducted otherwise in accordance with
the wishes of the stockholders in attendance. The date and time of the opening
and closing of the polls for each matter upon which the stockholders will vote
at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule
on the precedence of, and procedure on, motions and other procedural matters,
and exercise discretion with respect to such procedural matters with fairness
and good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the By-laws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.11 and
Section 1.10 above. The Chairman of a meeting shall if the facts warrant,
determine and declare to the meeting that any proposed item of business was not
brought before the meeting in accordance with the provisions of this Section
1.11 and Section 1.10, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
1.12 Stockholder Action Without Meeting. Effective upon the closing of
the Corporation's initial public offering of its common stock, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by such
stockholders. At all times prior to the closing of the Corporation's initial
public offering of its common stock, any action which may be taken at any annual
or special meeting of stockholders may be taken without a meeting and without
prior notice, if a consent in writing, setting forth the actions so taken, is
signed by the holders of outstanding shares having not less than the minimum
number of votes which would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted. All
such consents shall be filed with the Secretary of the Corporation and shall be
maintained in the corporate records. Prompt notice of the taking of a corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
Article 2. Board of Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number and Term of Office. The number of directors shall initially
be four (4) and, thereafter, shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
<PAGE> 5
presented to the Board for adoption). Effective upon the closing of the
Corporation's initial public offering of its common stock, the directors shall
be divided into three classes, with the term of office of the first class to
expire at the first annual meeting of stockholders held after the Effective
Date; the term of office of the second class to expire at the second annual
meeting of stockholders held after the Effective Date; the term of office of the
third class to expire at the third annual meeting of stockholders held after the
Effective Date; and thereafter for each such term to expire at each third
succeeding annual meeting of stockholders after such election. All directors
shall hold office until the expiration of the term for which elected and until
their respective successors are elected, except in the case of the death,
resignation or removal of any director.
2.3 Vacancies and Newly Created Directorships. Subject to the rights of
the holders of any series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized number of directors
of any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification or other cause (including removal from office by a
vote of the stockholders) may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the next annual meeting of stockholders at which
the term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
2.4 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.5 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.6 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, the President and Chief Executive
Officer, two or more directors, or by one director in the event that there is
only a single director in office.
2.7 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone or
electronic voice message system at least 24 hours in advance of the meeting,
(ii) by sending a telegram, telecopy or telex, or delivering written notice by
hand, to his last known business or home address at least 24 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least three (3) day in advance of the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need
<PAGE> 6
not specify the purposes of the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
2.8 Participation in Meetings by Telephone Conference Calls. Directors
or any members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
2.9 Quorum. A majority of the total number of authorized directors
shall constitute a quorum at any meeting of the Board of Directors. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each such director so
disqualified; provided, however, that in no case shall less than one-third (1/3)
of the number so fixed constitute a quorum. In the absence of a quorum at any
such meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice other than announcement at the meeting,
until a quorum shall be present. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
at a meeting of a committee which authorizes a particular contract or
transaction.
2.10 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-laws.
2.11 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing. Any such
written consents shall be filed with the minutes of proceedings of the Board or
committee.
2.12 Removal. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least a majority of the voting
power of all of the outstanding shares of capital stock entitled to vote
generally in the election of directors, voting together as a single class.
2.13 Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation, with such lawfully delegated powers and duties as it therefor
confers, to serve at the pleasure of the Board. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may
<PAGE> 7
authorize the seal of the corporation to be affixed to all papers which may
require it. Each such committee shall keep minutes and make such reports as the
Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
By-laws for the Board of Directors.
2.14 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to the determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
2.15 Nomination of Director Candidates. Subject to the rights of
holders of any class or series of Preferred Stock then outstanding, nominations
for the election of Directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of Directors generally. However, any stockholder entitled
to vote in the election of Directors generally may nominate one or more persons
for election as Directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Corporation. To be timely, a stockholder
nomination for a director to be elected at an annual meeting shall be received
at the corporation's principal executive offices not less than 120 calendar days
in advance of the date that the corporation's proxy statement was released to
stockholders in connection with the previous year's annual meeting of
stockholders, except that if no annual meeting was held in the previous year or
the date of the annual meeting has been advanced by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement,
or in the event of a nomination for director to be elected at a special meeting,
notice by the stockholders to be timely must be received not later than the
close of business on the tenth day following the day on which such notice of the
date of the special meeting was mailed or such public disclosure was made. Each
such notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote for the election of directors on the date of such
notice and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors; and (e) the consent of each
nominee to serve as a director of the Corporation if so elected.
In the event that a person is validly designated as a nominee in
accordance with this Section 2.15 and shall thereafter become unable or
unwilling to stand for election to the Board of Directors, the Board of
Directors or the stockholder who proposed such nominee, as the case may be, may
designate a substitute nominee upon delivery, not fewer than five days prior to
the date of the meeting for the election of such nominee, of a written notice to
the Secretary, setting
<PAGE> 8
forth such information regarding such substitute nominee as would have been
required to be delivered to the Secretary pursuant to this Section 2.15 had such
substitute nominee been initially proposed as a nominee. Such notice shall
include a signed consent to serve as a director of the Corporation, if elected,
of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.15,
such nomination shall be void; provided, however, that nothing in this Section
2.15 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
Article 3. Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President and Chief Executive Officer, a Secretary, a Chief Financial Officer
and such other officers with such other titles as the Board of Directors shall
determine, including, at the discretion of the Board of Directors, a Chairman of
the Board, and one or more Vice Presidents and Assistant Secretaries. The Board
of Directors may appoint such other officers as it may deem appropriate.
3.2 Election. Officers shall be elected annually by the Board of
Directors at its first meeting following the annual meeting of stockholders.
Officers may be appointed by the Board of Directors at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote appointing him, or until his earlier death, resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event. Any officer may be removed at any time, with or without cause, by
the Board of Directors.
3.6 Chairman of the Board. The Board of Directors may appoint a
Chairman of the Board. If the Board of Directors appoints a Chairman of the
Board, he shall perform such duties and possess such powers as are assigned to
him by the Board of Directors. Unless otherwise provided by the Board of
Directors, he shall preside at all meetings of the stockholders, and, if he is a
director, at all meetings of the Board of Directors.
3.7 President. The President shall, subject to the direction of the
Board of Directors, have responsibility for the general management and control
of the business and affairs of the
<PAGE> 9
corporation and shall perform all duties and have all powers which are commonly
incident to the office of chief executive or which are delegated to him or her
by the Board of Directors. The President shall be the Chief Executive Officer of
the corporation. The President shall perform such other duties and shall have
such other powers as the Board of Directors may from time to time prescribe. He
or she shall have power to sign stock certificates, contracts and other
instruments of the corporation which are authorized and shall have general
supervision and direction of all of the other officers, employees and agents of
the corporation, other than the Chairman of the Board.
3.8 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have at the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.9 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
Secretary, including, without limitation, the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
keep a record of the proceedings of all meetings of stockholders and the Board
of Directors, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.10 Chief Financial Officer. Unless otherwise designated by the Board
of Directors, the Chief Financial Officer shall be the Treasurer. The Chief
Financial Officer shall perform such duties and shall have such powers as may
from time to time be assigned to him by the Board of Directors or the President.
In addition, the Chief Financial Officer shall perform such duties and have such
powers as are incident to the office of chief financial officer, including
without limitation, the duty and power to keep and be responsible for all funds
and securities of the corporation, to maintain the financial records of the
corporation, to deposit funds of the corporation in depositories as authorized,
to disburse such funds as authorized, to make proper accounts of such funds, and
to render as required by the Board of Directors accounts of all such
transactions and of the financial condition of the corporation.
<PAGE> 10
3.11 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.12 Delegation of Authority. The Board of Directors may from time to
time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Article 4. Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Chief
Financial Officer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or authenticity of signature
as the corporation or its transfer agent may reasonably require. Except as may
be otherwise required by law, by the Certificate of Incorporation or by the
By-laws, the corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to vote with respect to such stock,
regardless of any transfer, pledge or other disposition of such stock until the
shares have been transferred on the books of the corporation in accordance with
the requirements of these By-laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously saved certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such
<PAGE> 11
indemnity as the Board of Directors may require for the protection of the
corporation or any transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, concession or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than sixty (60) nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Article 5. General Provisions
5.1 Fiscal Year. The fiscal year of the corporation shall be as fixed
by the Board of Directors.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy, telegraph, cable or any
other available method, whether before, at or after the time stated in such
waiver, or the appearance of such person or persons at such meeting in person or
by proxy, shall be deemed equivalent to such notice.
5.4 Actions with Respect to Securities of Other Corporations. Except as
the Board of Directors may otherwise designate, the President or any officer of
the corporation authorized by the President shall have the power to vote and
otherwise act on behalf of the corporation, in person or proxy, and may waive
notice of, and act as, or appoint any person or persons to act as, proxy or
attorney-in-fact to this corporation (with or without power of substitution) at
any meeting of stockholders or shareholders (or with respect to any action of
stockholders) of any other corporation or organization, the securities of which
may be held by this corporation and
<PAGE> 12
otherwise to exercise any and all rights and powers which this corporation may
possess by reason of this corporations ownership of securities in such other
corporation or other organization.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Severability. Any determination that any provision of these By-laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.8 Pronouns. All pronouns used in these By-laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
5.9 Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid
telegram, mailgram, telecopy or commercial courier service. Any such notice
shall be addressed to such stockholder, director, officer, employee or agent at
his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or be telegram or mailgram.
5.10 Reliance Upon Books, Reports and Records. Each director, each
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser selected with
reasonable care.
5.11 Time Periods. In applying any provision of these By-laws which
require that an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number of days prior
to an event, calendar days shall be used, the day of the doing of the act shall
be excluded, and the day of the event shall be included.
5.12 Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these By-laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
<PAGE> 13
Article 6. Amendments
6.1 By the Board of Directors. Except as is otherwise set forth in
these By-laws, these By-laws may be altered, amended or repealed or new By-laws
may be adopted by the affirmative vote of a majority of the directors present at
any regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 By the Stockholders. Except as otherwise set forth in these
By-laws, these By-laws may be altered, amended or repealed or new By-laws may be
adopted by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote at any annual meeting of
stockholders, or at any special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new By-laws shall have been stated
in the notice of such special meeting.
Article 7. Indemnification of Directors and Officers
7.1 Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a director
or officer of another corporation, or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer or employee or in any other capacity while serving as a
director, officer or employee, shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the corporation
to provide broader indemnification rights than said Law permitted the
corporation to provide prior to such amendment) against all expenses, liability
and loss reasonably incurred or suffered by such person in connection therewith
and such indemnification shall continue as to a person who has ceased to be a
director, officer or employee and shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that except as provided
in Section 7.2 of this Article 7, the corporation shall indemnify any such
person seeking indemnity in connection with an action, suit or proceeding (or
part thereof) initiated by such person only if (a) such indemnification is
expressly required to be made by law, (b) the action, suit or proceeding (or
part thereof) was authorized by the Board of Directors of the corporation, (c)
such indemnification is provided by the corporation, in its sole discretion,
pursuant to the powers vested in the corporation under the Delaware General
Corporation Law, or (d) the action, suit or proceeding (or part thereof) is
brought to establish or enforce a right to indemnification under an indemnity
agreement or any other statute or law or otherwise as required under Section 145
of the Delaware General Corporation Law. Such right shall be a contract right
and shall include the right to be paid by the corporation expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, unless the Delaware General Corporation Law then so prohibits,
the payment of such expenses incurred by a director or officer of the
Corporation in his or her capacity as a director or officer (and not in any
other capacity in which service was or is tendered by such person while a
<PAGE> 14
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
7.2 Right of Claimant to Bring Suit. If a claim under Section 7.1 is
not paid in full by the corporation within ninety (90) days after a written
claim has been received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, has been tendered
to this corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for the
corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
7.3 Indemnification of Employees and Agents. The corporation may, to
the extent authorized from time to time by the Board of Directors, grant rights
to indemnification, and to the advancement of related expenses, to any employee
or agent of the corporation to the fullest extent of the provisions of this
Article with respect to the indemnification of and advancement of expenses to
directors and officers of the corporation.
7.4 Non-Exclusivity of Rights. The rights conferred on any person in
Sections 7.1 and 7.2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
7.5 Indemnification Contracts. The Board of Directors is authorized to
enter into a contract with any director, officer, employee or agent of the
corporation, or any person serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including employee benefit plans, providing
for indemnification rights equivalent to or, if the Board of Directors so
determines, greater than, those provided for in this Article 7.
7.6 Insurance. The corporation shall maintain insurance to the extent
reasonably available, at its expense, to protect itself and any such director,
officer, employee or agent of the corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the corporation would have the power to
<PAGE> 15
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
7.7 Effect of Amendment. Any amendment, repeal or modification of any
provision of this Article 7 by the stockholders and the directors of the
corporation shall not adversely affect any right or protection of a director or
officer of the corporation existing at the time of such amendment, repeal or
modification.
<PAGE> 1
EXHIBIT 4.1
RIGHTS AGREEMENT
This Rights Agreement (the "Agreement") is entered into as of the day
of December, 1996, by and among NetRight Technologies, Inc., a Delaware
corporation (the "Company"), the undersigned purchasers of Series A Preferred
Stock of the Company (the "Purchasers") and Mahmood Panjwani and Rafiq Mohammadi
(collectively as the "Founders" and singularly as a "Founder").
RECITALS
A. The Company proposes to sell up to 291,080 shares of Common Stock
and up to 1,500,000 shares of Series A Preferred Stock to the Purchasers
pursuant to a Series A Preferred Stock Purchase Agreement of even date herewith
(the "Series A Agreement").
B. By this Agreement, the Company, the Purchasers and the Founders
desire to provide for certain registration and other rights as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. Registration Rights.
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "Conversion Stock" means the Common Stock issued or issuable
upon conversion of the Series A Preferred Stock.
(c) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(d) "Holder" shall mean any shareholder of the Company holding
Registrable Securities and any person holding Registrable Securities to whom the
rights under this Section 1 have been transferred in accordance with Sections
1.11 hereof.
(e) "Initiating Holders" shall, in the case of a registration
under Section 1.2, mean any Holder or Holders of at least thirty percent (30%)
of the outstanding Registrable Securities (adjusted after the original issuance
thereof for stock splits, stock dividends, recapitalizations and the like), or
in the case of a registration under Section 1.4, the Holder or Holders of at
least ten percent (10%) of the outstanding Registrable Securities (adjusted
after the original issuance thereof for stock splits, stock dividends,
recapitalizations and the like).
(f) "Registrable Securities" means (i) the Conversion Stock; or
(ii) stock issued in respect of the stock referred to in (i) as a result of a
stock split, stock dividend, recapitalization or the like, which has not been
sold to the public. Except for subsections 1.1(e), 1.2, 1.4, 1.5, 1.10 and 2.1,
Registrable Securities shall mean shares of Common Stock of the Company issued
or issued after the date hereof to the Employee-Holders as such term is defined
in Section 1.3(c) hereof.
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<PAGE> 2
(g) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(h) "Registration Expenses" shall mean all expenses, except
Selling Expenses, incurred by the Company in complying with Sections 1.2, 1.3
and 1.4 hereof, including, without limitation, all registration, qualification
and filing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company) and the reasonable fees and disbursements of one counsel
for all Holders in the event of each registration provided for in Sections 1.2,
1.3 and 1.4 hereof.
(i) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(j) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the securities
registered by the Holders and, except as set forth above, all reasonable fees
and disbursements of counsel for the selling Holders.
(k) "Shares" shall mean the Company's Series A Preferred Stock
sold pursuant to the Series A Agreement.
1.2 Requested Registration.
(a) Request for Registration. At any time after December 31,
2001, in case the Company shall receive from Initiating Holders a written
request that the Company effect a registration with respect to their Registrable
Securities having a reasonably anticipated aggregate offering price to the
public of not less than $7.5 million, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.2:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
2
<PAGE> 3
(B) At any time during the period starting with the
date sixty (60) days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a registration statement pursuant to Section 1.3 hereof;
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective;
(C) After the Company has effected two (2) such
registration pursuant to this Section 1.2(a), and such registrations has been
declared or ordered effective; or
(D) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its Holders for a registration statement to be filed in the near
future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.2 shall be deferred for a period not to
exceed sixty (60) days from the date of receipt of written request from the
Initiating Holders, provided that the Company may not use this right more than
once in any twelve month period.
Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
this Section 1.2 is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as part of the notice given pursuant to
Section 1.2(a)(i). In such event, the right of any Holder to participate in such
registration shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.2, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 1.2, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Company shall so advise all participating Holders and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities, and/or other securities so withdrawn shall also be
withdrawn from registration, and such securities shall not be transferred in a
public distribution prior to ninety (90) days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require.
If the underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include securities for its own account (or
for the account of other purchasers) in such
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<PAGE> 4
registration if the managing underwriter so agrees and if the number of
Registrable Securities that would otherwise have been included in such
registration and underwriting will not thereby be limited.
1.3 Company Registration.
(a) Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction, or (iii) a registration
effected pursuant to Sections 1.2 or 1.4 hereof, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company, but subject to the reasonable approval of Holders holding more than a
majority of the Registrable Securities to be included in such registration.
Notwithstanding any other provision of this Section 1.3, if the managing
underwriter determines that marketing factors require limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration. The Company shall so advise all
Holders and other holders distributing their securities through such
underwriting and the number of shares of securities that may be included in the
registration and underwriting (other than on behalf of the Company) shall be
allocated among all Holders and such other holders (provided that such other
holders have contractual rights to participate in such registration in
accordance with Sections 1.3(c) or 1.5 hereof which are not subordinate to the
Holders) in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities or other securities requested to be included in such
registration by such Holders and such other holders; provided, however, in no
event shall the amount of Registrable Securities of the Holders included in the
offering be reduced below thirty percent (30%) of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities in which case the Holders may be excluded entirely
if the underwriters make the determination described above or the Holders
holding a majority of the Registrable Securities consent in writing to such a
reduction; provided that in each such case, no shares held by any Holder shall
be so excluded from such registration until all shares proposed to be registered
by the Founders or other parties granted registration rights pursuant to Section
1.3(c) hereof are excluded from the registration. To facilitate the allocation
of shares in accordance with the above provisions, the Company may round the
number of shares allocated to any Holder or holder to the nearest 100 shares. If
any Holder or holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities withdrawn from such underwriting shall be withdrawn
from such registration, and shall not be transferred in a public distribution
prior to ninety (90) days after the effective date of the registration statement
relating thereto, or such other shorter period of time as the underwriters may
require.
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<PAGE> 5
(c) Registration Rights of Founders, Officers, Directors and
Employees. Upon any sale by the Company of shares of its Common Stock to the
public in a firmly underwritten public offering, subject to the cutback
described in Section 1.3(b) above, the Founders and any other officer, director
or employees designated by the Company's Board of Directors by unanimous vote
shall be entitled to include any of their shares of Common Stock in any
registration by the Company under this subsection 1.3, if such persons who
choose to include any of their securities in such registration shall continue to
serve the Company as officer, director or employee on the effective date of such
registration statement, and such persons agree to be bound by all other
provisions of this Agreement and participate in any such registration on the
same basis as each Holder in accordance with all applicable provisions of this
Agreement (such persons are collectively referred to as "Employee-Holders").
1.4 Registration on Form S-3.
(a) If any Initiating Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than one (1) registration pursuant to this
Section 1.4 in any twelve (12) month period. The substantive provisions of
Section 1.2(b) shall be applicable to each registration initiated under this
Section 1.4.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.4:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within ten (10) days of the receipt of
the request of the Initiating Holders, gives notice of its bona fide intention
to effect the filing of a registration statement with the Commission within
sixty (60) days of receipt of such request (other than with respect to a
registration statement relating to a Rule 145 transaction, an offering solely to
employees or any other registration which is not appropriate for the
registration of Registrable Securities), and in which event the amount of
Registrable Securities of such Initiating Holders included in such offering
shall not be subject to the limitations provided for in Section 1.3(b) above;
(iii) within one hundred eighty (180) days of the effective
date of any registration referred to in Sections 1.2 and 1.3 above; or
(iv) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or the Purchasers for registration statements to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed sixty (60)
days from the receipt of the request to file such registration by such Holder,
provided that the Company may not use this right more than once in any twelve
month period.
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1.5 Limitations on Subsequent Registration Rights. From and after
the date hereof, without the approval of the holders of a majority of the
Registrable Securities, the Company shall not enter into any agreement, except
agreements entered in conjunction with an equipment lease financing that has
been unanimously approved by the Company's Board of Directors, granting any
holder or prospective holder of any securities of the Company registration
rights equal to or superior to those of the Holders. Upon obtaining such
approval, the Company will grant the Holders any rights of first refusal or
registration rights granted to subsequent purchasers of the Company's equity
securities to the extent such subsequent rights are superior, in the good faith
judgment of the Company's Board of Directors, to those rights granted hereunder.
Nothing in this Section 1.5 shall be deemed to restrict the Company's right to
grant registration rights to individual Employee-Holders pursuant to Section
1.3(c) above.
1.6 Expenses of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to Sections 1.2, 1.3 and 1.4 shall be
borne by the Company. Unless otherwise stated, all Selling Expenses relating to
securities registered on behalf of the Holders shall be borne by the Holders of
such securities pro rata on the basis of the number of shares so registered.
1.7 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense the Company
will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the registration
statement has been completed;
(b) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such underwriters may reasonably request
in order to facilitate the public offering of such securities.
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be
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stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such Holder,
prepare and furnish to such Holder a reasonable number of copies of a supplement
to or an amendment of such prospectuses as may be necessary so that, as
thereafter delivered to the purchasers of such shares, such prospectuses shall
not include an 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 in the light of the circumstances then existing.
1.8 Indemnification.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers and directors and partners, and each person
controlling such person within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, or any violation by
the Company of the Securities Act or any rule or regulation promulgated under
the Securities Act, the Exchange Act, any state securities laws or any rule or
regulation thereunder applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and directors, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable to any
such person in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein
or the preparation thereby. It is agreed that the indemnity obligation of this
Section shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Company (which consent has not been unreasonably withheld).
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of any untrue
statement of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement or
omission is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein or the preparation thereby; provided,
however, that the obligations of such Holder hereunder shall not apply to
amounts paid in settlement of any such claims,
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<PAGE> 8
losses, damages or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld). Notwithstanding the foregoing, the liability of
each Holder under this subsection (b) shall be limited to an amount equal to the
net proceeds from the offering received by such Holder, unless such liability
arises out of or is based on willful conduct by such Holder.
(c) Each party entitled to indemnification under this Section
1.8 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party (together with all other indemnified
parties which may be represented without conflict by one counsel) may
participate in such defense at such party's expense, provided; however, that the
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
appropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding, and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.8 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, no such Holder
will be required to contribute any amount in excess of the gross proceeds from
the offering received by such Holder.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
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(f) The obligations of the Company and the Holders under this
Section 1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement, and otherwise.
1.9 Information by Holder. The Holders of Registrable Securities
shall furnish to the Company such information regarding such Holders, the
Registrable Securities held by them and the distribution proposed by such
Holders as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 1.
1.10 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Purchaser may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Purchaser to sell
any such securities without registration.
1.11 Transfer of Registration Rights. The rights to cause the
Company to register securities granted to the Purchasers under sections 1.2, 1.3
and 1.4 may be assigned to a transferee or assignee reasonably acceptable to the
Company in connection with any transfer or assignment of Registrable Securities
by a Purchaser provided that, except in the case of an assignment to a partner
or affiliate of a Purchaser, (i) the transferor provides the Company with
written notice of the proposed transfer; (ii) the transferee acquires at least
10,000 shares of the transferor's Registrable Securities not sold to the public;
and (iii) the transferee or assignee of such rights assumes the obligations of
such Holder under this Section 1. For the purposes of determining the number of
shares of Registrable Securities held by a transferee or assignee, the holdings
of transferees and assignees of a partnership who are partners or retired
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
with the partnership; provided that all assignees and transferees who would not
qualify individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 1.
1.12 Standoff Agreement. Each Holder agrees in connection with the
Company's initial public offering of the Company's securities that, upon request
of the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those
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included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for one hundred eighty (180) days or
for such period of time from the effective date of such registration as is
agreed upon by holders of a majority of the outstanding capital stock of the
Company; provided, that the officers and directors of the Company who own stock
of the Company and any shareholder holding more than five percent (5%) of the
outstanding voting securities of the Company also agree to such restrictions.
1.13 Termination. Any registration rights granted pursuant to this
Section 1 shall terminate with respect to any Holder at such date, (i) six (6)
years after the closing date of the Company's initial public offering or (ii)
after the Company's initial public offering, when all remaining Registrable
Securities held or entitled to be held by such Holder may be sold under Rule 144
during any three (3) month period.
2. Right of First Offer Upon Issuance of Securities by the Company.
2.1 Right of First Offer. The Company hereby grants to each
Purchaser of Shares (or Conversion Stock) as adjusted for stock splits, stock
dividends, recapitalizations and the like) (the "Rights Holder") the right of
first offer to purchase a pro rata share of New Securities (as defined in this
Section 2.1) which the Company may, from time to time, propose to sell and
issue. For purposes of this right of first offer, a pro rata share for a Rights
Holder is the ratio that the number of Shares (on an as-converted basis) or
Conversion Stock then held by such Rights Holder bears to the sum of the total
number of shares of Shares, Conversion Stock and Common Stock outstanding
immediately prior to the issuance of New Securities, assuming full conversion of
the Shares and exercise of all outstanding rights, options and warrants to
acquire Common Stock of the Company.
(a) "Equity Securities" shall mean (i) any Common Stock,
Preferred Stock or other security of the Company, (ii) any security convertible,
with or without consideration into any Common Stock, Preferred Stock or other
security (including any option to purchase such a convertible security), (iii)
any security carrying any warrant or right to subscribe to or purchase any
Common Stock, Preferred Stock or other security or (iv) any such warrant or
right.
(b) Except as set forth below, "New Securities" shall mean any
Equity Securities, whether now authorized or not, and rights, options or
warrants to purchase said Equity Securities. Notwithstanding the foregoing, "New
Securities" does not include (i) Common Stock issued to employees, officers,
consultants or directors of the Company pursuant to sales or options granted at
any time after the date of incorporation of the Company pursuant to a plan or
agreement unanimously approved by the Company's Board of Directors; (ii)
securities offered to the public generally pursuant to a registration statement
under the Securities Act; (iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially all of
the assets or other reorganization whereby the Company or its purchasers own not
less than fifty-one percent (51%) of the voting power of the surviving or
successor corporation; (iv) the Conversion Stock; (v) warrant or warrants for
the purchase of shares of capital stock of the Company (and stock issued upon
exercise of such warrant or warrants) which have been unanimously approved by
the Board of Directors of the Company and issued in connection with an equipment
lease, equipment financing or bank line financing; (vi) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company; (vii) shares of Series A Preferred Stock issued on or before February
14, 1997 at a price not less than $0.71 per share; and (viii) securities of the
Company which holders of a majority of the Shares agreed in writing with the
Company will not be included in the term "New Securities."
(c) In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Rights Holder written notice of its
intention, describing the type of New
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Securities, and the price and terms upon which the Company proposes to issue the
same. Each Rights Holder shall have fifteen (15) days from the date of receipt
of any such notice to agree to purchase up to its respective pro rata share of
such New Securities for the price and upon the applicable terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased.
(d) In the event a Rights Holder fails to exercise the right of
first refusal within said fifteen (15) day period, the Company shall have sixty
(60) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within sixty
(60) days from the date of said agreement) to sell the New Securities not
elected to be purchased by Rights Holders at the price and upon the terms no
more favorable to the purchasers of such securities than specified in the
Company's notice. In the event the Company has not sold the New Securities
within said sixty (60) day period (or sold and issued New Securities in
accordance with the foregoing within sixty (60) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities in the manner provided above.
(e) The right of first offer granted under this Agreement shall
expire upon the closing of the first firm commitment underwritten offering of
the Company's securities to the public pursuant to an effective registration
statement under the Securities Act.
(f) The right of first offer hereunder may be assigned to a
transferee or assignee reasonably acceptable to the Company in connection with
any transfer or assignment of Registrable Securities provided that the
transferor provides the Company with written notice of the proposed transfer and
(i) the transferee acquires all of the transferor's Registrable Securities not
sold to the public; (ii) the transferee acquires at least 10,000 shares (as
adjusted for stock splits, stock dividends, recapitalizations and the like) of
the transferor's Registrable Securities not sold to the public; or (iii) the
transferee is a partner, shareholder or affiliate of the Holder. For the
purposes of determining the number of shares of Shares held by a transferee or
assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Shares by gift, will or intestate succession) shall be aggregated
together with the partnership; provided that all assignees and transferees who
would not qualify individually for assignment at registration rights shall have
a single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 2.
3. Covenants.
3.1 Information Rights.
(a) The Company shall deliver to each Holder that holds at least
100,000 shares of a single class of Shares, as soon as practicable, but in any
event within ninety (90) days after the end of each fiscal year of the Company,
an income statement for such fiscal year, a balance sheet of the Company as of
the end of such year, and a schedule as to the sources and applications of funds
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles, and
reviewed by independent public accountants of nationally recognized standing
selected by the Company.
(b) The Company shall deliver to each Holder, so long as it
holds at least 100,000 shares of a single class of Shares:
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(i) within forty-five (45) days after the end of each
quarter, an unaudited income statement and schedule as to the sources and
applications of funds and balance sheet and comparison to budget for and as of
the end of such quarter, as the case may be, in reasonable detail;
(ii) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(iii) such other information relating to the financial
conditions, business, prospects or corporate affairs of the Company as each
Holder; or any assignee of such Holder may from time to time request; provided,
however, that the Company shall not be obligated to provide information which it
deems in good faith to be proprietary.
3.2 Inspection. The Company shall permit each Holder, holding at
least 100,000 shares, at such Holder's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Holder; provided, however, that the
Company shall not be obligated pursuant to this Section 3.2 to provide access to
any information which it reasonably considers to be a trade secret or similar
confidential information.
3.3 Independent Accountants. Until the consummation of a public
offering of the Company's Common Stock, the Company will retain independent
public accountants of recognized national standing who shall certify the
Company's financial statements at the end of each fiscal year. In the event the
services of the independent public accountants so selected, or any firm of
independent public accountants hereafter employed by the Company, are
terminated, the Company will promptly thereafter engage another firm of
independent public accountants of recognized national standing.
[3.4 Internal Revenue Code Section 1202. The Company shall furnish
to each Holder, and shall use reasonable commercial efforts to make such filings
with the Internal Revenue Service, as shall from time to time be required
pursuant to Section 1202(d)(1) of the Code. In addition, the Company agrees that
it will not make any purchases of its stock within the meaning of and which
would exceed the limitation contained in Section 1202(c)(3)(B) of the Code with
respect to the Shares, unless such purchases have been consented to by holders a
majority of the Shares, or are required by contractual obligations entered into
prior to the Closing. Any such information provided to the Holders under this
Section 3.4 shall not be disclosed by any Holder to any party except as required
and solely in order for such Holder to claim any benefits under Section 1202 of
the Code.]
3.5 Proprietary Information and Inventions Agreements. The Company
will cause each employee and consultant now or hereafter employed by it or any
subsidiary with access to confidential information to enter into a proprietary
information and assignment of inventions agreement substantially in the form
approved by the Board of Directors.
3.6 Termination of Covenants. The covenants set forth in this
Section 3 shall terminate as to each Holder and be of no further force or effect
immediately upon the consummation of an underwritten public offering of the
Company's Common Stock.
4. Confidentiality. Each of the Holders agrees to keep confidential and
not to disclose to persons other than its officers, directors, employees,
professional consultants and advisors any information concerning the Company
which is confidential or proprietary ("Confidential Information"), except as
otherwise required by law or as deemed necessary by a Holder to be disclosed to
its own partners. No
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Confidential Information shall be used or disclosed by a Holder for any purpose
except in connection with the transactions contemplated by the purchase
agreements pursuant to which each Holder acquired his or her respective Shares
and the agreements executed and delivered in connection with such purchase
agreement and in the enforcement of his or her rights thereunder. Each Holder
shall use the same level of care with the Confidential Information as it uses
with its own confidential information. Notwithstanding the foregoing, the
restrictions set forth in this Section shall not be applicable to any
information that is publicly available, any information independently developed
by a Holder or its professional consultants, any information known to a Holder
or its professional consultants before the disclosure thereof by the Company, or
any information disclosed to a Holder by a person not known by the Holder to
have any confidentiality duty to the Company.
5. Miscellaneous.
5.1 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of California as applied to transactions taking place
between California residents and wholly within the State of California.
5.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
the closing of the transactions contemplated hereby.
5.3 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
5.4 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof, and no party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein. With the written consent of the Company and the record or
beneficial holders of at least two-thirds (2/3) of the Shares and Conversion
Stock, the obligations of the Company and the rights of the Holders of the
Registrable Securities under this Agreement may be waived (either generally or
in a particular instance, either retroactively or prospectively, and either for
a specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that any amendment which would adversely effect the Founders
who possess registration rights pursuant to this Agreement at such time, in a
manner different than the Holders of Registrable Securities, shall additionally
require the consent of the Founders holding at least two-thirds (2/3) of the
Registrable Securities held by the Founders. Upon the effectuation of each such
waiver, consent, agreement or amendment or modification, the Company shall
promptly give written notice thereof to the record holders of the Registrable
Securities who have not previously consented thereto in writing. This Agreement
or any provision hereof may be changed, waived, discharged or terminated only by
a statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, except to the extent
provided in this Section 5.4. Notwithstanding anything herein to the contrary,
this Agreement may be amended without the consent of any Holder to add as a
Holder any persons who purchase Shares on or before February 14, 1997.
5.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, certified or registered mail,
return receipt requested, facsimile or delivered by courier or overnight
delivery, addressed (a) if to any Holder, at such Holder's address as set forth
on his or her signature page hereto, or at such other address as such Holder
shall have furnished to the Company in writing, or (b) if to the Company,
13
<PAGE> 14
at 470 Mercury Drive, Sunnyvale, California 94086, or at such other address as
the Company shall have furnished to the Holder in writing. Notices that are
delivered personally, by courier or overnight delivery shall be deemed received
upon personal delivery, or if delivered by facsimile, upon confirmation of
facsimile receipt, or if by mail, three (3) days after deposit in the United
States mail.
5.6 Delays or Omissions. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any holder
of any Shares, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
5.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.8 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable the remainder of this Agreement and application of such provision
to persons or circumstances shall be interpreted so as best to reasonably effect
the intent of the parties hereto, the parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
5.9 Attorneys' Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled as determined by such court, equity or arbitration proceeding.
5.10 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
NETRIGHT TECHNOLOGIES, INC.
By: /s/ Mahmood Panjwani
--------------------------------
Mahmood Panjwani, President
14
<PAGE> 15
COUNTERPART SIGNATURE PAGE
TO NETRIGHT TECHNOLOGIES, INC. RIGHTS AGREEMENT
DATED AS OF DECEMBER 27th, 1996
"HOLDER" OR "FOUNDER"
If you are an individual, Name (Please Print)
please sign and print your name
to the right
---------------------------------------
---------------------------------------
Signature
Address:
------------------------------
------------------------------
If you are signing on behalf of Name (Please Print)
an entity, please print the
name of the entity and sign to the
right, indicating your title
---------------------------------------
---------------------------------------
Signature
Title:
--------------- -------------
Address:
-------------------------------
-------------------------------
15
<PAGE> 16
AMENDMENT NUMBER ONE
TO RIGHTS AGREEMENT
This Amendment Number One to Rights Agreement is made as of August 28,
1997 by and among NetRight Technologies, Inc. (the "Company"), Mahmood Panjwani
and Rafiq Mohammadi (collectively, the "Founders") and the undersigned
stockholders of the Company (collectively, the "Rights Holders").
RECITALS
A. Investors who purchased shares of Series A Preferred Stock of the
Company pursuant to the Company's Series A Preferred Stock Purchase Agreement
dated as of December 27, 1996 (the "Purchase Agreement") entered into a Rights
Agreement dated as of December 27, 1996 (the "Rights Agreement").
B. Contemporaneously herewith, the Purchase Agreement is being amended
pursuant to Amendment Number One thereto (the "Purchase Agreement Amendment"),
dated as of this date, to permit the Company to sell through August 15, 1997
(the "Extended Date") an additional 985,917 shares of Series A Preferred Stock
(the "Additional Series A Shares").
C. The Rights Holders desire that each Investor (as defined in the
Purchase Agreement Amendment) purchasing Additional Series A Shares pursuant to
the Purchase Agreement Amendment have all rights of a "Purchaser" under the
Rights Agreement, as amended hereby, on the terms set forth in this Amendment.
D. Under Section 2 of the Rights Agreement, Rights Holders have a right
of first offer with respect to the Company's issuance of equity securities,
which such Rights Holders desire to waive with respect to the issuance of
Additional Series A Shares pursuant to the Purchase Agreement Amendment on or
prior to the Extended Date and with respect to the Company's issuance of shares
of Common Stock issuable upon conversion of such Additional Series A Shares (the
"Conversion Shares").
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth in
the Rights Agreement.
2. Waiver of Right of First Offer. Rights Holders hereby waive, on
behalf of all Rights Holders, all rights of first offer under Section 2 of the
Rights Agreement with respect to the Company's offer, sale and issuance of
Additional Series A Shares pursuant to the Purchase Agreement Amendment on or
prior to the Extended Date and with respect to the Company's issuance of the
Conversion Shares.
3. Rights and Obligations of Purchasers. For all purposes of the Rights
Agreement, effective upon the satisfaction of Section 4 below and the execution
and delivery of this Amendment by the Company, the Founders and a Rights Holder
on or prior to the Extended
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<PAGE> 17
Date: (a) the Additional Series A Shares issued to each Investor pursuant to the
Purchase Agreement Amendment will be included in the definition of "Shares" and
(b) such Investor will be a "Purchaser" and "Holder."
4. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Company, the Founders and the Holders of at least
two-thirds (2/3) of the Shares and Conversion Stock (as defined in the Rights
Agreement).
5. Continued Effect. Except as otherwise expressly provided herein, the
Rights Agreement will continue in full force and effect, in accordance with its
terms.
6. Miscellaneous. This Amendment will be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 5.4 of the Purchase Agreement.
The parties have executed this Waiver as of the date first above
written.
NETRIGHT TECHNOLOGIES, INC. RIGHTS HOLDER
By: /s/ MAHMOOD PANJWANI Name:_______________________________
-------------------------------
Mahmood Panjwani, President (Please print or type)
By:_________________________________
(Please print or type)
Title: _____________________________
(Please print or type)
Signature: _________________________
FOUNDERS:
/s/ MAHMOOD PANJWANI
---------------------
Mahmood Panjwani
/s/ RAFIQ MOHAMMADI
---------------------
Rafiq Mohammadi
2
<PAGE> 18
AMENDMENT NUMBER TWO
TO RIGHTS AGREEMENT
This Amendment Number Two to Rights Agreement (the "Amendment") is made
as of December 15, 1997 by and among NetRight Technologies, Inc. (the
"Company"), Mahmood Panjwani and Rafiq Mohammadi (collectively, the "Founders")
and each of the persons named in Schedule A attached hereto (collectively,
"Purchasers" and individually, a "Purchaser").
RECITALS
A. Investors who purchased shares of Series A Preferred Stock of the
Company pursuant to the Company's Series A Preferred Stock Purchase Agreement
dated as of December 27, 1996 (the "Series A Purchase Agreement") entered into a
Rights Agreement dated as of December 27, 1996 (the "Rights Agreement").
B. The Series A Purchase Agreement and Rights Agreement were
subsequently amended to extend the closing date of sales of Series A Preferred
Stock under to the Series A Purchase Agreement to February 28, 1997 and March
14, 1997 pursuant to letter agreements dated February 13, 1997 and March 4,
1997, respectively.
C. Certain other investors who purchased shares of Series A Preferred
Stock of the Company pursuant to Amendment Number One to the Series A Purchase
Agreement dated as of August 28, 1997 entered into Amendment Number One of the
Rights Agreement to receive rights of "Purchasers" under the Rights Agreement
(the Rights Agreement, as previously amended hereafter referred to as the
"Amended Rights Agreement").
D. The Company and certain of the Purchasers are entering into a Series
B Preferred Stock Purchase Agreement dated as of the date of this Amendment (the
"Series B Purchase Agreement"), pursuant to which, subject to the satisfaction
of certain conditions, such Purchasers are agreeing to purchase from the Company
a total of up to 3,200,000 shares of Series B Preferred Stock of the Company
(the "Series B Preferred Stock") on the terms set forth in the Series B Purchase
Agreement in an initial closing on the date hereof (the "Initial Closing Date")
and in one or more additional closings through March 15, 1998 (the "Final
Closing Date").
E. The parties to the Amended Rights Agreement desire that each
Purchaser purchasing shares of Series B Preferred Stock pursuant to the Series B
Purchase Agreement have all rights of a "Purchaser" under the Amended Rights
Agreement, as amended hereby, on the terms set forth in this Amendment.
D. Under Section 2 of the Amended Rights Agreement, parties to the
Amended Rights Agreement have a right of first offer with respect to the
Company's issuance of equity securities, which such parties to the Amended
Rights Agreement desire to waive with respect to the issuance of Series B
Preferred Stock pursuant to the Series B Purchase Agreement.
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<PAGE> 19
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth in
the Amended Rights Agreement.
2. Purchasers' Rights and Obligations. Effective upon (i) the
purchase by any Purchaser of shares of the Company's Series B Preferred Stock at
the closing of the sale and purchase of shares under the Series B Purchase
Agreement; (ii) the execution and delivery by such Purchaser of a signature page
to this Amendment; (iii) the execution and delivery by the Company of a
signature page to this Amendment; and (iv) the satisfaction of the conditions
set forth in Section 4 of this Amendment, such Purchaser will be a "Purchaser"
for all purposes of the Amended Rights Agreement, as amended hereby, and the
following sections of the Amended Rights Agreement will be amended as follows:
Section 1.1(b) will be amended by deleting such provision in its
entirety and replacing it with the following:
(b) "Conversion Stock" means the Common Stock issued or issuable
upon conversion of the Series A Preferred Stock and Series B Preferred
Stock.
Section 1.1(e) will be amended by deleting such provision in its
entirety and replacing it with the following:
(e) "Initiating Holders" shall, in the case of a registration
under Section 1.2, mean any Holder or Holders of at least fifty percent
(50%) of the outstanding Registrable Securities, or in the case of a
registration under Section 1.4, the holder or Holders of at least ten
percent (10%) of the outstanding Registrable Securities, all as
adjusted after the original issuance thereof for stock splits, stock
dividends, recapitalizations and the like.
Section 1.1(k) will be amended by deleting such provision in its
entirety and replacing it with the following:
(k) "Shares" shall mean the Company's Series A Preferred Stock
and Series B Preferred Stock.
Section 1.2(a) will be amended by deleting the introductory
sentence in its entirety and replacing it with the following:
(a) Request for Registration. At any time after December 31,
2001, in case the Company shall receive from Initiating Holders a
written request that the Company effect a registration with respect to
their Registrable Securities having a reasonably anticipated aggregate
offering price to the public of not less than $15,000,000, the Company
will:
2
<PAGE> 20
Section 2.1 will be amended by adding the following to the end of
the introductory paragraph of Section 2.1:
Notwithstanding the foregoing, the Company hereby grants to Louis Leitz
Digital Systems GmbH & Co. ("Leitz") the additional right to purchase
shares of Series B Preferred Stock issued on or before March 15, 1998
at a price of $1.57 per share such that the number of shares of Series
B Preferred Stock held by Leitz after each such sale of Series B
Preferred Stock represents 10.1% of all the then outstanding shares of
Common Stock, Conversion Stock, Shares and outstanding options pursuant
to the Company's 1997 Stock Option Plan. Such right terminates upon
March 15, 1998.
Section 2.1(b) will be amended by deleting such provision in its
entirety and replacing it with the following:
(b) Except as set forth below, "New Securities" shall mean any
Equity Securities, whether now authorized or not, and rights, options
or warrants to purchase said Equity Securities. Notwithstanding the
foregoing, "New Securities" does not include (i) Common Stock issued to
employees, officers, consultants or directors of the Company pursuant
to sales or options granted at any time after the date of incorporation
of the Company pursuant to a plan or agreement unanimously approved by
the Company's Board of Directors; (ii) securities offered to the public
generally pursuant to a registration statement under the Securities
Act; (iii) securities issued pursuant to the acquisition of another
corporation by the Company by merger, purchase of substantially all of
the assets or other reorganization whereby the Company or its
purchasers own not less than fifty-one percent (51%) of the voting
power of the surviving or successor corporation; (iv) the Conversion
Stock; (v) warrant or warrants for the purchase of shares of capital
stock of the Company (and stock issued upon exercise of such warrant or
warrants) which have been unanimously approved by the Board of
Directors of the Company and issued in connection with an equipment
lease, equipment financing or bank line financing; (vi) stock issued in
connection with any stock split, stock dividend or recapitalization by
the Company; (vii) shares of Series A Preferred Stock issued on or
before August 28, 1997 at a price not less than $0.71 per share; (viii)
shares of Series B Preferred Stock issued on or before March 15, 1998
at a price of not less than $1.57 per share, subject to the
introductory paragraph of Section 2.1 with regard to Leitz; and (ix)
securities of the Company which holders of a majority of the Shares
agreed in writing with the Company will not be included in the term
"New Securities."
Section 3.1(b) is hereby deleted in its entirety.
The following is added as a new Section 3.7:
3.7 Voting Proxy. Unless waived in writing by the Company, which
waiver shall be exercisable by the Company in its sole and absolute
discretion, each holder of Series B Preferred Stock shall be required
to grant an irrevocable voting proxy in favor of
3
<PAGE> 21
the Company upon the closing of such acquisition, or at such later time
as the Company may request. The voting proxy shall give Mahmood
Panjwani, the President of the Company, or his successor, the right to
vote the shares (including shares issued or issuable upon conversion of
such shares) of such holder's Series B Preferred Stock in the event the
vote or written consent of stockholders is solicited for approval of a
merger or consolidation of the Company into or with any other
corporation or corporations in which the stockholders of the Company
shall own less than a majority of the voting securities of the
surviving corporation and for which pooling of interest accounting
treatment is a requirement fo the transaction (a "Corporate
Transaction"); provided, however, that such voting proxy shall not be
effective unless (i) the Company's Board of Directors votes in favor of
the Corporate Transaction; (ii) holder of 80% of the outstanding shares
of the Company (other than Series B Preferred Stock) vote in favor of
the Corporate Transaction; and (iii) holders of Series B Preferred
Stock will receive no less than the liquidation preference due to
holders of Series B Preferred Stock (as provided for in the Company's
Amended and Restated Certificate of Incorporation).
2. Waiver of Right of First Offer. In executing this Amendment,
Purchasers (as defined in the Amended Rights Agreement) representing at least
two-thirds (2/3's) of the aggregate Shares and Conversion Stock hereby waive, on
behalf of all such Purchasers, all rights of first offer under Section 2 of the
Rights Agreement with respect to the Company's offer, sale and issuance of
Series B Preferred Stock pursuant to the Series B Purchase Agreement through the
Final Closing Date.
3. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Company, the Founders and the holders of at least
two-thirds (2/3) of the Shares and Conversion Stock (as defined in the Amended
Rights Agreement). Notwithstanding anything herein to the contrary, Purchasers
purchasing Series B Preferred Stock through the Final Closing Date may be added
as a "Purchaser" for the purposes of the Amended Rights Agreement without the
consent of any Founders, Purchasers (as defined in the Amended Rights Agreement)
or prior Purchasers of Series B Preferred Stock.
4. Continued Effect. Except as otherwise expressly provided herein,
the Amended Rights Agreement will continue in full force and effect, in
accordance with its terms.
5. Miscellaneous. This Amendment will be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 5.4 of the Amended Rights Agreement.
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<PAGE> 22
The parties have executed this Amendment as of the date first above
written.
NETRIGHT TECHNOLOGIES, INC. PURCHASER:
By: /s/ MAHMOOD PANJWANI Name:_______________________________
----------------------------
Mahmood Panjwani, President (Please print or type)
By:_________________________________
(Please print or type)
Title: _____________________________
(Please print or type)
Signature: _________________________
FOUNDERS:
/s/ MAHMOOD PANJWANI /s/ RAFIQ MOHAMMADI
- -------------------- -------------------
Mahmood Panjwani Rafiq Mohammadi
5
<PAGE> 23
Schedule A
<TABLE>
<CAPTION>
Purchaser Series A Shares Series B Shares
--------- --------------- ---------------
<S> <C> <C>
Anthelion Capital LLC 352,113
GCWF Investment Partners 35,211
Phuc Kim Lam/Nguyet Thu Thi Le 38,592
Anwar Mohammed 49,296
Anh N. Nguyen/Chi N. Lam 38,592
Akber Panjwani/Karim Panjwani 29,295
Rajdak Investments LLC 281,690
Naushad Rashid 35,211
Iqbal Sadruddin 257,434
Anil Singh 140,845
Unterberg Harris Private
Equity Partners L.P. 754,366
Unterberg Harris, L.P. 323,940
Unterberg Harris 40lK Profit
Sharing Plan FBO Alex Bernstein 14,086
Unterberg Harris 401K Profit
Sharing Plan FBO Mary Beth Poggi 14,086
Unterberg Harris Private
Equity Partners, C.V. 161,127
Rajesh Vashist 81,689
Moez Virani and Vivienne
Virani TTEES of the Virani
Family `93 Revocable Trust 206,417
Karim Walji 39,718
Louis Leitz Digital GmbH & Co. 1,273,885
Andrew G. Celli Jr. and James E. 15,923
Satloff, Trustee U/D/T 5/19/93 FBO
Rebecca Rose Celli
Andrew G. Celli Jr. and James E. 15,923
Satloff, Trustee U/D/T 5/19/93 FBO
Dustin Nathaniel Satloff
Andrew G. Celli Jr. and James E. 15,923
Satloff, Trustee FBO
Hannah Andrea Celli Trust
</TABLE>
<PAGE> 24
<TABLE>
<S> <C> <C>
Andrew G. Celli Jr. and James E. 15,923
Satloff, Trustee FBO
Theodore Jean Satloff
Robert Harris, Jr. 127,388
A. Robert Towbin, Trustee
FBO Lisa Olim dated 5/8/96 31,847
A. Robert Towbin, Trustee
FBO Barry Towbin dated 5/8/96 31,847
C.E. Unterberg, Towbin LLC 127,388
A. Robert Towbin 63,694
Unterberg Harris Private
Equity Partners L.P. 262,420
Unterberg Harris Private
Equity Partners, CV 56,050
Thomas I. Unterberg 127,388
NEA Ventures 1998, Limited
Partners 1,592
New Enterprise Associates VII,
Limited Partnership 1,016,886
NEA Presidents Fund, L.P. 15,923
</TABLE>
<PAGE> 25
AMENDMENT NUMBER THREE
TO RIGHTS AGREEMENT
This Amendment Number Three to Rights Agreement (the "Amendment") is
made as of September 28, 1998 by and among NetRight Technologies, Inc. (the
"Company"), Mahmood Panjwani and Rafiq Mohammadi (collectively, the "Founders")
and each of the persons named in Schedule A attached hereto (collectively,
"Purchasers" and individually, a "Purchaser").
RECITALS
A. Investors who purchased shares of Series A Preferred Stock of the
Company pursuant to the Company's Series A Preferred Stock Purchase Agreement
dated as of December 27, 1996 (the "Series A Purchase Agreement") entered into a
Rights Agreement dated as of December 27, 1996 (the "Rights Agreement").
B. The Series A Purchase Agreement and Rights Agreement were
subsequently amended to extend the closing date of sales of Series A Preferred
Stock under to the Series A Purchase Agreement to February 28, 1997 and March
14, 1997 pursuant to letter agreements dated February 13, 1997 and March 4,
1997, respectively.
C. Certain other investors who purchased shares of Series A Preferred
Stock of the Company pursuant to Amendment Number One to the Series A Purchase
Agreement dated as of August 28, 1997 entered into Amendment Number One of the
Rights Agreement to receive rights of "Purchasers" under the Rights Agreement.
D. Investors who purchased shares of Series B Preferred Stock of the
Company pursuant to the Company's Series B Preferred Stock Purchase Agreement
dated as of December 15, 1997 (the "Series B Purchase Agreement) entered into
Amendment Number Two of the Rights Agreement to receive rights of "Purchasers"
under the Rights Agreement (the Rights Agreement, as previously amended
hereafter referred to as the "Amended Rights Agreement").
E. The Company and certain of the Purchasers are entering into a Series
C Preferred Stock Purchase Agreement dated as of the date of this Amendment (the
"Series C Purchase Agreement"), pursuant to which, subject to the satisfaction
of certain conditions, such Purchasers are agreeing to purchase from the Company
a total of up to 2,100,000 shares of Series C Preferred Stock of the Company
(the "Series C Preferred Stock") on the terms set forth in the Series C Purchase
Agreement in an initial closing on the date hereof (the "Initial Closing Date")
and in one or more additional closings through the Additional Closing Deadline
(as defined in the Series C Purchase Agreement).
F. The parties to the Amended Rights Agreement desire that each
Purchaser purchasing shares of Series C Preferred Stock pursuant to the Series C
Purchase Agreement have all rights of a "Purchaser" under the Amended Rights
Agreement, as amended hereby, on the terms set forth in this Amendment.
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<PAGE> 26
G. Under Section 2 of the Amended Rights Agreement, parties to the
Amended Rights Agreement have a right of first offer with respect to the
Company's issuance of equity securities, which such parties to the Amended
Rights Agreement desire to waive with respect to the issuance of Series C
Preferred Stock pursuant to the Series C Purchase Agreement.
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth in
the Amended Rights Agreement.
2. Purchasers' Rights and Obligations. Effective upon (i) the
purchase by any Purchaser of shares of the Company's Series C Preferred Stock at
a closing under the Series C Purchase Agreement; (ii) the execution and delivery
by such Purchaser of a signature page to this Amendment; (iii) the execution and
delivery by the Company of a signature page to this Amendment; and (iv) the
satisfaction of the conditions set forth in Section 4 of this Amendment, such
Purchaser will be a "Purchaser" for all purposes of the Amended Rights
Agreement, as amended hereby, and the following sections of the Amended Rights
Agreement will be amended as follows:
Section 1.1(b) will be amended by deleting such provision in its
entirety and replacing it with the following:
(b) "Conversion Stock" means the Common Stock issued or issuable
upon conversion of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock.
Section 1.1(e) will be amended by deleting such provision in its
entirety and replacing it with the following:
(e) "Initiating Holders" shall, in the case of a registration
under Section 1.2, mean any Holder or Holders of at least fifty percent
(50%) of the outstanding Registrable Securities, or in the case of a
registration under Section 1.4, the holder or Holders of at least ten
percent (10%) of the outstanding Registrable Securities, all as
adjusted after the original issuance thereof for stock splits, stock
dividends, recapitalizations and the like.
Section 1.1(k) will be amended by deleting such provision in its
entirety and replacing it with the following:
(k) "Shares" shall mean the Company's Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock.
Section 1.2(a) will be amended by deleting the introductory
sentence in its entirety and replacing it with the following:
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<PAGE> 27
(a) Request for Registration. At any time after December 31,
2001, in case the Company shall receive from Initiating Holders a
written request that the Company effect a registration with respect to
their Registrable Securities having a reasonably anticipated aggregate
offering price to the public of not less than $12,000,000, the Company
will:
Section 2.1(b) will be amended by deleting such provision in its
entirety and replacing it with the following:
(b) Except as set forth below, "New Securities" shall mean any
Equity Securities, whether now authorized or not, and rights, options
or warrants to purchase said Equity Securities. Notwithstanding the
foregoing, "New Securities" does not include (i) Common Stock issued to
employees, officers, consultants or directors of the Company pursuant
to sales or options granted at any time after the date of incorporation
of the Company pursuant to a plan or agreement unanimously approved by
the Company's Board of Directors; (ii) securities offered to the public
generally pursuant to a registration statement under the Securities
Act; (iii) securities issued pursuant to the acquisition of another
corporation by the Company by merger, purchase of substantially all of
the assets or other reorganization whereby the Company or its
purchasers own not less than fifty-one percent (51%) of the voting
power of the surviving or successor corporation; (iv) the Conversion
Stock; (v) warrant or warrants for the purchase of shares of capital
stock of the Company (and stock issued upon exercise of such warrant or
warrants) which have been unanimously approved by the Board of
Directors of the Company and issued in connection with an equipment
lease, equipment financing or bank line financing; (vi) stock issued in
connection with any stock split, stock dividend or recapitalization by
the Company; (vii) shares of Series A Preferred Stock issued on or
before August 28, 1997 at a price not less than $0.71 per share; (viii)
shares of Series B Preferred Stock issued on or before March 15, 1998
at a price of not less than $1.57 per share, subject to the
introductory paragraph of Section 2.1 with regard to Leitz; (ix) shares
of Series C Preferred Stock issued on or before the Additional Closing
Deadline at a price of not less than $2.10 per share; and (x)
securities of the Company which holders of a majority of the Shares
agreed in writing with the Company will not be included in the term
"New Securities."
Section 3.7 is hereby deleted in its entirety, and replaced by
the following:
3.7 Board of Directors. Prior to December 31, 1998, an individual
with relevant industry experience (the "Outside Board Number") who is
mutually agreeable to the President of the Company and the NEA
Representative (as defined in the Series C Purchase Agreement) will be
appointed to the Company's Board of Directors to replace a then
existing board member or as an additional board member, as determined
by the Company, in its sole discretion. The Outside Board Member will
receive a nonstatutory stock option to purchase 100,000 shares of the
Company's Common Stock pursuant to the Company's 1997 Stock Option
Plan, such option to vest on a monthly basis over four years beginning
as of the date the Outside Board Member commences service on the
Company's Board of Directors and continuing to vest as long as such
service continues.
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<PAGE> 28
3. Waiver of Right of First Offer. In executing this Amendment,
Purchasers (as defined in the Amended Rights Agreement) representing at least
two-thirds (2/3's) of the aggregate Shares and Conversion Stock hereby waive, on
behalf of all such Purchasers, all rights of first offer under Section 2 of the
Rights Agreement with respect to the Company's offer, sale and issuance of
Series C Preferred Stock pursuant to the Series C Purchase Agreement through the
Additional Closing Deadline.
4. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Company, the Founders and the holders of at least
two-thirds (2/3) of the Shares and Conversion Stock (as defined in the Amended
Rights Agreement). Notwithstanding anything herein to the contrary, Purchasers
purchasing Series C Preferred Stock through the Additional Closing Deadline may
be added as a "Purchaser" for the purposes of the Amended Rights Agreement
without the consent of any Founders, Purchasers (as defined in the Amended
Rights Agreement) or prior Purchasers of Series C Preferred Stock.
5. Continued Effect. Except as otherwise expressly provided herein,
the Amended Rights Agreement will continue in full force and effect, in
accordance with its terms.
6. Miscellaneous. This Amendment will be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 5.4 of the Amended Rights Agreement.
4
<PAGE> 29
The parties have executed this Amendment as of the date first above
written.
NETRIGHT TECHNOLOGIES, INC. PURCHASER:
By: /s/ MAHMOOD PANJWANI Name:_______________________________
----------------------------
Mahmood Panjwani, President (Please print or type)
By:_________________________________
(Please print or type)
Title: _____________________________
(Please print or type)
Signature: _________________________
FOUNDERS:
/s/ MAHMOOD PANJWANI /s/ RAFIQ MOHAMMADI
- -------------------- -------------------
Mahmood Panjwani Rafiq Mohammadi
AMENDMENT NUMBER THREE
TO RIGHTS AGREEMENT
5
<PAGE> 30
Schedule A to Amendment Number
Three to Rights Agreement
<TABLE>
<CAPTION>
PURCHASER SERIES A SHARES SERIES B SHARES SERIES C SHARES
--------- --------------- --------------- ---------------
<S> <C> <C> <C>
Anthelion Capital LLC 352,113
GCWF Investment Partners 35,211
Phuc Kim Lam/Nguyet Thu Thi Le 38,592
Anwar Mohammed 49,296
Anh N. Nguyen/Chi N. Lam 38,592
Akber Panjwani/Karim Panjwani 29,295
Rajdak Investments LLC 281,690
Naushad Rashid 35,211
Iqbal Sadruddin 257,434
Anil Singh 140,845
Unterberg Harris Private Equity 754,366
Partners L.P.
Unterberg Harris, L.P. 323,940
Unterberg Harris 40lK Profit Sharing 14,086
Plan FBO Alex Bernstein
Unterberg Harris 401KProfit Sharing 14,086
Plan FBO Mary Beth Poggi
Unterberg Harris Private Equity 161,127
Partners, C.V.
Rajesh Vashist 81,689
Moez Virani and Vivienne Virani TTEES 206,417
of the Virani Family `93 Revocable
Trust
</TABLE>
6
<PAGE> 31
<TABLE>
<S> <C> <C> <C>
Karim Walji 39,718
Louis Leitz Digital GmbH & Co. 1,273,885
Andrew G. Celli Jr. and James E. 15,923
Satloff, Trustee U/D/T 5/19/93 FBO
Rebecca Rose Celli
Andrew G. Celli Jr. and James E. 15,923
Satloff, Trustee U/D/T 5/19/93 FBO
Dustin Nathaniel Satloff
Andrew G. Celli Jr. and James E. 15,923
Satloff, Trustee FBO Hannah Andrea
Celli Trust
Andrew G. Celli Jr. and James E. 15,923
Satloff, Trustee FBO Theodore Jean
Satloff
Robert Harris, Jr. 127,388
A. Robert Towbin, Trustee FBO Lisa 31,847
Olim dated 5/8/96
A. Robert Towbin, Trustee FBO Barry 31,847
Towbin dated 5/8/96
C.E. Unterberg, Towbin LLC 127,388
A. Robert Towbin 63,694
Unterberg Harris Private Equity 262,420
Partners L.P.
Unterberg Harris Private Equity 56,050
Partners, CV
</TABLE>
7
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
Thomas I. Unterberg 127,388
NEA Ventures 1998, Limited Partners 1,592 1,191
New Enterprise Associates VII, Limited 1,016,886 1,692,503
Partnership
NEA Presidents Fund, L.P. 15,923 11,905
Brian Asplund 47,619
Kannan Ayyar 50,000
James Dorian 50,000
GCWF Investment Partners 23,810
Victoria W-Y Lee 2,381
Thomas P. Sweeney 8,571
Cornerstone Properties I, LLC 91,429
</TABLE>
8
<PAGE> 1
Exhibit 4.2
RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
This Agreement is made as of December , 1996, by and among NetRight
Technologies, Inc., a Delaware corporation (the "Company"), Mahmood Panjwani and
Rafiq Mohammadi (collectively, the "Founders" and singularly a "Founder"), and
the Purchasers listed on Exhibit A hereto.
RECITALS
A. The Founders each currently own shares of the Company's Common
Stock (the "Common Stock"), as set forth on Exhibit B.
B. The Purchasers purchased, in the aggregate, 1,500,000 shares of
Series A Preferred Stock of the Company, pursuant to that certain Series A
Preferred Stock Purchase Agreement "Purchase Agreement").
C. To induce the Purchasers to purchase the Series A Preferred
Stock from the Company, the Founders have agreed to grant the Company and the
Purchasers certain rights of first refusal and co-sale with respect to Common
Stock currently owned by the Founders and any other stock of the Company
hereafter owned or acquired by the Founders, all on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and other consideration, the receipt and adequacy of which hereby is
acknowledged, the parties hereto agree as follows:
1. Certain Definitions. For purposes of this Agreement, the
following terms have the following meanings:
(a) "IPO" means the first underwritten sale of Company
securities to the public pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Act"), in which the gross proceeds to
the Company equal or exceed $7,500,000.
(b) "Purchasers' Share" means as to the Right of Co-Sale,
the ratio determined by dividing (A) the number of shares of Stock (as defined
below) held by a Purchaser by (B) the number of shares of Stock held by all
Purchasers plus the number of shares of Stock held by the Founders selling such
Offered Stock.
(c) "Offered Stock" means all Stock proposed to be
Transferred by a Founder.
(d) "Right of Co-Sale" means the right of co-sale provided
to the Purchasers in Section 4 of this Agreement.
(e) "Right of First Refusal" means the right of first
refusal provided to the Purchasers in Section 3 of this Agreement.
(f) "Stock" means and includes all shares of Common Stock
issued and outstanding at the relevant time plus (i) all shares of Common Stock
that may be issued upon exercise of any options, warrants and other rights of
any kind that are then exercisable, and (ii) all shares of Common Stock that may
be issued upon conversion of (A) any convertible securities, including, without
limitation, preferred stock and debt securities then outstanding, which are by
their terms then convertible into or exchangeable
1
<PAGE> 2
for Common Stock or (B) any such convertible securities issuable upon exercise
of options, warrants or other rights that are then exercisable.
(g) "Transfer" means and includes any sale, assignment,
encumbrance, hypothecation, pledge, conveyance in trust, gift, transfer by
bequest, devise or descent, or other transfer or disposition of any kind,
including but not limited to transfers to receivers, levying creditors, trustees
or receivers in bankruptcy proceedings or general assignees for the benefit of
creditors, whether voluntary or by operation of law, directly or indirectly,
except:
(i) any bona fide pledge if the pledgee executes a
counterpart copy of this Agreement and becomes bound thereby in the same manner
as a Founder;
(ii) any transfers of Stock by a Founder to a
Founder's spouse, lineal descendant or antecedent, father, mother, brother or
sister of a Founder, the adopted child or adopted grandchild of a Founder, or
the spouse of any child, adopted child, grandchild or adopted grandchild of a
Founder, or to a trust or trusts for the exclusive benefit of a Founder or a
Founder's family members as described in this Section, or transfers of Stock by
the Founder by devise or descent, in all cases if the transferee or other
recipient executes a counterpart copy of this Agreement and becomes bound
thereby in the same manner as the Founders;
(iii) any transfer of Stock by the Founders made: (A)
pursuant to a merger or consolidation of the Company with or into another
corporation or corporations; (B) pursuant to the winding up and dissolution of
the Company; (C) at, and pursuant to, the IPO; or (D) to a Purchaser pursuant to
this Agreement; or
(iv) any bona fide gift to not-for-profit
organizations.
2. Notice of Proposed Transfer. Before any of the Founders may
effect any Transfer of any Stock, a Founder must give at the same time to the
Company and the Purchasers a written notice signed by the Founder ("Founder's
Notice") stating (a) the Founder's bona fide intention to transfer such Offered
Stock; (b) the number of shares of the Offered Stock; (c) the name, address and
relationship, if any, to the Founder of each proposed purchaser or other
transferee; and (d) the bona fide cash price or, in reasonable detail, other
consideration, per share for which the Founder proposes to transfer such Offered
Stock (the "Offered Price"). Upon the request of the Company or a Purchaser, the
Founder will promptly furnish such information to the Company and to the
Purchasers as may be reasonably requested to establish that the offer and
proposed transferee are bona fide.
3. Right of First Refusal.
(a) The Company and Purchasers' Right. With respect to any
Transfer by any Founder, the Company and the Purchasers shall have the Right of
First Refusal to purchase all or any part of the Offered Stock, exercisable as
set forth in Subsections (b) and (c) hereof, except that each Founder shall be
permitted to Transfer, and the Company's and the Purchasers' Right of First
Refusal shall not apply to the Transfer of, in the aggregate, up to five percent
(5%) of the Founder's Stock.
(b) Exercise of the Company's Right of First Refusal. The
Company's Right of First Refusal may be exercised as follows:
(i) The Company shall have the opportunity to
purchase all or any part of the Offered Stock.
2
<PAGE> 3
(ii) If the Company desires to purchase all or any
part of the Offered Stock, the Company must, within the twenty (20) day period
(the "Company Refusal Period") commencing on the date of the Founder's Notice,
give written notice to the Founder of the Company's election to purchase the
Offered Stock. In the event that the Company elects not to purchase all of the
Offered Stock, the remaining shares of Offered Stock may be purchased by the
Purchasers as set forth in Section 3(c) below.
(iii) Within fifteen (15) days after expiration of the
Company Refusal Period, the Company will give written notice (the "Company's
Expiration Notice") to the Founder and to the Purchasers specifying either (A)
that all or a portion of the Offered Stock was subscribed by the Company
exercising its Right of First Refusal or (B) that the Company does not have the
right to purchase any of the Offered Stock because the Company did not timely
exercise its Right of First Refusal to purchase the Offered Stock.
(c) Exercise of Purchasers' Right of First Refusal. The
Purchasers' Right of First Refusal may be exercised as follows:
(i) In the event the Company does not purchase all
of the Offered Stock, each Purchaser shall have the opportunity to purchase its
pro rata share of the remaining Offered Stock. A Purchaser's pro-rata share
shall be determined by dividing the number of shares of Stock held by a
Purchaser by the total number of shares of Stock held by all Purchasers.
(ii) If any Purchaser or its assignees desires to
purchase the remaining Offered Stock, such Purchaser must, within a ten (10) day
period (the "Purchaser Refusal Period") commencing on the date of the Company's
Expiration Notice, give written notice to the Founder and to the Company of such
Purchaser's election to purchase the Offered Stock. If any Purchaser does not
make such election to purchase the Offered Stock, such declining Purchaser shall
give written notice ("Declining Notice") to the remaining Purchasers and the
Company and such remaining Purchasers shall have the right to purchase any such
shares of Offered Stock, which purchase shall be pro rata if more than one
remaining Purchaser elects to make such purchase. An election to purchase the
shares of Offered Stock not purchased by the declining Purchaser or Purchasers
shall be made by written notice to the other Purchasers and the Company within
five (5) days after receipt of the Declining Notice ("Additional Exercise
Period").
(iii) Within five (5) days after expiration of the
Additional Exercise Period, the Company will give written notice (the
"Purchasers' Expiration Notice") to the Founder and to the Purchasers specifying
either (A) that Offered Stock was subscribed by the Purchasers exercising their
Rights of First Refusal or (B) that the Purchasers do not have the right to
purchase any of the Offered Stock because the Purchasers did not timely exercise
their Right of First Refusal to purchase Offered Stock, in which case the
Purchasers' Expiration Notice will specify each Purchaser's share of the Offered
Stock with respect to the Right of Co-Sale.
(d) Purchase Price. The purchase price for the Offered Stock
to be purchased by the Company or the Purchasers exercising their Right of First
Refusal under this Agreement will be the Offered Price, but will be payable as
set forth in Section 3(e) hereof. If the Offered Price includes consideration
other than cash, the cash equivalent value of the non-cash consideration will be
determined by the Board of Directors of the Company in good faith, which
determination will be binding upon the Company, the Purchasers and the Founder
absent fraud or error.
(e) Payment. Payment of the purchase price for the Offered
Stock purchased by the Company or by a Purchaser exercising its Right of First
Refusal will be made within seven (7) days after
3
<PAGE> 4
the date of the Purchaser's Expiration Notice. Payment of the purchase price
will be made by the exercising Company or Purchaser (i) in cash, (ii) by
cancellation of all or a portion of any outstanding indebtedness of the Founder
to the Company or the Purchaser, as applicable or (iii) by any combination of
the foregoing.
(f) Rights as a Shareholder. If the Purchasers exercise
their Rights of First Refusal to purchase the Offered Stock, then, upon the date
of the Purchaser's Expiration Notice, the Founder will have no further rights as
a holder of the Offered Stock except the right to receive payment for the
Offered Stock from the Company or the Purchasers in accordance with the terms of
this Agreement, and the Founder will forthwith cause all certificate(s)
evidencing such Offered Stock to be surrendered to the Company for transfer to
the Company or to the Purchasers.
(g) Founder's Right to Transfer. If the Company or the
Purchasers have not elected to purchase all of the Offered Stock, then, subject
to the Right of Co-Sale set forth in Section 4 below, the Founder may transfer
that portion of the Offered Stock permitted to be sold by the Founder, to any
person named as a purchaser or other transferee in the Founder's Notice, at the
Offered Price or at a higher price, provided that such transfer (i) is
consummated within ninety (90) days after the date of the Founder's Notice and
(ii) is in accordance with all the terms of this Agreement. If the Offered Stock
is not so transferred during such 90 day period, then the Founder may not
transfer any of such Offered Stock without complying again in full with the
provisions of this Agreement.
4. Right of Co-Sale.
(a) Right of Co-Sale. If the Company and the Purchasers have
waived or failed to timely exercise their Rights of First Refusal as to all of
the Offered Stock, a Purchaser may transfer to the transferee proposed in the
Founder's Notice the Purchaser's Share of the Offered Stock, as such share is
specified in the Purchaser's Expiration Notice, by giving written notice to the
Founder, within ten (10) days after the date of the Purchaser's Expiration
Notice, specifying the number of shares and type of Stock that the Purchaser
desires to transfer to the transferee.
(b) Consummation of Co-Sale. A Purchaser may exercise the
Right of Co-Sale by delivering to the Founder at the closing of the transfer of
Offered Stock to such transferee (the "Closing") one or more certificates,
properly endorsed for Transfer, representing such stock to be transferred by the
Purchaser. At the Closing, such certificates or other instruments will be
transferred and delivered to the transferee set forth in the Founder's Notice in
consummation of the transfer of the Offered Stock pursuant to the terms and
conditions specified in such notice, and the Founder will remit, or will cause
to be remitted, to the Purchaser within seven (7) days after such Closing that
portion of the proceeds of the Transfer to which the Purchaser is entitled by
reason of the Purchaser's participation in such transfer pursuant to the Right
of Co-Sale.
5. Multiple Series, Class or Type of Stock. If the Offered Stock
consists of more than one series or class or type of Stock, the Purchaser has
the right to purchase or transfer hereunder, as the case may be, each such
series, class or type; provided, however, that if, as to the Right of Co-Sale,
the Purchaser does not hold any of such series, class, or type, and the proposed
transferee is not willing, at the Closing, to purchase some other series, class
or type of Stock from the Purchaser, or is unwilling to purchase any Stock from
the Purchaser, then the Purchaser will have the put right (the "Put Right") set
forth in Section 6(b) hereof.
6. Refusal to Transfer; Put Right.
4
<PAGE> 5
(a) Refusal to Transfer. Any attempt by a Founder to
transfer any Stock in violation of any provision of this Agreement will be void.
The Company will not be required (i) to transfer on its books any Stock that has
been sold, gifted or otherwise transferred in violation of this Agreement, or
(ii) to treat as owner of such Stock, or to accord the right to vote or pay
dividends to any purchaser, donee or other transferee to whom such Stock may
have been so transferred.
(b) Put Right. If a Founder transfers any Stock in
contravention of the Purchaser's Right of Co-Sale under this Agreement (a
"Prohibited Transfer"), or if the proposed transferee of Offered Stock desires
to purchase only the class, series or type of stock offered by a Founder or is
unwilling to purchase any Stock from the Purchaser and the provisions of Section
5 hereof apply, the Purchaser may, by delivery of written notice to the Founder
(a "Put Notice") within ten (10) days after (i) the Closing as defined in
Subsection 4(b) above, or (ii) the date on which the Purchaser becomes aware of
the Prohibited Transfer or the terms thereof, require the Founder to purchase
from the Purchaser for cash or such other consideration as the Founder received
in the Prohibited Transfer or at the Closing that number of shares of Stock (of
the same class, series or type as transferred in the Prohibited Transfer or at
the Closing if the Purchaser then owns Stock of such class, series or type;
otherwise of Common Stock) having a purchase price equal to the aggregate
purchase price the Purchaser would have received in the closing of such
Prohibited Transfer if the Purchaser had elected to exercise its right of
Co-Sale with respect thereto or in the Closing if the proposed transferee had
been willing to purchase the Stock of the Purchaser. The closing of such sale to
the Founder will occur within seven (7) days after the date of the Purchaser's
Put Notice to the Founder.
7. Restrictive Legend and Stop-Transfer Orders.
(a) Right of First Refusal and Co-Sale Legend. The Founders
understand and agree that the Company will cause the legend set forth below, or
a legend substantially equivalent thereto, to be placed upon any certificate(s)
or other documents or instruments evidencing ownership of Stock by the Founders:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RIGHTS
OF FIRST REFUSAL AND RIGHTS OF CO-SALE AS SET FORTH IN A RIGHT OF FIRST
REFUSAL AND CO-SALE AGREEMENT DATED DECEMBER _____, 1996, ENTERED INTO
BY THE HOLDER OF THESE SHARES, THE COMPANY AND CERTAIN SHAREHOLDERS OF
THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE
OF THE COMPANY. SUCH RIGHTS OF FIRST REFUSAL AND RIGHTS OF CO-SALE ARE
BINDING ON CERTAIN TRANSFEREES OF THESE SHARES.
(b) Stop Transfer Instructions. The Founders agree, to
ensure compliance with the restrictions referred to herein, that the Company may
issue appropriate "stop transfer" certificates or instructions and that, if the
Company transfers its own securities, it may make appropriate notations to the
same effect in its records.
8. Termination and Waiver.
(a) Termination. The Company's and the Purchasers' Right of
First Refusal and the Purchasers' Right of Co-Sale will terminate upon the
earliest to occur of (i) the IPO, (ii) the dissolution of the Company, or (iii)
the effective date of a consolidation or merger with or into another corporation
as a result of which the shareholders of the Company prior to such transaction
own less than 50% of the outstanding stock of the surviving corporation.
5
<PAGE> 6
(b) Waiver. The application of the Company's Right of First
Refusal and the Purchaser's Right of First Refusal and/or Right of Co-Sale as to
any proposed Transfer by any Founder of any Stock may be waived in advance of or
after such transfer by the written agreement of the Company and Purchasers
holding at least two-thirds (2/3) of the Stock then held by all Purchasers. The
Company or the Purchasers will have the absolute right to exercise or refrain
from exercising any right or rights that such party may have by reason of this
Agreement, including, without limitation, the right to purchase or participate
in the sale of Offered Stock, and the Company or the Purchasers will not incur
any liability to any other party hereto with respect to exercising or refraining
from exercising any such right or rights. Any waiver by a party of its rights
hereunder will be effective only if evidenced by a written instrument executed
by such party or its authorized representative.
9. Miscellaneous Provisions.
(a) Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and shall be delivered
personally, mailed by first class mail, postage prepaid, certified or registered
mail, return receipt requested, facsimile or delivered by courier or overnight
delivery, addressed (a) if to the Company, at 470 Mercury Drive, Sunnyvale,
California 94086, (b) if to a Purchaser, at the Purchaser's address set forth on
Exhibit A to the Purchase Agreement, or at such other address as the Purchaser
shall have furnished to the Company in writing, or (c) if to the Founder, at the
address set forth on Exhibit B attached hereto. Notices that are delivered
personally, by courier or overnight delivery shall be deemed received upon
personal delivery, or if delivered by facsimile, upon confirmation of facsimile
receipt, or if by mail, three (3) days after deposit in the United States Mail.
(b) Binding on Successors and Assigns; Inclusion Within
Certain Definitions. This Agreement, and the rights and obligations of the
parties hereunder, will inure to the benefit of, and be binding upon, their
respective successors, assigns, heirs, executors, administrators and legal
representatives. Any permitted transferee of the Founders who is required to
become a party hereto will be considered "the Founders" for purposes of this
Agreement and any permitted transferee of Stock held by a Purchaser will be
considered a "Purchaser" for purposes of this Agreement.
(c) Severability. If any provision of this Agreement is held
to be invalid, illegal or unenforceable in any respect, such provision will be
enforced to the maximum extent possible and such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement, and this
Agreement will be construed as if such invalid, illegal or unenforceable
provision had (to the extent not enforceable) never been contained herein.
(d) Amendment. This Agreement may be amended only by a
written instrument executed by the Company, the Purchasers holding at least
two-thirds (2/3) of the Stock then held by all Purchasers and the Founders, but
as to the Founders, this agreement is necessary only if their rights under this
Agreement are adversely affected. Notwithstanding anything herein to the
contrary, this Agreement may be amended without the consent of any Purchaser to
add as a Purchaser any persons who purchase shares on or before February 14,
1997.
(e) Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of California as such laws
are applied to agreements between California residents entered into and to be
performed entirely within California.
(f) Obligation of Company; Binding Nature of Exercise. The
Company agrees to use its best efforts to enforce the terms of this Agreement,
to inform the Founders and the Purchasers of any breach hereof (to the extent
the Company has knowledge thereof) and to use reasonable efforts to assist the
Founders and the Purchasers in the exercise of their rights and the performance
of their
6
<PAGE> 7
obligations hereunder. Any exercise of the Right of First Refusal or Right of
Co-Sale will be binding upon the party so exercising, and may not be withdrawn
without the written consent of the Founders, except that such exercise may be
withdrawn unilaterally by the exercising party if there is any legal prohibition
as to a party's consummation of its purchase or sale hereunder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered will be
deemed an original, and all such counterparts together will constitute one and
the same instrument.
(h) Attorneys' Fees. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and necessary disbursements in addition to any other relief to which such
party may be entitled as determined by such court, equity or arbitration
proceeding.
(i) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the specific subject mater hereof and
supersedes in their entirety all other agreements or understandings between or
among the parties hereto with respect to such specific subject matter.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Right of First
Refusal and Co-Sale Agreement as of the date first written above.
NETRIGHT TECHNOLOGIES, INC.
By: /s/ MAHMOOD PANJWANI
-------------------------------------
Mahmood Panjwani, President
THE FOUNDERS
/s/ MAHMOOD PANJWANI
----------------------------------------
Mahmood Panjwani,
in his individual capacity
/s/ RAFIQ MOHAMMADI
----------------------------------------
Rafiq Mohammadi,
in his individual capacity
PURCHASERS:
----------------------------------------
Print Name
----------------------------------------
Title
----------------------------------------
Signature
8
<PAGE> 9
EXHIBIT A
SCHEDULE OF PURCHASERS
FIRST CLOSING
DECEMBER 27, 1996
<TABLE>
Number of Shares of Series
Name A Preferred
- ---- --------------------------
<S> <C>
Anthelion Capital, LLC 211,268
Anil Singh 140,845
Mo Virani 135,994
Iqbal Sadruddin 257,434
Rajdak Investments, LLC 140,845
Total 886,386
</TABLE>
SECOND CLOSING
MARCH 14, 1997
<TABLE>
Number of Shares of Series
Name A Preferred
- ---- --------------------------
<S> <C>
GCWF Investment Partners 35,211
Phuc Kim Lam and Nguyet Thu Thi Le 24,507
Anwar Mohammed 35,211
Anh N. Nguyen and Chi N. Lam 24,507
Akber Panjwani and Karim Panjwani 29,295
Naushad Rashid 35,211
Unterberg Harris Private Equity Partners, L.P. 352,112
Unterberg Harris Private Equity Partners, L.P. 352,113
Rajesh Vashist 53,520
Karim Walji 39,718
Total 981,405
Grand Total 1,867,791
</TABLE>
9
<PAGE> 10
EXHIBIT B
Founders
<TABLE>
<CAPTION>
Name Shares of Common Stock
- ---- ----------------------
<S> <C>
Mahmood Panjwani 3,000,000
85 Southdown Court
Hillsborough, CA 94010
Rafiq Mohammadi 3,000,000
360 E. Randolph #4003
Chicago, IL 60601
</TABLE>
10
<PAGE> 11
AMENDMENT NUMBER ONE TO
RIGHT OF FIRST REFUSAL AND
CO-SALE AGREEMENT
This Amendment Number One to Right of First Refusal and Co-Sale
Agreement (this "Amendment") is made as of August 28, 1997, by and among
NetRight Technologies, Inc. (the "Company"), Mahmood Panjwani and Rafiq
Mohammadi (collectively the "Founders") and the undersigned stockholders of the
Company (collectively, the "Purchasers").
RECITALS
A. Investors who purchased shares of Series A Preferred Stock of
the Company pursuant to the Company's Series A Preferred Stock Purchase
Agreement dated as of December 27, 1996 (the "Purchase Agreement") entered into
a Right of First Refusal and Co-Sale Agreement dated as of December 27, 1996
(the "Co-Sale Agreement").
B. Contemporaneously herewith, the Purchase Agreement is being
amended pursuant to Amendment Number One thereto (the "Purchase Agreement
Amendment") dated as of this date, to permit the Company to sell through August
15, 1997 (the "Extended Date") an additional 985,917 shares of Series A
Preferred Stock (the "Additional Series A Shares").
C. The Purchasers desire that each Investor (as defined in the
Purchase Agreement Amendment) purchasing Additional Series A Shares pursuant to
the Purchase Agreement Amendment have all rights of a "Purchaser" with respect
to the Additional Series A Shares purchased by such Investor under the Co-Sale
Agreement, as amended hereby, on the terms set forth in this Amendment.
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth in
the Co-Sale Agreement.
2. Rights and Obligations of Purchasers. For all purposes of the
Co-Sale Agreement, effective upon the satisfaction of Section 3 below and the
execution and delivery of this Amendment by the Company, the Founders and a
Purchaser on or prior to the Extended Date, each Investor will be a "Purchaser."
3. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Company, the Founders and Purchasers (as defined
in the Co-Sale Agreement) holding at least two-thirds (2/3) of the Stock held by
all Purchasers and the Founders as of the date of this Amendment.
4. Continued Effect. Except as otherwise expressly provided herein,
the Co-Sale Agreement will continue in full force and effect, in accordance with
its terms.
1
<PAGE> 12
5. Miscellaneous. This Amendment will be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 9(d) of the Co-Sale Agreement.
The parties have executed this Amendment as of the date first above
written.
NETRIGHT TECHNOLOGIES, INC. FOUNDERS:
By: /s/ MAHMOOD PANJWANI /s/ MAHMOOD PANJWANI
- ------------------------------ ----------------------------------------
Mahmood Panjwani, President Mahmood Panjwani
/s/ RAFIQ MOHAMMADI
----------------------------------------
Rafiq Mohammadi
PURCHASER:
Name:
-----------------------------------
(Please print or type)
Signature:
------------------------------
Address:
--------------------------------
2
<PAGE> 13
AMENDMENT NUMBER TWO TO
RIGHT OF FIRST REFUSAL AND
CO-SALE AGREEMENT
This Amendment Number Two to Right of First Refusal and Co-Sale
Agreement (this "Amendment") is made as of December 15, 1997, by and among
NetRight Technologies, Inc. (the "Company"), Mahmood Panjwani and Rafiq
Mohammadi (collectively the "Founders") and each of the persons named in
Schedule A attached hereto (collectively, the "Purchasers" and individually, a
"Purchaser").
RECITALS
A. Investors who purchased shares of Series A Preferred Stock of
the Company pursuant to the Company's Series A Preferred Stock Purchase
Agreement dated as of December 27, 1996 (the "Series A Purchase Agreement")
entered into a Right of First Refusal and Co-Sale Agreement dated as of December
27, 1996 (the "Co-Sale Agreement").
B. The Series A Purchase Agreement and Co-Sale Agreement were
subsequently amended to extend the closing date of sales of Series A Preferred
Stock under to the Series A Purchase Agreement to February 28, 1997 and March
14, 1997 pursuant to letter agreements dated February 13, 1997 and March 4,
1997, respectively.
C. Certain other investors who purchased shares of Series A
Preferred Stock of the Company pursuant to Amendment Number One to the Series A
Purchase Agreement dated as of August 28, 1997 entered into Amendment Number One
of the Co-Sale Agreement to receive rights of "Purchasers" under the Co-Sale
Agreement (the Co-Sale Agreement, as previously amended hereafter referred to as
the "Amended Co-Sale Agreement").
D. The Company and certain of the Purchasers are entering into a
Series B Preferred Stock Purchase Agreement dated as of the date of this
Amendment (the "Series B Purchase Agreement"), pursuant to which, subject to the
satisfaction of certain conditions, such Purchasers are agreeing to purchase
from the Company a total of up to 3,200,000 shares of Series B Preferred Stock
of the Company (the "Series B Preferred Stock") on the terms set forth in the
Series B Purchase Agreement in an initial closing on the date hereof (the
"Initial Closing Date") and in one or more additional closing through March 15,
1998 (the "Final Closing Date").
E. The parties to the Amended Co-Sale Agreement desire that each
Purchaser purchasing shares of Series B Preferred Stock pursuant to the Series B
Purchase Agreement have all rights of a "Purchaser" under the Amended Co-Sale
Agreement, as amended hereby, on the terms set forth in this Amendment.
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as
follows:
1
<PAGE> 14
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth in
the Amended Co-Sale Agreement.
2. Rights and Obligations of Purchasers. For all purposes of the
Amended Co-Sale Agreement, effective upon the (i) purchase by any Purchaser of
shares of the Company's Series B Preferred Stock at the closing of the sale and
purchase of shares under the Series B Purchase Agreement; (ii) the execution and
delivery by such Purchaser of a signature page to this Amendment; (iii) the
execution and delivery by the Company of a signature page to this Amendment; and
(iv) the satisfaction of the conditions of Section 3 of this Amendment, such
Purchaser of shares of Series B Preferred Stock will be a "Purchaser" for all
purposes of the Amended Co-Sale Agreement, as amended hereby.
3. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Company, the Founders and Purchasers (as defined
in the Amended Co-Sale Agreement) holding at least two-thirds (2/3) of the Stock
held by all Purchasers and the Founders as of the date of this Amendment.
Notwithstanding anything herein to the contrary, Purchasers purchasing Series B
Preferred Stock through the Final Closing Date may be added as a "Purchaser" for
the purposes of the Amended Co-Sale Agreement without the consent of any
Founder. Purchasers (as defined in the Amended Co-Sale Agreement) or prior
Purchasers of Series B Preferred Stock.
4. Continued Effect. Except as otherwise expressly provided herein,
the Amended Co-Sale Agreement will continue in full force and effect, in
accordance with its terms.
5. Miscellaneous. This Amendment will be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 9(d) of the Co-Sale Agreement.
2
<PAGE> 15
The parties have executed this Amendment as of the date first above
written.
NETRIGHT TECHNOLOGIES, INC. PURCHASER:
By: /s/ MAHMOOD PANJWANI
------------------------------ Name:
Mahmood Panjwani, President -----------------------------------
(Please print or type)
By:
-------------------------------------
(Please print or type)
Signature:
------------------------------
(Please print or type)
Address:
--------------------------------
(Please print or type)
FOUNDERS:
/s/ MAHMOOD PANJWANI /s/ RAFIQ MOHAMMADI
- --------------------------------- ----------------------------------------
Mahmood Panjwani Rafiq Mohammadi
3
<PAGE> 16
Schedule A
<TABLE>
<CAPTION>
Purchaser Series A Shares Series B Shares
--------- --------------- ---------------
<S> <C> <C>
Anthelion Capital LLC 352,113
GCWF Investment Partners 35,211
Phuc Kim Lam/Nguyet Thu Thi Le 38,592
Anwar Mohammed 49,296
Anh N. Nguyen/Chi N. Lam 38,592
Akber Panjwani/Karim Panjwani 29,295
Rajdak Investments LLC 281,690
Naushad Rashid 35,211
Iqbal Sadruddin 257,434
Anil Singh 140,845
Unterberg Harris Private 754,366
Equity Partners L.P.
Unterberg Harris, L.P. 323,940
Unterberg Harris 40lK Profit 14,086
Sharing Plan FBO Alex Bernstein
Unterberg Harris 401KProfit 14,086
Sharing Plan FBO Mary Beth Poggi
Unterberg Harris Private
Equity Partners, C.V. 161,127
Rajesh Vashist 81,689
Moez Virani and Vivienne Virani 206,417
TTEES of the Virani Family `93
Revocable Trust
Karim Walji 39,718
Louis Leitz Digital GmbH & Co. 1,273,885
Andrew G. Celli Jr. and James
E. Satloff, Trustee U/D/T
5/19/93 FBO Rebecca Rose Celli 15,923
Andrew G. Celli Jr. and James 15,923
E. Satloff, Trustee U/D/T
5/19/93 FBO Dustin Nathaniel
Satloff
Andrew G. Celli Jr. and James 15,923
E. Satloff, Trustee FBO Hannah
Andrea Celli Trust
</TABLE>
4
<PAGE> 17
<TABLE>
<CAPTION>
Purchaser Series A Shares Series B Shares
--------- --------------- ---------------
<S> <C> <C>
Andrew G. Celli Jr. and James 15,923
E. Satloff, Trustee FBO
Theodore Jean Satloff
Robert Harris, Jr. 127,388
A. Robert Towbin, Trustee FBO 31,847
Lisa Olim dated 5/8/96
A. Robert Towbin, Trustee FBO 31,847
Barry Towbin dated 5/8/96
C.E. Unterberg, Towbin LLC 127,388
A. Robert Towbin 63,694
Unterberg Harris Private Equity 262,420
Partners L.P.
Unterberg Harris Private Equity 56,050
Partners, CV
Thomas I. Unterberg 127,388
NEA Ventures 1998, Limited 1,592
Partners
New Enterprise Associates VII, 1,016,886
Limited Partnership
NEA Presidents Fund, L.P. 15,923
</TABLE>
5
<PAGE> 18
AMENDMENT NUMBER THREE TO
RIGHT OF FIRST REFUSAL AND
CO-SALE AGREEMENT
This Amendment Number Three to Right of First Refusal and Co-Sale
Agreement (this "Amendment") is made as of September 28, 1998, by and among
NetRight Technologies, Inc. (the "Company"), Mahmood Panjwani and Rafiq
Mohammadi (collectively the "Founders") and each of the persons named in
Schedule A attached hereto (collectively, the "Purchasers" and individually, a
"Purchaser").
RECITALS
A. Investors who purchased shares of Series A Preferred Stock of
the Company pursuant to the Company's Series A Preferred Stock Purchase
Agreement dated as of December 27, 1996 (the "Series A Purchase Agreement")
entered into a Right of First Refusal and Co-Sale Agreement dated as of December
27, 1996 (the "Co-Sale Agreement").
B. The Series A Purchase Agreement and Co-Sale Agreement were
subsequently amended to extend the closing date of sales of Series A Preferred
Stock under to the Series A Purchase Agreement to February 28, 1997 and March
14, 1997 pursuant to letter agreements dated February 13, 1997 and March 4,
1997, respectively.
C. Certain other investors who purchased shares of Series A
Preferred Stock of the Company pursuant to Amendment Number One to the Series A
Purchase Agreement dated as of August 28, 1997 entered into Amendment Number One
of the Co-Sale Agreement to receive rights of "Purchasers" under the Co-Sale
Agreement.
D. Investors who purchased shares at Series B Preferred Stock of
the Company pursuant to the Company's Series B Preferred Stock Purchase
Agreement dated as of December 15, 1997 (the "Series B Purchase Agreement")
entered into Amendment Number Two of the Co-Sale Agreement to receive rights of
"Purchasers" under the Co-Sale Agreement (the Co-Sale Agreement, as previously
amended hereafter referred to as the "Amended Co-Sale Agreement").
E. The Company and certain of the Purchasers are entering into a
Series C Preferred Stock Purchase Agreement dated as of the date of this
Amendment (the "Series C Purchase Agreement"), pursuant to which, subject to the
satisfaction of certain conditions, such Purchasers are agreeing to purchase
from the Company a total of up to 2,100,000 shares of Series C Preferred Stock
of the Company (the "Series C Preferred Stock") on the terms set forth in the
Series C Purchase Agreement in an initial closings on the date hereof (the
"Initial Closing Date") and in one or more additional closing through the
Additional Closing Deadline (as defined in the Series C Purchase Agreement).
F. The parties to the Amended Co-Sale Agreement desire that each
Purchaser purchasing shares of Series C Preferred Stock pursuant to the Series C
Purchase Agreement have all rights of a "Purchaser" under the Amended Co-Sale
Agreement, as amended hereby, on the terms set forth in this Amendment.
1
<PAGE> 19
AGREEMENT
The parties hereto, intending to be legally bound, hereby agree as
follows:
1. Definitions. Unless otherwise defined or specified in this
Amendment, all capitalized terms used herein will have the meanings set forth in
the Amended Co-Sale Agreement.
2. Rights and Obligations of Purchasers. For all purposes of the
Amended Co-Sale Agreement, effective upon the (i) purchase by any Purchaser of
shares of the Company's Series C Preferred Stock at a closing under the Series C
Purchase Agreement; (ii) the execution and delivery by such Purchaser of a
signature page to this Amendment; (iii) the execution and delivery by the
Company of a signature page to this Amendment; and (iv) the satisfaction of the
conditions of Section 3 of this Amendment, such Purchaser of shares of Series C
Preferred Stock will be a "Purchaser" for all purposes of the Amended Co-Sale
Agreement, as amended hereby.
3. Effectiveness of Amendment. This Amendment will not be effective
unless this Amendment (or a separate consent with the same purpose) has been
executed and delivered by the Company, the Founders and Purchasers (as defined
in the Amended Co-Sale Agreement) holding at least two-thirds (2/3) of the Stock
held by all Purchasers and the Founders as of the date of this Amendment.
Notwithstanding anything herein to the contrary, Purchasers purchasing Series C
Preferred Stock through the Additional Closing Deadline may be added as a
"Purchaser" for the purposes of the Amended Co-Sale Agreement without the
consent of any Founder, Purchasers (as defined in the Amended Co-Sale Agreement)
or prior Purchasers of Series C Preferred Stock.
4. Continued Effect. Except as otherwise expressly provided herein,
the Amended Co-Sale Agreement will continue in full force and effect, in
accordance with its terms.
5. Miscellaneous. This Amendment will be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California. This Amendment constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and supersedes
all prior written and oral agreements, representations and commitments, if any,
among the parties with respect to such subjects. This Amendment may be executed
in any number of counterparts, each of which will be an original, but all of
which together will constitute one instrument. Any provision of this Amendment
may be waived or modified only in accordance with the provisions set forth in
Section 9(d) of the Co-Sale Agreement.
2
<PAGE> 20
The parties have executed this Amendment as of the date first above
written.
NETRIGHT TECHNOLOGIES, INC. PURCHASER:
By: /s/ MAHMOOD PANJWANI Name:
-------------------------------- -----------------------------------
Mahmood Panjwani, President (Please print or type)
By:
-------------------------------------
(Please print or type)
Title:
----------------------------------
(Please print or type)
Signature:
------------------------------
FOUNDERS:
/s/ MAHMOOD PANJWANI /s/ RAFIQ MOHAMMADI
- ----------------------------------- ----------------------------------------
Mahmood Panjwani Rafiq Mohammadi
AMENDMENT NUMBER THREE TO
RIGHT OF FIRST REFUSAL AND
CO-SALE AGREEMENT
3
<PAGE> 21
Schedule A to Amendment Three to
Right of First Refusal and Co-Sale Agreement
<TABLE>
<CAPTION>
Purchaser Series A Shares Series B Shares Series C Shares
--------- --------------- --------------- ---------------
<S> <C> <C> <C>
Anthelion Capital LLC 352,113
GCWF Investment Partners 35,211
Phuc Kim Lam/Nguyet Thu Thi Le 38,592
Anwar Mohammed 49,296
Anh N. Nguyen/Chi N. Lam 38,592
Akber Panjwani/Karim Panjwani 29,295
Rajdak Investments LLC 281,690
Naushad Rashid 35,211
Iqbal Sadruddin 257,434
Anil Singh 140,845
Unterberg Harris Private Equity 754,366
Partners L.P.
Unterberg Harris, L.P. 323,940
Unterberg Harris 40lK Profit 14,086
Sharing Plan FBO Alex Bernstein
Unterberg Harris 401KProfit 14,086
Sharing Plan FBO Mary Beth Poggi
Unterberg Harris Private Equity 161,127
Partners, C.V.
Rajesh Vashist 81,689
Moez Virani and Vivienne Virani 206,417
TTEES of the Virani Family `93
Revocable Trust
</TABLE>
4
<PAGE> 22
<TABLE>
<CAPTION>
Purchaser Series A Shares Series B Shares Series C Shares
--------- --------------- --------------- ---------------
<S> <C> <C> <C>
Karim Walji 39,718
Louis Leitz Digital GmbH & Co. 1,273,885
Andrew G. Celli Jr. and James 15,923
E. Satloff, Trustee U/D/T
5/19/93 FBO Rebecca Rose Celli
Andrew G. Celli Jr. and James 15,923
E. Satloff, Trustee U/D/T
5/19/93 FBO Dustin Nathaniel
Satloff
Andrew G. Celli Jr. and James 15,923
E. Satloff, Trustee FBO Hannah
Andrea Celli Trust
Andrew G. Celli Jr. and James 15,923
E. Satloff, Trustee FBO
Theodore Jean Satloff
Robert Harris, Jr. 127,388
A. Robert Towbin, Trustee FBO 31,847
Lisa Olim dated 5/8/96
A. Robert Towbin, Trustee FBO 31,847
Barry Towbin dated 5/8/96
C.E. Unterberg, Towbin LLC 127,388
A. Robert Towbin 63,694
Unterberg Harris Private Equity 262,420
Partners L.P.
Unterberg Harris Private Equity 56,050
Partners, CV
Thomas I. Unterberg 127,388
NEA Ventures 1998, Limited 1,592 1,191
Partners
New Enterprise Associates VII, 1,016,886 1,692,503
Limited Partnership
NEA Presidents Fund, L.P. 15,923 11,905
Brian Asplund 47,619
</TABLE>
5
<PAGE> 23
<TABLE>
<CAPTION>
Purchaser Series A Shares Series B Shares Series C Shares
--------- --------------- --------------- ---------------
<S> <C> <C> <C>
Kannan Ayyar 50,000
James Dorian 50,000
GCWF Investment Partners 23,810
Victoria W-Y Lee 2,381
Thomas P. Sweeney 8,571
Cornerstone Properties I, LLC 91,429
</TABLE>
6
<PAGE> 1
EXHIBIT 10.2
iMANAGE, INC.
AMENDED 1997 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The iManage, Inc. 1997 Stock Option Plan
(the "PLAN") was established effective as of June 2, 1997. On September ___,
1999, the Plan was amended and retitled the "Amended 1997 Stock Option Plan",
effective as of the date the Company first registers its Stock under Section 12
of the Exchange Act.
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of the Participating Company Group and its stockholders by providing
an incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is
duly approved by the stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or
other committee of the Board duly appointed to administer the Plan and having
such powers as shall be specified by the Board. Unless the powers of the
Committee have been specifically limited, the Committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
amend or terminate the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law.
(d) "COMPANY" means iManage, Inc., a Delaware
corporation, or any successor corporation thereto.
1
<PAGE> 2
(e) "CONSULTANT" means a person engaged to provide
consulting or advisory services (other than as an Employee or a Director) to a
Participating Company, provided that the identity of such person, the nature of
such services or the entity to which such services are provided would not
preclude the Company from offering or selling securities to such person pursuant
to the Plan in reliance on either the exemption from registration provided by
Rule 701 under the Securities Act or, if the Company is required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act, registration on a form S-8
Registration Statement under the Securities Act.
(f) "DIRECTOR" means a member of the Board or of the
board of directors of any other Participating Company.
(g) "DISABILITY" means the permanent and total
disability of the Optionee within the meaning of Section 22(e)(3) of the Code.
(h) "EMPLOYEE" means any person treated as an
employee (including an officer or a Director who is also treated as an employee)
in the records of a Participating Company and, with respect to any Incentive
Stock Option granted to such person, who is an employee for purposes of Section
422 of the Code; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
purposes of the Plan. The Company shall determine in good faith and in the
exercise of its discretion whether an individual has become or has ceased to be
an Employee and the effective date of such individual's employment or
termination of employment, as the case may be. For purposes of an individual's
rights, if any, under the Plan as of the time of the Company's determination,
all such determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any governmental agency subsequently makes a
contrary determination.
(i) "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the
value of a share of Stock or other property as determined by the Board, in its
sole discretion, or by the Company, in its sole discretion, if such
determination is expressly allocated to the Company herein, subject to the
following:
(i) If, on such date, there is a public market
for the Stock, the Fair Market Value of a share of Stock shall be the closing
sale price of a share of Stock (or the mean of the closing bid and asked prices
of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq
National Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
2
<PAGE> 3
(ii) If, on such date, there is no public market
for the Stock, the Fair Market Value of a share of Stock shall be as determined
by the Board without regard to any restriction other than a restriction which,
by its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended
to be (as set forth in the Option Agreement) and which qualifies as an incentive
stock option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the
Company or any other person whose transactions in Stock are subject to Section
16 of the Exchange Act.
(m) "NONEMPLOYEE DIRECTOR" means a Director of the
Company who is not an employee.
(n) "NONEMPLOYEE DIRECTOR OPTION" means a right to
purchase Stock (subject to adjustment as provided in Section 4.2) granted to a
Nonemployee Director pursuant to the terms and conditions of Section 7.
Nonemployee Director Options shall be Nonstatutory Stock Options.
(o) "NONSTATUTORY STOCK OPTION" means an Option not
intended to be (as set forth in the Option Agreement) or which does not qualify
as an Incentive Stock Option.
(p) "OPTION" means a right to purchase Stock (subject
to adjustment as provided in Section 4.2) pursuant to the terms and conditions
of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(q) "OPTION AGREEMENT" means a written agreement
between the Company and an Optionee setting forth the terms, conditions and
restrictions of the Option granted to the Optionee and any shares acquired upon
the exercise thereof. An Option Agreement may consist of a form of "Notice of
Grant of Stock Option" and a form of "Stock Option Agreement" incorporated
therein by reference, or such other form or forms as the Board may approve from
time to time.
(r) "OPTIONEE" means a person who has been granted
one or more Options.
(s) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(t) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(u) "PARTICIPATING COMPANY GROUP" means, at any point
in time, all corporations collectively which are then Participating Companies.
(v) "RULE 16B-3" means Rule 16b-3 under the Exchange
Act, as amended from time to time, or any successor rule or regulation.
3
<PAGE> 4
(w) "SECTION 162(m)" means Section 162(m) of the Code
and the regulations promulgated thereunder.
(x) "SECURITIES ACT" means the Securities Act of
1933, as amended.
(y) "SERVICE" means an Optionee's employment or
service with the Participating Company Group, whether in the capacity of an
Employee, a Director or a Consultant. The Optionee's Service shall not be deemed
to have terminated merely because of a change in the capacity in which the
Optionee renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Optionee's Option Agreement. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Optionee performs Service ceasing to be a Participating Company.
Subject to the foregoing, the Company, in its sole discretion, shall determine
whether the Optionee's Service has terminated and the effective date of such
termination.
(z) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(aa) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
(bb) "TEN PERCENT OWNER OPTIONEE" means an Optionee
who, at the time an Option is granted to the Optionee, owns stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Section 422(b)(6) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan or of any
Option shall be determined by the Board, and such determinations shall be final
and binding upon all persons having an interest in
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the Plan or such Option. Any officer of a Participating Company shall have the
authority to act on behalf of the Company with respect to any matter, right,
obligation, determination or election which is the responsibility of or which is
allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
(i) to determine the persons to whom, and
the time or times at which, Options shall be granted and the number of shares of
Stock to be subject to each Option;
(ii) to designate Options as Incentive Stock
Options or Nonstatutory Stock Options;
(iii) to determine the Fair Market Value of
shares of Stock or other property;
(iv) to determine the terms, conditions and
restrictions applicable to each Option (which need not be identical) and any
shares acquired upon the exercise thereof, including, without limitation, (i)
the exercise price of the Option, (ii) the method of payment for shares
purchased upon the exercise of the Option, (iii) the method for satisfaction of
any tax withholding obligation arising in connection with the Option or such
shares, including by the withholding or delivery of shares of stock, (iv) the
timing, terms and conditions of the exercisability of the Option or the vesting
of any shares acquired upon the exercise thereof, (v) the time of the expiration
of the Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(v) to approve one or more forms of Option
Agreement;
(vi) to amend, modify, extend, or renew, or
grant a new Option in substitution for, any Option or to waive any restrictions
or conditions applicable to any Option or any shares acquired upon the exercise
thereof;
(vii) to accelerate, continue, extend or
defer the exercisability of any Option or the vesting of any shares acquired
upon the exercise thereof, including with respect to the period following an
Optionee's termination of Service with the Participating Company Group;
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(viii) to prescribe, amend or rescind rules,
guidelines and policies relating to the Plan, or to adopt supplements to, or
alternative versions of, the Plan, including, without limitation, as the Board
deems necessary or desirable to comply with the laws of, or to accommodate the
tax policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(ix) to correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Option Agreement and
to make all other determinations and take such other actions with respect to the
Plan or any Option as the Board may deem advisable to the extent consistent with
the Plan and applicable law.
3.4 COMMITTEE COMPLYING WITH SECTION 162(m). If a
Participating Company is a "publicly held corporation" within the meaning of
Section 162(m), the Board may establish a Committee of "outside directors"
within the meaning of Section 162(m) to approve the grant of any Option which
might reasonably be anticipated to result in the payment of employee
remuneration that would otherwise exceed the limit on employee remuneration
deductible for income tax purposes pursuant to Section 162(m).
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Six Million (6,000,000), cumulatively
increased on January 1, 2001, and each January 1 thereafter, by an amount equal
to the lesser of (a) One Million Two Hundred Thousand shares (1,200,000) shares,
(b) Five Percent (5%) of the number of shares of Stock issued and outstanding on
the immediately preceding December 31, or (c) a lesser amount of shares
determined by the Board, and shall consist of authorized but unissued or
reacquired shares of Stock or any combination thereof. If an outstanding Option
for any reason expires or is terminated or canceled or shares of Stock acquired,
subject to repurchase, upon the exercise of an Option are repurchased by the
Company, the shares of Stock allocable to the unexercised portion of such
Option, or such repurchased shares of Stock, shall again be available for
issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options, to the automatic Nonemployee
Director Option grant provisions set forth in Section 7.1, and in the exercise
price per share of any outstanding Options. If a majority of the shares which
are of the same class as the shares that are subject to outstanding Options are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event, as defined in Section 9.1) shares of another
corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding
Options to provide that such Options are exercisable for New Shares. In the
event of any such amendment, the number of shares subject to, and the exercise
price per share of, the outstanding Options shall be adjusted in a fair and
equitable manner as determined by the Board, in its sole discretion.
Notwithstanding the foregoing, any fractional share resulting from an
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adjustment pursuant to this Section 4.2 shall be rounded down to the nearest
whole number, as determined by the Board, and in no event may the exercise price
of any Option be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only
to Employees, Consultants, and Directors. For purposes of the foregoing
sentence, "Employees," "Consultants" and "Directors" shall include prospective
Employees, prospective Consultants and prospective Directors to whom Options are
granted in connection with written offers of an employment or other service
relationship with the Participating Company Group. Eligible persons may be
granted more than one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an
Employee on the effective date of the grant of an Option to such person may be
granted only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1. Nonemployee Director Options may be granted only to
a person who at the time of grant is a Nonemployee Director.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that Options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for Stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such Options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, Options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of Stock shall be determined as of the time the Option
with respect to such Stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. Option Agreements may incorporate all or any of the
terms of the Plan by reference and, except as otherwise set forth in Section 7
with respect to Nonemployee Director Options, shall comply with and be subject
to the following terms and conditions:
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6.1 EXERCISE PRICE. The exercise price for each Option shall
be established in the sole discretion of the Board; provided, however, that (a)
the exercise price per share for an Incentive Stock Option shall be not less
than the Fair Market Value of a share of Stock on the effective date of grant of
the Option, (b) the exercise price per share for a Nonstatutory Stock Option
shall be not less than eighty-five percent (85%) of the Fair Market Value of a
share of Stock on the effective date of grant of the Option, and (c) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall have an
exercise price per share less than one hundred ten percent (110%) of the Fair
Market Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time
or times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Incentive Stock Option shall be exercisable after the expiration of
ten (10) years after the effective date of grant of such Option, (b) no
Incentive Stock Option granted to a Ten Percent Owner Optionee shall be
exercisable after the expiration of five (5) years after the effective date of
grant of such Option, and (c) no Option granted to a prospective Employee,
prospective Consultant or prospective Director may become exercisable prior to
the date on which such person commences service with a Participating Company.
Subject to the foregoing, unless otherwise specified by the Board in the grant
of an Option, any Option granted hereunder shall have a term of ten (10) years
from the effective date of the grant of the Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of shares of Stock
owned by the Optionee having a Fair Market Value (as determined by the Company
without regard to any restrictions on transferability applicable to such stock
by reason of federal or state securities laws or agreements with an underwriter
for the Company) not less than the exercise price, (iii) by the assignment of
the proceeds of a sale or loan with respect to some or all of the shares being
acquired upon the exercise of the Option (including, without limitation, through
an exercise complying with the provisions of Regulation T as promulgated from
time to time by the Board of Governors of the Federal Reserve System) (a
"CASHLESS EXERCISE"), (iv) provided that the Optionee is an Employee, by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 8, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
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(b) TENDER OF STOCK. Notwithstanding the foregoing,
an Option may not be exercised by tender to the Company of shares of Stock to
the extent such tender of Stock would constitute a violation of the provisions
of any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any
and all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
such tax withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof. The
Company shall have no obligation to deliver shares of Stock or to release shares
of Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Except as otherwise
provided herein or in the Option Agreement, subject to earlier termination of
the Option as otherwise provided herein or therein, an Option shall be
exercisable after an Optionee's termination of Service as follows:
(i) Disability. If the Optionee's Service
with the Participating Company Group is terminated because of the Disability of
the Optionee, the Option, to the extent
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unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of six (6) months (or
such other period of time as determined by the Board, in its sole discretion)
after the date on which the Optionee's Service terminated, but in any event no
later than the date of expiration of the Option's term as set forth in the
Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE").
(ii) Death. If the Optionee's Service with
the Participating Company Group is terminated because of the death of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee's
legal representative or other person who acquired the right to exercise the
Option by reason of the Optionee's death at any time prior to the expiration of
six (6) months (or such other period of time as determined by the Board, in its
sole discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within three (3) months after the Optionee's termination of Service.
(iii) Other Termination of Service. If the
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within thirty (30) days (or such
other period of time as determined by the Board, in its sole discretion) after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.6(a) is prevented by the
provisions of Section 12 below, the Option shall remain exercisable until thirty
(30) days after the date the Optionee is notified by the Company that the Option
is exercisable, but in any event no later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.5(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. TERMS AND CONDITIONS OF NONEMPLOYEE DIRECTOR OPTIONS.
Nonemployee Director Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Such Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
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7.1 AUTOMATIC GRANT. Subject to execution by a Nonemployee
Director of an appropriate Option Agreement, Nonemployee Director Options shall
be granted automatically and without further action of the Board, as follows:
(a) INITIAL OPTION. Each person who first becomes a
Nonemployee Director after the effective date of the initial public offering of
the Company's Stock (the "EFFECTIVE DATE") shall be granted on the date he or
she first becomes a Nonemployee Director a Nonemployee Director Option to
purchase thirty thousand (30,000) shares of Stock (an "Initial Option").
Notwithstanding anything herein to the contrary, an Initial Option shall not be
granted to a Director who previously did not qualify as a Nonemployee Director
but subsequently becomes a Nonemployee Director as a result of the termination
of his or her status as an Employee.
(b) ANNUAL OPTION. Each Nonemployee Director
(including any Director who previously did not qualify as a Nonemployee Director
but who subsequently becomes a Nonemployee Director) shall be granted on the
date of each Nonemployee Director's re-election to the Board at an annual
meeting of the stockholders of the Company which occurs after the Effective Date
(an "ANNUAL MEETING") an Option to purchase shares of Stock equal to ten
thousand (10,000) shares of Stock multiplied by the number of years in the term
for which the Nonemployee Director is elected to serve (an "ANNUAL OPTION").
Notwithstanding the foregoing, a Nonemployee Director who has not served
continuously as a Director of the Company for at least one (1) year as of the
date of such Annual Meeting shall not receive an Annual Option on such date.
(c) RIGHT TO DECLINE NONEMPLOYEE DIRECTOR OPTION.
Notwithstanding the foregoing, any person may elect not to receive a Nonemployee
Director Option by delivering written notice of such election to the Board no
later than the day prior to the date such Nonemployee Director Option would
otherwise be granted. A person so declining a Nonemployee Director Option shall
receive no payment or other consideration in lieu of such declined Nonemployee
Director Option. A person who has declined a Nonemployee Director Option may
revoke such election by delivering written notice of such revocation to the
Board no later than the day prior to the date such Nonemployee Director Option
would be granted pursuant to Section 7.1(a) or (b), as the case may be.
7.2 EXERCISE PRICE. The exercise price per share of Stock
subject to a Nonemployee Director Option shall be the Fair Market Value of a
share of Stock on the date the Nonemployee Director Option is granted.
7.3 EXERCISE PERIOD. Each Nonemployee Director Option shall
terminate and cease to be exercisable on the date ten (10) years after the date
of grant of the Nonemployee Director Option unless earlier terminated pursuant
to the terms of the Plan or the Option Agreement.
7.4 RIGHT TO EXERCISE NONEMPLOYEE DIRECTOR OPTIONS.
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(a) INITIAL OPTIONS. Except as otherwise provided in
the Plan or in the Option Agreement and provided that the Optionee's Service has
not terminated prior to the respective date set forth below, an Initial Option
granted pursuant to Section 7.1(a) shall become vested and exercisable
cumulatively as follows: (A) 1/3 of the shares shall vest on the first
anniversary of the date of grant of the Initial Option, and (B) the remainder of
the shares shall vest in equal monthly increments over the following two (2)
years.
(b) ANNUAL OPTIONS. Except as otherwise provided in
the Plan or in the Option Agreement and provided the Optionee's Service has not
terminated prior to the relevant date, each Annual Option shall become vested
and exercisable in equal monthly increments over a period equal to the term that
the Nonemployee Director is elected to serve on the Board.
(c) EFFECT OF TRANSFER OF CONTROL. Notwithstanding
the foregoing, in the event of a Transfer of Control which occurs prior to the
Optionee's termination of Service, any unexercisable or unvested portion of any
outstanding Nonemployee Director Option held by the Optionee shall be
immediately exercisable and vested in full as of the date ten (10) days prior to
the date of the Transfer of Control. The exercise or vesting of any such
Nonemployee Director Option shall be conditioned upon the consummation of the
Transfer of Control. In addition, if the Nonemployee Director no longer serves
as a Director of the Company after such transaction, any Nonemployee Director
Option held by such Optionee, to the extent unexercised and exercisable on the
date of the Transfer of Control, may be exercised within twelve (12) months
after the Transfer of Control, but in any event no later than the Option
Expiration Date.
8. STANDARD FORMS OF OPTION AGREEMENT.
8.1 GENERAL. Unless otherwise provided herein or by the Board
at the time the Option is granted, an Option shall comply with and be subject to
the terms and conditions set forth in the standard form of Option Agreement
adopted by the Board and as amended from time to time.
8.2 NONEMPLOYEE DIRECTOR OPTION. Each Nonemployee Director
Option shall comply with and be subject to the terms and conditions set forth in
the form of Option Agreement (Nonemployee Director Option) adopted by the Board
and as amended from time to time.
8.3 AUTHORITY TO VARY TERMS. The Board shall have the
authority from time to time to vary the terms of any of the standard forms of
Option Agreement described in this Section 8 either in connection with the grant
or amendment of an individual Option or in connection with the authorization of
a new standard form or forms; provided, however, that the terms and conditions
of any such new, revised or amended standard form or forms of Option Agreement
shall be in accordance with the terms of the Plan.
9. TRANSFER OF CONTROL.
9.1 DEFINITIONS.
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(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange
in a single or series of related transactions by the stockholders of the Company
of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the
Company is a party;
(iii) the sale, exchange, or transfer of all
or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the
Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
9.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of
a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 9.2, an Option shall be deemed assumed if, following the Transfer of
Control, the Option confers the right to purchase, for each share of Stock
subject to the Option immediately prior to the Transfer of Control, the
consideration (whether stock, cash or other securities or property) to which a
holder of a share of Stock on the effective date of the Transfer of Control was
entitled. Any Options which are neither assumed or substituted for by the
Acquiring Corporation in connection with the Transfer of Control nor exercised
as of the date of the Transfer of Control shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control. Notwithstanding
the foregoing, shares acquired upon exercise of an Option prior to the Transfer
of Control and any consideration received pursuant to the Transfer of Control
with respect to such shares shall continue to be subject to all applicable
provisions of the Option Agreement evidencing such Option except as otherwise
provided in such Option Agreement. Furthermore, notwithstanding the foregoing,
if the corporation the stock of which is subject to the outstanding
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Options immediately prior to an Ownership Change Event described in Section
9.1(a)(i) constituting a Transfer of Control is the surviving or continuing
corporation and immediately after such Ownership Change Event less than fifty
percent (50%) of the total combined voting power of its voting stock is held by
another corporation or by other corporations that are members of an affiliated
group within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the outstanding Options shall not
terminate unless the Board otherwise provides in its sole discretion.
10. PROVISION OF INFORMATION.
Each Optionee shall be given access to information concerning
the Company equivalent to that information generally made available to the
Company's common stockholders.
11. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution. Notwithstanding the
foregoing, to the extent permitted by the Board, in its discretion, and set
forth in the Option Agreement evidencing such Option, a Nonstatutory Stock
Option shall be assignable or transferable subject to the applicable
limitations, if any, described in Rule 701 under the Securities Act, and the
General Instructions to Form S-8 Registration Statement under the Securities
Act.
12. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
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13. INDEMNIFICATION.
In addition to such other rights of indemnification as they
may have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
14. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time.
However, subject to changes in applicable law, regulations or rules that would
permit otherwise, without the approval of the Company's stockholders, there
shall be (a) no increase in the maximum aggregate number of shares of Stock that
may be issued under the Plan (except by operation of the provisions of Section
4.2), (b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's stockholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
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PLAN HISTORY
June 3, 1997 Board adopts Plan, with an initial reserve of 3,600,000
shares.
June 23, 1997 Stockholders representing no less than 2/3 of the
8,158,871 outstanding shares entitled to vote approve
Plan, with an initial reserve of 3,600,000 shares, and a
percentage limitation (exceeding 30%) for purposes of
Section 260.140.45 determined by such initial reserve.
September 14, 1998 Board increases shares reserve by 400,000 shares, from
3,600,000 to 4,000,000, reserved for issuance.
September 14, 1998 Stockholders approve share reserve increase by 400,000
shares, from 3,600,000 to 4,000,000 shares. Stockholders
representing at least a majority of the holders of
outstanding shares of the Corporation's stock approved the
share reserve increase.
April 6, 1999 Board increases share reserve by 1,000,000 shares, from
4,000,000 to 5,000,000, reserved for issuance.
April 6, 1999 Stockholders approve increase in share reserve from
4,000,000 to 5,000,000 shares reserved for issuance.
April 7, 1999 Amendment to Certificate of Incorporation filed changing
the name of the company from NetRight Technologies, Inc.
to iManage, Inc.
______, 1999 Board amends the Plan to: (i) delete certain required
private company stock option plan provisions and to
incorporate certain provisions appropriate for a stock
option plan maintained by a public company, (ii) to
provide for automatic stock option grants to nonemployee
directors of the Company, and (iii) to provide for
automatic annual increases of the share reserve on the
first day of each fiscal year of the Company beginning on
or after January 1, 2001 equal to the lesser of: (i)
1,200,000 shares, (ii) 5% of the Company's outstanding
Stock as of the last day of the immediately preceding
December 31, or (iii) such lesser number of shares as the
Board shall determine.
______, 1999 Stockholders approve the amendment to the Plan described
above.
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EXHIBIT 10.3
iMANAGE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. This 1999 Employee Stock Purchase Plan (the
"PLAN") is hereby established effective as of the effective date of the initial
registration by the Company of its Stock under Section 12 of the Securities
Exchange Act of 1934, as amended (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the
interests of Company and its stockholders by providing an incentive to attract,
retain and reward Eligible Employees of the Participating Company Group and by
motivating such persons to contribute to the growth and profitability of the
Participating Company Group. The Plan provides such Eligible Employees with an
opportunity to acquire a proprietary interest in the Company through the
purchase of Stock. The Company intends that the Plan qualify as an "employee
stock purchase plan" under Section 423 of the Code.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Any term not expressly defined in the Plan
but defined for purposes of Section 423 of the Code shall have the same
definition herein. Whenever used herein, the following terms shall have their
respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the
Company. If one or more Committees have been appointed by the Board to
administer the Plan, "Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986,
as amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly
appointed to administer the Plan and having such powers as shall be specified by
the Board. Unless the powers of the Committee have been specifically limited,
the Committee shall have all of the powers of the Board granted herein,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.
(d) "COMPANY" means iManage, Inc., a Delaware
corporation, or any successor corporation thereto.
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(e) "COMPENSATION" means, with respect to any
Offering Period, base wages or salary paid in cash during such Offering Period
before deduction for any contributions to any plan maintained by a Participating
Company and described in Section 401(k) or Section 125 of the Code. Compensation
shall not include commissions, overtime, bonuses, annual awards, other incentive
payments, shift premiums, reimbursements of expenses, allowances, long-term
disability, workers' compensation or any amount deemed received without the
actual transfer of cash or any amounts directly or indirectly paid pursuant to
the Plan or any other stock purchase or stock option plan, or any other
compensation not included above.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets
the requirements set forth in Section 5 for eligibility to participate in the
Plan.
(g) "EMPLOYEE" means a person treated as an employee
of a Participating Company for purposes of Section 423 of the Code. A
Participant shall be deemed to have ceased to be an Employee either upon an
actual termination of employment or upon the corporation employing the
Participant ceasing to be a Participating Company. For purposes of the Plan, an
individual shall not be deemed to have ceased to be an Employee while such
individual is on any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event an
individual's leave of absence exceeds ninety (90) days, the individual shall be
deemed to have ceased to be an Employee on the ninety-first (91st) day of such
leave unless the individual's right to reemployment with the Participating
Company Group is guaranteed either by statute or by contract. The Company shall
determine in good faith and in the exercise of its discretion whether an
individual has become or has ceased to be an Employee and the effective date of
such individual's employment or termination of employment, as the case may be.
For purposes of an individual's participation in or other rights, if any, under
the Plan as of the time of the Company's determination, all such determinations
by the Company shall be final, binding and conclusive, notwithstanding that the
Company or any governmental agency subsequently makes a contrary determination.
(h) "ENTRY DATE" means (i) the Offering Date of an
Offering Period, or (ii) with respect to persons who first become Eligible
Employees after the commencement of the Initial Offering Period (as defined in
Section 6.1 below) but prior to the commencement of the final Purchase Period of
the Initial Offering Period, the first day of the Purchase Period following the
date on which such person becomes an Eligible Employee. Notwithstanding the
foregoing, in the event that the Fair Market Value of a share of Stock on the
first, second or third Purchase Date of the Initial Offering Period is less than
the Fair Market Value of a share of Stock on the Entry Date for a Participant
who was participating in the Offering as of such Purchase Date, the Entry Date
for such Participant for the remainder of the Offering shall be the first day of
the next Purchase Period immediately following such Purchase Date.
(i) "FAIR MARKET VALUE" means, as of any date, if
there is then a public market for the Stock, the closing price of a share of
Stock (or the mean of the closing bid and asked prices if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or
such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in The Wall Street
Journal or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the
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Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date, or such other appropriate day as shall
be determined by the Board, in its discretion. If, as of any date, there is then
no public market for the Stock, the Fair Market Value on any relevant date shall
be as determined by the Board. Notwithstanding the foregoing, the Fair Market
Value per share of Stock on the Effective Date shall be deemed to be the public
offering price set forth in the final prospectus filed with the Securities and
Exchange Commission in connection with the initial public offering of the Stock.
(j) "OFFERING" means an offering of Stock as provided
in Section 6.
(k) "OFFERING DATE" means, for any Offering, the
first day of the Offering Period with respect to such Offering.
(l) "OFFERING PERIOD" means a period established in
accordance with Section 6.1.
(m) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPANT" means an Eligible Employee who has
become a participant in an Offering Period in accordance with Section 7 and
remains a participant in accordance with the Plan.
(o) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation designated by the Board as a
corporation the Employees of which may, if Eligible Employees, participate in
the Plan. The Board shall have the sole and absolute discretion to determine
from time to time which Parent Corporations or Subsidiary Corporations shall be
Participating Companies.
(p) "PARTICIPATING COMPANY GROUP" means, at any point
in time, the Company and all other corporations collectively which are then
Participating Companies.
(q) "PURCHASE DATE" means the last day of (i) any
Purchase Period during the Initial Offering Period, or (ii) an Offering Period
which begins after the Initial Offering Period.
(r) "PURCHASE PERIOD" means a period established in
accordance with Section 6.2.
(s) "PURCHASE PRICE" means the price at which a share
of Stock may be purchased under the Plan, as determined in accordance with
Section 9.
(t) "PURCHASE RIGHT" means an option granted to a
Participant pursuant to the Plan to purchase such shares of Stock as provided in
Section 8, which the Participant may or may not exercise during the Offering
Period in which such option is outstanding. Such option arises from the right of
a Participant to withdraw any accumulated payroll deductions of the Participant
not previously applied to the purchase of Stock under the Plan and to terminate
participation in the Plan at any time during an Offering Period.
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(u) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(v) "SUBSCRIPTION AGREEMENT" means a written
agreement in such form as specified by the Company, stating an Employee's
election to participate in the Plan and authorizing payroll deductions under the
Plan from the Employee's Compensation.
(w) "SUBSCRIPTION DATE" means the last business day
prior to an Entry Date or such other date as the Company shall establish.
(x) "SUBSIDIARY CORPORATION" means any present or
future "subsidiary corporation" of the Company, as defined in Section 424(f) of
the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be
administered by the Board. All questions of interpretation of the Plan, of any
form of agreement or other document employed by the Company in the
administration of the Plan, or of any Purchase Right shall be determined by the
Board and shall be final and binding upon all persons having an interest in the
Plan or the Purchase Right. Subject to the provisions of the Plan, the Board
shall determine all of the relevant terms and conditions of Purchase Rights
granted pursuant to the Plan; provided, however, that all Participants granted
Purchase Rights pursuant to the Plan shall have the same rights and privileges
within the meaning of Section 423(b)(5) of the Code. All expenses incurred in
connection with the administration of the Plan shall be paid by the Company.
3.2 AUTHORITY OF OFFICERS. Any officer of the Company shall
have the authority to act on behalf of the Company with respect to any matter,
right, obligation, determination or election that is the responsibility of or
that is allocated to the Company herein, provided that the officer has apparent
authority with respect to such matter, right, obligation, determination or
election.
3.3 POLICIES AND PROCEDURES ESTABLISHED BY THE COMPANY. The
Company may, from time to time, consistent with the Plan and the requirements of
Section 423 of the Code, establish, change or terminate such rules, guidelines,
policies, procedures, limitations, or adjustments as deemed advisable by the
Company, in its sole discretion, for the proper administration of the Plan,
including, without limitation, (a) a minimum payroll deduction amount required
for participation in an Offering, (b) a limitation on the frequency or number of
changes permitted in the rate of payroll deduction during an Offering, (c) an
exchange ratio applicable to amounts withheld in a currency other than United
States dollars, (d) a payroll deduction greater than or less than the amount
designated by a Participant in order to adjust for the Company's delay or
mistake in processing a Subscription Agreement or in otherwise effecting a
Participant's election under the Plan or as advisable to comply with the
requirements
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of Section 423 of the Code, and (e) determination of the date and manner by
which the Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment
as provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be five hundred thousand (500,000),
cumulatively increased on January 1, 2001 and each January 1 thereafter until
and including January 1, 2009 by an amount equal to the lesser of (a) two
percent (2%) of the issued and outstanding shares of Stock as of the preceding
December 31, (b) five hundred thousand (500,000) shares, or (c) a lesser amount
of shares determined by the Board, and shall consist of authorized but unissued
or reacquired shares of Stock, or any combination thereof. If an outstanding
Purchase Right for any reason expires or is terminated or canceled, the shares
of Stock allocable to the unexercised portion of such Purchase Right shall again
be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event
of any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, or in the event of any merger (including a merger effected for the
purpose of changing the Company's domicile), sale of assets or other
reorganization in which the Company is a party, appropriate adjustments shall be
made in the number and class of shares subject to the Plan and each Purchase
Right and in the Purchase Price. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Purchase Rights are
exchanged for, converted into, or otherwise become (whether or not pursuant to
an Ownership Change Event) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Purchase Rights to provide that
such Purchase Rights are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the Purchase Price of, the
outstanding Purchase Rights shall be adjusted in a fair and equitable manner, as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
Purchase Price be decreased to an amount less than the par value, if any, of the
stock subject to the Purchase Right. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Each Employee of a
Participating Company is eligible to participate in the Plan and shall be deemed
an Eligible Employee, except the following:
(a) Any Employee who is customarily employed by the
Participating Company Group for less than twenty (20) hours per week; or
(b) Any Employee who is customarily employed by the
Participating Company Group for not more than five (5) months in any calendar
year.
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5.2 EXCLUSION OF CERTAIN STOCKHOLDERS. Notwithstanding any
provision of the Plan to the contrary, no Employee shall be granted a Purchase
Right under the Plan if, immediately after such grant, such Employee would own
or hold options to purchase stock of the Company or of any Parent Corporation or
Subsidiary Corporation possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of such corporation, as
determined in accordance with Section 423(b)(3) of the Code. For purposes of
this Section 5.2, the attribution rules of Section 424(d) of the Code shall
apply in determining the stock ownership of such Employee.
6. OFFERINGS.
6.1 OFFERING PERIODS.
(a) INITIAL OFFERING PERIOD. The Plan shall be
implemented by sequential Offerings (an "OFFERING PERIOD"). The first Offering
Period shall commence on the Effective Date and end on the last day of January,
2002 (the "INITIAL OFFERING PERIOD").
(b) SUBSEQUENT OFFERING PERIODS. After the completion
of the Initial Offering Period, subsequent Offerings shall commence on the first
day of February and August of each year and end on the last day of July and
January, respectively, occurring thereafter, and will have a duration of
approximately six (6) months.
6.2 PURCHASE PERIODS. The Initial Offering Period shall
consist of four (4) consecutive Purchase Periods of approximately six (6) months
duration. Purchase Periods shall commence on the Effective Date, August 1, 2000,
February 1, 2001 and August 1, 2001. Purchase Periods beginning on the first day
of February and August shall end on the last day of July and January,
respectively, occurring thereafter. The Purchase Period commencing on the
Effective Date shall end on July 31, 2000.
6.3 DISCRETION TO VARY DURATION. Notwithstanding the
foregoing, the Board may establish a different duration for one or more Offering
Periods or Purchase Periods or different commencing or ending dates for such
periods; provided, however, that no Offering Period may have a duration
exceeding twenty-seven (27) months. If the first or last day of an Offering
Period or a Purchase Period is not a day on which the national securities
exchanges or Nasdaq Stock Market are open for trading, the Company shall specify
the trading day that will be deemed the first or last day, as the case may be,
of the period.
7. PARTICIPATION IN THE PLAN.
7.1 INITIAL PARTICIPATION. An Eligible Employee may become a
Participant in an Offering Period by delivering a properly completed
Subscription Agreement to the Company not later than the close of business for
such office on the Subscription Date established by the Company for the
applicable Entry Date. An Eligible Employee who does not deliver a properly
completed Subscription Agreement to the Company's designated office on or before
the Subscription Date shall not participate in that Offering Period or any
subsequent Offering Period unless such Eligible Employee subsequently delivers a
properly completed Subscription Agreement to the appropriate office of the
Company on or before the Subscription Date for such subsequent Offering Period.
An Employee who becomes an Eligible Employee after the
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Offering Date of an Offering Period (other than the Initial Offering Period)
shall not be eligible to participate in such Offering Period but may participate
in any subsequent Offering Period provided such Employee is still an Eligible
Employee as of the Offering Date of such subsequent Offering Period.
7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the next Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
provided that such Participant remains an Eligible Employee on the Offering Date
of the new Offering Period and has not either (a) withdrawn from the Plan
pursuant to Section 10.7 or (b) terminated employment as provided in Section 13.
A Participant who may automatically participate in a subsequent Offering Period,
as provided in this Section, is not required to deliver any additional
Subscription Agreement for the subsequent Offering Period in order to continue
participation in the Plan. However, a Participant may deliver a new Subscription
Agreement for a subsequent Offering Period in accordance with the procedures set
forth in Section 7.1 if the Participant desires to change any of the elections
contained in the Participant's then effective Subscription Agreement.
8. RIGHT TO PURCHASE SHARES.
8.1 GRANT OF PURCHASE RIGHT. Except as set forth below, on the
Offering Date of each Offering Period, each Participant in such Offering Period
shall be granted automatically, on his or her Entry Date, a Purchase Right
consisting of an option to purchase, on each Purchase Date within such Offering
Period, that number of whole shares of Stock determined by dividing the
aggregate payroll deductions collected from the Participant by the applicable
Purchase Price on such Purchase Date; provided, that no Participant may purchase
more than two thousand five hundred (2,500) shares of Stock on any Purchase
Date.
8.2 CALENDAR YEAR PURCHASE LIMITATION. Notwithstanding any
provision of the Plan to the contrary, no Participant shall be granted a
Purchase Right which permits his or her right to purchase shares of Stock under
the Plan to accrue at a rate which, when aggregated with such Participant's
rights to purchase shares under all other employee stock purchase plans of a
Participating Company intended to meet the requirements of Section 423 of the
Code, exceeds Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or
such other limit, if any, as may be imposed by the Code) for each calendar year
in which such Purchase Right is outstanding at any time. For purposes of the
preceding sentence, the Fair Market Value of shares purchased during a given
Offering Period shall be determined as of the Entry Date for such Offering
Period. The limitation described in this Section shall be applied in conformance
with applicable regulations under Section 423(b)(8) of the Code.
9. PURCHASE PRICE.
The Purchase Price at which each share of Stock may be
acquired in an Offering Period upon the exercise of all or any portion of a
Purchase Right shall be established by the Board; provided, however, that the
Purchase Price shall not be less than eighty-five percent (85%) of the lesser of
(a) the Fair Market Value of a share of Stock on the Participant's Entry Date of
the Offering Period or (b) the Fair Market Value of a share of Stock on the
Purchase Date. Unless otherwise provided by the Board prior to the commencement
of an Offering
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Period, the Purchase Price for that Offering Period shall be eighty-five percent
(85%) of the lesser of (a) the Fair Market Value of a share of Stock on the
Participant's Entry Date of the Offering Period, or (b) the Fair Market Value of
a share of Stock on the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or
any portion of a Purchase Right may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period for which such Purchase Right was granted, subject to the following:
10.1 AMOUNT OF PAYROLL DEDUCTIONS. Except as otherwise
provided herein, the amount to be deducted under the Plan from a Participant's
Compensation on each payday during an Offering Period (after the Participant's
Entry Date) shall be determined by the Participant's Subscription Agreement. The
Subscription Agreement shall set forth the percentage of the Participant's
Compensation to be deducted on each payday during an Offering Period (after the
Participant's Entry Date) in whole percentages of not less than one percent (1%)
(except as a result of an election pursuant to Section 10.3 to stop payroll
deductions made effective following the first payday during an Offering after
the Participant's Entry Date) or more than fifteen percent (15%).
Notwithstanding the foregoing, the Board may change the limits on payroll
deductions effective as of any future Offering Date.
10.2 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions
shall commence on the first payday following the Entry Date and shall continue
to the end of the Offering Period unless sooner altered or terminated as
provided herein.
10.3 ELECTION TO CHANGE OR STOP PAYROLL DEDUCTIONS. During an
Offering Period, a Participant may elect to increase or decrease the rate of or
to stop deductions from his or her Compensation by delivering to the Company an
amended Subscription Agreement authorizing such change on or before the "Change
Notice Date." The "CHANGE NOTICE DATE" shall be a date prior to the beginning of
the first pay period for which such election is to be effective as established
by the Company from time to time and announced to the Participants. A
Participant who elects to decrease the rate of his or her payroll deductions to
zero percent (0%) shall nevertheless remain a Participant in the current
Offering Period unless such Participant withdraws from the Plan as provided in
Section 12.1.
10.4 ADMINISTRATIVE SUSPENSION OF PAYROLL DEDUCTIONS. The
Company may, in its sole discretion, suspend a Participant's payroll deductions
under the Plan as the Company deems advisable to avoid accumulating payroll
deductions in excess of the amount that could reasonably be anticipated to
purchase the maximum number of shares of Stock permitted during a calendar year
under the limit set forth in Section 8.2. Payroll deductions shall be resumed at
the rate specified in the Participant's then effective Subscription Agreement at
the beginning of the next Purchase Period the Purchase Date of which falls in
the following calendar year.
10.5 PARTICIPANT ACCOUNTS. Individual bookkeeping accounts
shall be maintained for each Participant. All payroll deductions from a
Participant's Compensation shall be credited to such Participant's Plan account
and shall be deposited with the general funds of
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the Company. All payroll deductions received or held by the Company may be used
by the Company for any corporate purpose.
10.6 NO INTEREST PAID. Interest shall not be paid on sums
deducted from a Participant's Compensation pursuant to the Plan.
10.7 VOLUNTARY WITHDRAWAL FROM PLAN ACCOUNT. A Participant may
withdraw all or any portion of the payroll deductions credited to his or her
Plan account and not previously applied toward the purchase of Stock by
delivering to the Company a written notice on a form provided by the Company for
such purpose. A Participant who withdraws the entire remaining balance credited
to his or her Plan account shall be deemed to have withdrawn from the Plan in
accordance with Section 12.1. Amounts withdrawn shall be returned to the
Participant as soon as practicable after the withdrawal and may not be applied
to the purchase of shares in any Offering under the Plan. The Company may from
time to time establish or change limitations on the frequency of withdrawals
permitted under this Section, establish a minimum dollar amount that must be
retained in the Participant's Plan account, or terminate the withdrawal right
provided by this Section.
11. PURCHASE OF SHARES.
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date, each
Participant who has not withdrawn from the Plan and whose participation in the
Offering has not terminated before such Purchase Date shall automatically
acquire pursuant to the exercise of the Participant's Purchase Right the number
of whole shares of Stock determined by dividing (a) the total amount of the
Participant's payroll deductions accumulated in the Participant's Plan account
during the Purchase Period and not previously applied toward the purchase of
Stock by (b) the Purchase Price. No shares of Stock shall be purchased on a
Purchase Date on behalf of a Participant whose participation in the Offering or
the Plan has terminated before such Purchase Date.
11.2 PRO RATA ALLOCATION OF SHARES. In the event that the
number of shares of Stock which might be purchased by all Participants in the
Plan on a Purchase Date exceeds the number of shares of Stock available in the
Plan as provided in Section 4.1, the Company shall make a pro rata allocation of
the remaining shares in as uniform a manner as shall be practicable and as the
Company shall determine to be equitable. Any fractional share resulting from
such pro rata allocation to any Participant shall be disregarded.
11.3 DELIVERY OF CERTIFICATES. As soon as practicable after
each Purchase Date, the Company shall arrange the delivery to each Participant,
as appropriate, of a certificate representing the shares acquired by the
Participant on such Purchase Date; provided that the Company may deliver such
shares to a broker that holds such shares in street name for the benefit of the
Participant. Shares to be delivered to a Participant under the Plan shall be
registered in the name of the Participant, or, if requested by the Participant,
in the name of the Participant and his or her spouse, or, if applicable, in the
names of the heirs of the Participant.
11.4 RETURN OF CASH BALANCE. Any cash balance remaining in a
Participant's Plan account following any Purchase Date shall be refunded to the
Participant as soon as
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practicable after such Purchase Date. However, if the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
that would have been necessary to purchase an additional whole share of Stock on
such Purchase Date, the Company may retain such amount in the Participant's Plan
account to be applied toward the purchase of shares of Stock in the subsequent
Purchase Period or Offering Period, as the case may be.
11.5 TAX WITHHOLDING. At the time a Participant's Purchase
Right is exercised, in whole or in part, or at the time a Participant disposes
of some or all of the shares of Stock he or she acquires under the Plan, the
Participant shall make adequate provision for the foreign, federal, state and
local tax withholding obligations of the Participating Company Group, if any,
which arise upon exercise of the Purchase Right or upon such disposition of
shares, respectively. The Participating Company Group may, but shall not be
obligated to, withhold from the Participant's compensation the amount necessary
to meet such withholding obligations.
11.6 EXPIRATION OF PURCHASE RIGHT. Any portion of a
Participant's Purchase Right remaining unexercised after the end of the Offering
Period to which the Purchase Right relates shall expire immediately upon the end
of the Offering Period.
11.7 REPORTS TO PARTICIPANTS. Each Participant who has
exercised all or part of his or her Purchase Right shall receive, as soon as
practicable after the Purchase Date, a report of such Participant's Plan account
setting forth the total payroll deductions accumulated prior to such exercise,
the number of shares of Stock purchased, the Purchase Price for such shares, the
date of purchase and the cash balance, if any, remaining immediately after such
purchase that is to be refunded or retained in the Participant's Plan account
pursuant to Section 11.4. The report required by this Section may be delivered
in such form and by such means, including by electronic transmission, as the
Company may determine.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 VOLUNTARY WITHDRAWAL FROM THE PLAN. A Participant may
withdraw from the Plan by signing and delivering to the Company a written notice
of withdrawal on a form provided by the Company for such purpose. Such
withdrawal may be elected at any time prior to the end of an Offering Period;
provided, however, that if a Participant withdraws from the Plan after the
Purchase Date of a Purchase Period, the withdrawal shall not affect shares of
Stock acquired by the Participant on such Purchase Date. A Participant who
voluntarily withdraws from the Plan is prohibited from resuming participation in
the Plan in the same Offering from which he or she withdrew, but may participate
in any subsequent Offering by again satisfying the requirements of Sections 5
and 7.1. The Company may impose a requirement that the notice of withdrawal from
the Plan be on file with the Company for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
12.2 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's
voluntary withdrawal from the Plan pursuant to Section 12.1, the Participant's
accumulated payroll deductions which have not been applied toward the purchase
of shares of Stock shall be refunded to the Participant as soon as practicable
after the withdrawal, without the payment of any interest, and the Participant's
interest in the Plan or the Offering, as applicable, shall terminate.
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<PAGE> 11
Such accumulated payroll deductions to be refunded in accordance with this
Section may not be applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
Upon a Participant's ceasing, prior to a Purchase Date, to be
an Employee of the Participating Company Group for any reason, including
retirement, disability or death, or the failure of a Participant to remain an
Eligible Employee, the Participant's participation in the Plan shall terminate
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned pursuant
to this Section 13. A Participant whose participation has been so terminated may
again become eligible to participate in the Plan by again satisfying the
requirements of Sections 5 and 7.1.
14. CHANGE IN CONTROL.
14.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to
have occurred if any of the following occurs with respect to the Company: (i)
the direct or indirect sale or exchange in a single or series of related
transactions by the stockholders of the Company of more than fifty percent (50%)
of the voting stock of the Company; (ii) a merger or consolidation in which the
Company is a party; (iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or (iv) a liquidation or
dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership
Change Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
14.2 EFFECT OF CHANGE IN CONTROL ON PURCHASE RIGHTS. In the
event of a Change in Control, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"ACQUIRING CORPORATION"), may assume the Company's rights and obligations under
the Plan. If the Acquiring Corporation elects not to
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<PAGE> 12
assume the Company's rights and obligations under outstanding Purchase Rights,
the Purchase Date of the then current Purchase Period shall be accelerated to a
date before the date of the Change in Control specified by the Board, but the
number of shares of Stock subject to outstanding Purchase Rights shall not be
adjusted. All Purchase Rights which are neither assumed by the Acquiring
Corporation in connection with the Change in Control nor exercised as of the
date of the Change in Control shall terminate and cease to be outstanding
effective as of the date of the Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
A Purchase Right may not be transferred in any manner
otherwise than by will or the laws of descent and distribution and shall be
exercisable during the lifetime of the Participant only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to
compliance with all applicable requirements of federal, state and foreign law
with respect to such securities. A Purchase Right may not be exercised if the
issuance of shares upon such exercise would constitute a violation of any
applicable federal, state or foreign securities laws or other law or regulations
or the requirements of any securities exchange or market system upon which the
Stock may then be listed. In addition, no Purchase Right may be exercised unless
(a) a registration statement under the Securities Act of 1933, as amended, shall
at the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation, and to make any representation or warranty
with respect thereto as may be requested by the Company.
17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE.
A Participant shall have no rights as a stockholder by virtue
of the Participant's participation in the Plan until the date of the issuance of
a certificate for the shares purchased pursuant to the exercise of the
Participant's Purchase Right (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 4.2. Nothing herein shall confer upon a Participant any
right to continue in the employ of the Participating Company Group or interfere
in any way with any right of the Participating Company Group to terminate the
Participant's employment at any time.
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<PAGE> 13
18. LEGENDS.
The Company may at any time place legends or other identifying
symbols referencing any applicable federal, state or foreign securities law
restrictions or any provision convenient in the administration of the Plan on
some or all of the certificates representing shares of Stock issued under the
Plan. The Participant shall, at the request of the Company, promptly present to
the Company any and all certificates representing shares acquired pursuant to a
Purchase Right in the possession of the Participant in order to carry out the
provisions of this Section. Unless otherwise specified by the Company, legends
placed on such certificates may include but shall not be limited to the
following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED
UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY
NOMINEE)."
19. NOTIFICATION OF SALE OF SHARES.
The Company may require the Participant to give the Company
prompt notice of any disposition of shares acquired by exercise of a Purchase
Right within two (2) years from the date of granting such Purchase Right or one
(1) year from the date of exercise of such Purchase Right. The Company may
require that until such time as a Participant disposes of shares acquired upon
exercise of a Purchase Right, the Participant shall hold all such shares in the
Participant's name (or, if elected by the Participant, in the name of the
Participant and his or her spouse but not in the name of any nominee) until the
lapse of the time periods with respect to such Purchase Right referred to in the
preceding sentence. The Company may direct that the certificates evidencing
shares acquired by exercise of a Purchase Right refer to such requirement to
give prompt notice of disposition.
20. NOTICES.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION.
In addition to such other rights of indemnification as they
may have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection
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<PAGE> 14
with the defense of any action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan, or any
right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan, except
that (a) such termination shall not affect Purchase Rights previously granted
under the Plan, provided that the Board may terminate the Plan (and any Offering
thereunder) on any Purchase Date if the Board determines that such termination
is in the best interests of the Company and its stockholders except as permitted
under the Plan, and (b) no amendment may adversely affect a Purchase Right
previously granted under the Plan (except to the extent permitted by the Plan or
as may be necessary to qualify the Plan as an employee stock purchase plan
pursuant to Section 423 of the Code or to obtain qualification or registration
of the shares of Stock under applicable federal, state or foreign securities
laws). In addition, an amendment to the Plan must be approved by the
stockholders of the Company within twelve (12) months of the adoption of such
amendment if such amendment would authorize the sale of more shares than are
authorized for issuance under the Plan or would change the definition of the
corporations that may be designated by the Board as Participating Companies.
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<PAGE> 15
iMANAGE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NAME (Please print):____________________________________________________________
(Last) (First) (Middle)
ADDRESS: _______________________________________________________________________
MY SOCIAL SECURITY NUMBER: ____________________________________________________
[ ] Original Application for the Offering Period beginning_________, 199__.
[ ] Change in Payroll Deduction rate effective with the pay period ending
___________________, 199__.
I hereby elect to participate in the 1999 Employee Stock Purchase Plan
(the "PLAN") of iManage, Inc. (the "COMPANY") and subscribe to purchase shares
of the Company's Stock in accordance with this Subscription Agreement and the
Plan.
I hereby authorize payroll deductions in the amount of ________ percent
(in whole percentages not less than 1% or more than 15%) of my "Compensation" on
each payday throughout the "OFFERING PERIOD" in accordance with the Plan. I
understand that these payroll deductions will be accumulated for the purchase of
shares of Stock at the applicable purchase price determined in accordance with
the Plan. I understand that, except as otherwise provided by the Plan, I will
automatically purchase shares on each Purchase Date under the Plan unless I
withdraw from the Plan by giving written notice on a form provided by the
Company or unless my employment terminates.
I understand that I will automatically participate in each subsequent
Offering that commences immediately after the last day of an Offering in which I
am participating until I withdraw from the Plan by giving written notice on a
form provided by the Company or my employment terminates.
Shares I purchase under the Plan should be issued in the name(s) set
forth below. (Shares may be issued in the participant's name alone or together
with the participant's spouse as community property or in joint tenancy.)
NAME(S):_______________________________________________________________
[ ] In my name alone [ ] Community Property [ ] Joint Tenancy
I agree to make adequate provision for the federal, state, local and
foreign tax withholding obligations, if any, which may arise upon my purchase of
shares under the Plan and/or my disposition of such shares. The Company may, but
will not be obligated to, withhold from my compensation the amount necessary to
meet such withholding obligations.
I agree that while I hold shares acquired under the Plan, unless
otherwise permitted by the Company, I will hold such shares in the name(s)
entered above (and not in the name of any nominee). This restriction only
applies to the name(s) in which shares are held and does not affect my ability
to dispose of Plan shares.
THE TAX TREATMENT OF A DISPOSITION OF PLAN SHARES (INCLUDING A GIFT)
DEPENDS ON WHEN THE DISPOSITION OCCURS. I AGREE THAT I WILL NOTIFY THE CHIEF
FINANCIAL OFFICER OF THE COMPANY IN WRITING WITHIN 30 DAYS AFTER ANY DISPOSITION
OF PLAN SHARES THAT OCCURS WITHIN 2 YEARS AFTER THE ENTRY DATE OR 1 YEAR AFTER
THE PURCHASE DATE (A "DISQUALIFYING DISPOSITION"). I FURTHER AGREE THAT IF I DO
NOT RESPOND WITHIN 30 DAYS TO A COMPANY SURVEY DELIVERED TO ME REQUESTING
INFORMATION ABOUT A POSSIBLE DISQUALIFYING DISPOSITION, THE COMPANY MAY (1)
TREAT MY NONRESPONSE AS MY NOTICE TO THE COMPANY THAT A DISQUALIFYING
DISPOSITION OCCURRED, AND (2) REPORT THE ORDINARY INCOME I MUST RECOGNIZE AS A
RESULT OF THE DISQUALIFYING DISPOSITION TO THE INTERNAL REVENUE SERVICE.
I am familiar with the provisions of the Plan and agree to participate
in the Plan subject to all of its provisions. I understand that the Board of
Directors of the Company reserves the right to terminate the Plan or to amend
the Plan and my right to purchase stock under the Plan to the extent provided by
the Plan. I understand that the effectiveness of this Subscription Agreement is
dependent upon my eligibility to participate in the Plan.
Date: _______________________ Signature: ________________________________
<PAGE> 16
iMANAGE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
NAME (Please print):____________________________________________________________
(Last) (First) (Middle)
I hereby elect to withdraw from the Offering under iManage, Inc. 1999
Employee Stock Purchase Plan (the "PLAN") which began on
_________________________, 19____ and in which I am currently participating (the
"CURRENT OFFERING").
ELECT EITHER A OR B BELOW:
[ ] A. I elect to terminate immediately my participation in the
Current Offering and in the Plan.
I request that the Company cease all further payroll
deductions from my Compensation under the Plan (provided that
I have given sufficient notice prior to the next payday). I
request that all payroll deductions credited to my account
under the Plan (if any) not previously used to purchase shares
under the Plan shall not be used to purchase shares on the
next Purchase Date of the Current Offering. Instead, I request
that all such amounts be paid to me as soon as practicable. I
understand that this election immediately terminates my
interest in the Current Offering and in the Plan.
[ ] B. I elect to terminate my participation in the Current Offering
and in the Plan following my purchase of shares on next
Purchase Date of the Current Offering.
I request that the Company cease all further payroll
deductions from my Compensation under the Plan (provided that
I have given sufficient notice prior to the next payday). I
request that all payroll deductions credited to my account
under the Plan (if any) not previously used to purchase shares
under the Plan shall be used to purchase shares on the next
Purchase Date of the Current Offering to the extent permitted
by the Plan. I understand that this election will terminate my
interest in the Current Offering and in the Plan immediately
following such purchase. I request that any cash balance
remaining in my account under the Plan after my purchase of
shares be paid to me as soon as practicable.
I understand that by making this election I am terminating my interest
in the Plan and that no further payroll deductions will be made (provided that I
have given sufficient notice prior to the next payday) unless I elect in
accordance with the Plan to become a participant in another Offering under the
Plan by filing a new Subscription Agreement with the Company.
Date: ______________________________ Signature: _____________________________
<PAGE> 1
EXHIBIT 10.4
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> 2
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 Strictman
-------------------------------- --------------------------------
Title: CFO Title: AVP
---------------------------- -----------------------------
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<PAGE> 3
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.
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<PAGE> 4
"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.
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<PAGE> 5
"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.
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<PAGE> 6
"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;
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(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
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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;
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(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;
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(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
24
<PAGE> 27
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
25
<PAGE> 28
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.
26
<PAGE> 29
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.
27
<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
NETRIGHT TECHNOLOGIES, INC.
By
-----------------------------------
Title:
-------------------------------
By
-----------------------------------
Title:
-------------------------------
Address for Notices: 2121 South El Camino Real, Suite 400
San Mateo, CA 94403
Attention: Mark Culhane, CFO
SILICON VALLEY BANK
By
-----------------------------------
Title:
-------------------------------
Address for Notices: 3003 Tasman Drive
Santa Clara, CA 95054-1191
Attention: John China
28
<PAGE> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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> 37
DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANK. THIS
AUTHORIZATION IS DATED AS OF _____________, 19___.
BORROWER:
By:
-------------------------------------
Authorized Officer
2
<PAGE> 38
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> 39
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:
-------------------------------------
Authorized Officer
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
2
<PAGE> 40
This JUNE 1999 LOAN MODIFICATION AGREEMENT, dated as of June __, 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> 41
"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> 42
(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> 43
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> 44
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> 45
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 By
-------------------------------- --------------------------------------
Title: Title:
---------------------------- ----------------------------------
-6-
<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
<TABLE>
<CAPTION>
Page
<S> <C> <C>
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
</TABLE>
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.
<PAGE> 3
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):
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
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.
<PAGE> 4
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.
<PAGE> 5
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.
<PAGE> 6
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.
<PAGE> 7
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.
<PAGE> 8
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.
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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
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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
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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.
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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.
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(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
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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.
<PAGE> 26
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
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> 2
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> 3
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> 4
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> 5
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, a Delaware limited
liability company
By:
------------------------------------
Bruce Saber
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.
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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.
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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
-------------------------------
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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".
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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 schedules of
iManage, Inc., which appear 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
October 6, 1999
