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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
COMMISSION FILE NUMBER 0-28041
IMANAGE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-4043595
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2121 SOUTH EL CAMINO REAL, SUITE 400, SAN MATEO, CALIFORNIA 94403
(Address of principal executive offices, zip code)
(650) 356-1166
(Registrant's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE NASDAQ
(Title of Class) (Names of Each Exchange on which Registered)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held on March 6, 2000 by
non-affiliates of the registrant: $249,855,360.
Number of shares of Common Stock outstanding at March 6, 2000:
21,953,955.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statements for the 2000 Annual Meeting are
incorporated by reference into Part III hereof.
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IMANAGE, INC.
1999 ANNUAL REPORT ON FORM 10-K
Table of Contents
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PAGE
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PART I
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Consolidated Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 29
Signatures
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PART I
ITEM 1. BUSINESS
Certain statements contained in this Annual Report on Form 10-K,
including statements containing the words "believes," "anticipates,"
"estimates," "intends," "expects," and words of similar meaning, are
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995. Actual results could vary materially from those expressed in the
statements. Readers are referred to the "Sales and Marketing," "Customer
Service, Training and Support," "Research and Development," "Competition,"
"Intellectual Property," "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and "Factors That May Impact Future Results"
sections contained in this Annual Report on Form 10-K, which identify some of
the important factors or events that could cause actual results or performances
to differ materially from those contained in the forward-looking statements.
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 licenses have been sold to over 500 customers.
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 to iManage, Inc. During 1999, we formed
a subsidiary in the United Kingdom, iManage Limited. Our principal offices are
located at 2121 South El Camino Real, Suite 400, San Mateo, California 94403,
and our telephone number is (650) 356-1166.
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.
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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 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, we believe there is no comprehensive solution that
addresses the key aspects of content and collaboration management to enable more
effective information management, organization and delivery across the extended
enterprise.
SOLUTION
We provide e-business content and collaboration management software. Our
solution provides a web-based unified content platform that manages, organizes
and delivers relevant information from a variety of sources in a centralized
manner throughout the extended enterprise.
Our solution provides the following key benefits:
Comprehensive E-business Content and Collaboration Management. Our
iManage infoCommerce Server provides a comprehensive e-business content and
collaboration management solution that addresses key aspects of managing,
organizing and delivering information and content to the right person at the
right time throughout the extended enterprise. Our server provides users with a
centralized online location to access content, such as graphics, video, text,
audio and data. In addition to offering a robust underlying content management
infrastructure, our solution is designed to ensure effective content access,
delivery and notification based on relevance to particular projects, processes
and individuals. We believe our comprehensive solution enables our customers to
more effectively collaborate and exchange information over the web.
Highly Scalable, Reliable and Robust Platform. We believe our solution
features a highly scalable, reliable and robust platform. 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.
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. 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 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
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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 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
Canada, the United Kingdom and the United States. In 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 five years, provides a
comprehensive set of application modules that work in concert with each other
and the same underlying server. Our current product line consists of the iManage
infoCommerce Server and iManage infoLink, iManage infoLook and iManage infoRite
application modules.
The following table describes the major features and benefits of our
iManage suite of products.
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PRODUCT FEATURES BENEFITS
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iManage infoCommerce Application server Ensures server uptime by splitting server
Server failover processes across multiple servers so that if
Content and any one server fails, users are
collaboration server automatically routed to the next available
server.
Transaction processing Ensures all server transactions are
completed in full or the information is
restored to the previous state before
the transaction commenced.
Content indexing Allows users to use search
criteria to find specific information.
Roles-based security Protects content from unauthorized
access and allows users to be assigned
security privileges based on
their role in an
organization.
iManage infoLook Auto-notification Automatically alerts subscribers when new
Microsoft Outlook content has been contributed to a project
integration module folder.
Auto-publishing Automates the process of publishing content
to an intranet, extranet or Internet web site.
Link/URL routing Allows users to email links and uniform
resource locators, or URLs, to specific
server content instead of physically
transferring content by email, ensuring
system security, accountability and network
efficiency.
Rules-based processing Provides the ability to route to
specific project folders incoming
email, content and facsimiles
based on specific user defined rules.
iManage infoLink Security-based navigation Enables navigation through project folders
Web-portal module and review of content based on security
privileges.
User-definable search Allows content from multiple projects to be
folders dynamically grouped together using search
criteria.
Secured content Allows secure content contribution into
contribution iManage repositories securely over the
Internet.
iManage infoRite Content profiling and Adds context to content and enables users to
Content-authoring module history track usage of content and access history.
Integrated online Allows users to search the content of
research iManage repositories and online information
services.
Microsoft Office Provides access to iManage repositories and
integration the ability to submit content directly from
within Microsoft Word, Excel and PowerPoint
products.
Content relationship Enables information to be grouped so that
grouping users can track information that is relevant
to a project, process or individual.
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Our iManage infoCommerce Server provides the core functionality of our
content and collaboration management solution. Each of our application modules,
iManage infoLook, iManage infoLink and iManage infoRite, works in conjunction
with the iManage infoCommerce Server and with one another. Each of these modules
delivers additional functionality for different client configurations and
applications. An organization can elect to use any combination of iManage
infoLink, iManage infoLook and iManage infoRite with the iManage infoCommerce
Server as its needs dictate. Additionally, multiple organizations using iManage
infoLink with iManage infoCommerce Server enjoy the benefits of using an iManage
virtual private network upon which they can collaborate and share information.
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iManage infoLook integrates with Microsoft Outlook and enables users to
manage, organize and deliver e-business information, content and documents
through the familiar, easy-to-use Outlook environment. iManage infoLink is a
web-based user interface that provides full access to all iManage infoCommerce
Server content through a web browser. iManage infoRite is a dedicated
content-authoring interface that integrates with Microsoft Office publishing
tools, such as Excel, Word and PowerPoint and is designed for heavy publishing
uses. These application modules allow different users with different interfaces
to share and exchange information and content. The overall objective in the
design of each element of the iManage suite of products is to provide a
simplified mechanism to enable intra-business and business-to-business content
and collaboration management capabilities for organizations over their existing
email, intranet and Internet networks.
We also provide the following products:
iManage Notes Module. The iManage Notes Module enables users of the
Lotus Notes application environment to integrate their Notes content and email
correspondence directly into an iManage e-business Server repository.
iManage GroupWise Module. The iManage GroupWise Module enables users of
the Novell GroupWise application environment to integrate their GroupWise
content and email correspondence directly into an iManage e-business Server
repository.
iManage Software Development Kit, or SDK. iManage SDK is a software
development kit developed primarily for third-party developers who wish to
integrate their applications with iManage infoCommerce Server repositories.
Software integrators also use the iManage SDK to develop their own applications
based on the iManage suite of e-business content and collaboration management
products.
Our products are licensed to customers on a per server and a per user
basis. We do not license our products on a concurrent user basis, nor are they
currently available on a rental or service basis. However, during the fourth
quarter, we implemented a subscription licensing model for a newly released
product whereby the customer licenses the product for one year to 18 month
subscription periods and we are reviewing the model for possible adoption in
future product offerings.
SALES AND MARKETING
We sell our software products through our direct sales force and a
network of strategic partners and systems integrators. 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, professional services, and marketing staff and
devote substantial resources to our sales and marketing activities.
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We have licensed our products to over 500 customers. To date, we have
focused our sales and marketing resources primarily on law firms. We derived
84.0%, 89.0% and 93.3% of our total revenues for the years ended December 31,
1997, 1998 and 1999, respectively, from the sale of licenses to law firms and
professional service firms. There were no customers that accounted for more than
10% of our total revenues for 1997, 1998 or 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.
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.
We believe that our product development team and core technologies
represent a significant competitive advantage. Our product development team
includes key members of other past research and development organizations that
have developed scalable, reliable, critical online applications. We believe our
technically skilled, quality-oriented and highly productive development
organization is a key component of the success of our new product offerings. We
must attract and retain highly qualified employees to further our product
development efforts. Our business and operating results could be seriously
harmed if we are not able to hire and retain a sufficient number of these
individuals.
Our research and development expenditures were approximately $935,000
for 1997, $2.4 million for 1998 and $4.2 million for 1999. All research and
development expenditures have been expensed as incurred. We expect to continue
to devote substantial resources to our research and development activities.
COMPETITION
We have experienced and expect to continue to experience increased
competition from current and potential competitors. Many of these companies have
greater name recognition, longer operating histories, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than we have. We expect to face competition
from these and other competitors, including:
- companies addressing segments of our market including Agile
Software Corp., BackWeb Technologies Ltd., Documentum, Inc.,
Hummingbird Communications Ltd., Marimba, Inc., Niku
Corporation, Open Text Corporation and Tumbleweed Communications
Corp.;
- 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
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vendors and enterprise information portal companies. If any of our competitors
were to become the industry standard or were to enter into or expand
relationships with significantly larger companies through mergers, acquisitions
or other similar transactions, our business could be seriously harmed. In
addition, potential competitors may bundle their products or incorporate
functionality into existing products in a manner that discourages users from
purchasing our products.
We believe that the principal competitive factors in the e-business
content and collaboration management market are:
- product performance, features, functionality and reliability;
- price/performance characteristics;
- timeliness of new product introductions;
- adoption of emerging industry standards;
- brand name; and
- access to customers.
We believe we compete favorably with our competitors on each of the
above factors. However, because many of our existing and potential competitors
have greater name recognition, longer operating histories, larger customer bases
and significantly greater financial, technical, marketing, public relations,
sales, distribution and other resources, they may have stronger brand names and
access to more customers than we do. These competitors may be able to undertake
more extensive marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to distribution partners than we can. To remain
competitive, we believe we must invest significant resources in enhancing our
current products and developing new ones, and maintain customer satisfaction. If
we fail to do so, our products will not compete favorably with those of our
competitors and our business will be significantly harmed.
We expect that competition will continue to increase and that our
primary competitors may not have entered the market yet. Increased competition
could result in price reductions, fewer customer orders, reduced gross margin
and loss of market share, any of which could cause our operating results to
suffer.
INTELLECTUAL PROPERTY
We believe that our success and ability to compete is dependent on our
ability to develop and protect our technology. To protect our proprietary
technology, we rely primarily on patent, trademark, service mark, trade secret
and copyright laws and contractual restrictions.
Most of our customers' use of our software is governed by shrink-wrap or
signed written license agreements. We also enter into written agreements with
each of our channel partners for the distribution of our products. In addition,
we seek to avoid disclosure of our trade secrets by requiring each of our
employees and others with access to our proprietary information to execute
confidentiality agreements with us. We protect our software, documentation and
other written materials under trade secret and copyright laws, which afford only
limited protection.
We currently have one U.S. patent issued, we have applied for two other
U.S. patents and we have one pending foreign patent application. It is possible
that no patents will be issued from our currently pending patent applications
and that our potential future patents may be found invalid or unenforceable, or
may be successfully challenged. It is also possible that any patent issued to us
may not provide us with any competitive advantages or that we may not develop
future proprietary products or technologies that are patentable. Additionally,
we have not performed any comprehensive analysis of patents of others that may
limit our ability to do business.
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Despite our efforts to protect our proprietary rights, we may be unable
to prevent others from infringing upon or misappropriating our intellectual
property. Any steps we take to protect our intellectual property may be
inadequate, time consuming and expensive. In addition, the laws of some foreign
countries do not protect our proprietary rights to as great an extent as the
laws of the United States.
Substantial litigation regarding intellectual property rights exists in
the software industry. To date, we have not been notified that our technologies
infringe the proprietary rights of anyone. We cannot assure you that others will
not claim that we have infringed proprietary rights relating to past, current or
future technologies. We expect that we could become subject to intellectual
property infringement claims as the number of our competitors grows and our
services overlap with competitive offerings. These claims, even if without
merit, could be expensive, time-consuming to defend, divert management's
attention from the operation of iManage and cause product shipment delays. If we
become liable for infringing intellectual property rights, we would be required
to pay a substantial damage award and to develop non-infringing technology,
obtain a license or cease selling the products that contain the infringing
intellectual property. We may be unable to develop non-infringing technology or
obtain a license on commercially reasonable terms, if at all.
We license indexing and searching technologies from third parties. We
cannot assure you that these technology licenses will not infringe the
proprietary rights of others or will continue to be available to us on
commercially reasonable terms, if at all. We license Search '97 from Verity,
Inc. for search functionality in the iManage infoCommerce Server. This agreement
expires in January 2003 and is renewable with the written agreement of the
parties. Either party may terminate the agreement for cause before the
expiration date with 90 days written notice. In addition, we license Outside In
Viewer Technology and Outside In HTML Export from INSO Corporation for file
viewing functionality in our solution. This agreement expires in December 2001
and is renewable with the written consent of the parties. Either party may
terminate the agreement for cause before the expiration date. If we cannot renew
these licenses, shipments of our products could be delayed until equivalent
software could be developed or licensed and integrated into our products. These
types of delays could seriously harm our business.
EMPLOYEES
As of December 31, 1999, we had 119 full-time employees. Of these
employees, 33 were in product development, 47 in sales, marketing and business
development, 22 in customer support and training and 17 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.
ITEM 2. PROPERTIES
Our principal offices are located in a leased facility in San Mateo,
California and consists of approximately 24,000 square feet under leases that
expire from 2001 to 2003. Our engineering and customer support personnel and our
training facility are located in a leased facility in Chicago, Illinois. This
facility consists of approximately 22,000 square feet and our lease is
non-cancelable through 2004 and expires in 2009. 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.
ITEM 3. LEGAL PROCEEDINGS
We are not presently involved in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the
symbol "IMAN." Our initial public offering of stock was November 17, 1999 at
$11.00 per share for an aggregate initial public offering of $45.5 million. The
price range per share from November 17, 1999 through December 31, 1999 was
$40.06 at the highest and $20.00 at the lowest sale price for our stock as
reported by the Nasdaq National Market. Our present policy is to retain
earnings, if any, to finance future growth. We have never paid cash dividends
and have no present intention to pay cash dividends. On March 6, 2000, there
were approximately 4,218 stockholders of record.
The managing underwriters in our initial public offering were Robertson
Stephens International, U.S. Bancorp Piper Jaffray and C.E. Unterberg, Towbin.
We registered the shares of the common stock sold in the offering under the
Securities Act of 1933, as amended, on a registration statement on Form S-1 (No.
333-86353). The Securities and Exchange Commission declared the registration
statement effective on November 17, 1999.
We paid a total of $3.2 million in underwriting discounts and
commissions and approximately $1.1 million has been or will be paid for costs
and expenses related to the offering. None of the costs and expenses related to
the offering were paid directly or indirectly to any of our directors, officers,
general partners or their associates, persons owing 10% or more of any class of
our equity securities or any of our affiliates.
After deducting the underwriting discounts and commissions and the
offering expenses, we received net proceeds from the offering of approximately
$41.2 million. The net offering proceeds have been used for general corporate
purposes, to provide working capital to develop products and to expand our
operations. Funds that have not been used have been invested in money market
funds, certificate of deposits and other investment grade securities. We also
may use a portion of the net proceeds to acquire or invest in businesses,
technologies, products or services.
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<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 10, 1995 YEARS ENDED DECEMBER 31,
(INCEPTION) TO -----------------------------------------------------
DECEMBER 31, 1995 1996 1997 1998 1999
----------------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Total revenues ........................................... $ -- $ 74 $ 1,530 $ 7,741 $ 18,570
Loss from operations ..................................... (64) (688) (3,609) (2,979) (3,461)
Net loss ................................................. (64) (692) (3,596) (2,840) (2,775)
Net loss per share -- basic and diluted ................. $ (0.01) $ (0.12) $ (0.57) $ (0.38) $ (0.28)
Shares used in net loss per share -- basic and diluted ... 6,000 6,004 6,292 7,455 9,988
Total assets ............................................. $ 44 $ 511 $ 3,260 $ 13,495 $ 63,921
Long-term obligations .................................... $ -- $ -- $ -- $ -- $ 1,388
</TABLE>
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<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Financial
Data" and our consolidated financial statements and related notes appearing
elsewhere in this report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. The actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors, such as those set forth under "Factors That May
Impact Future Results" and the risks discussed in our other SEC filings,
including our registration statement on Form S-1 declared effective November 17,
1999 by the SEC (File No. 333-86353).
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 500 customers for
use by over 100,000 end users.
We were incorporated in October 1995 and commenced operations shortly
after that time. During the period October 1995 through September 1996 we were a
development stage company and had no revenues. Our operating activities during
this period related primarily to developing our product, building our corporate
infrastructure and raising capital. In October 1996, we released the first
version of our iManage infoCommerce Server and iManage infoRite, and sold them
through a small sales force and support staff. In June 1997, we enhanced our
iManage suite of products and shipped iManage infoLink. In March 1998, we
released an enhanced version of iManage infoCommerce Server. We began shipping
our iManage infoLook in August 1999.
Through December 31, 1999, substantially all of our total revenues were
derived from licenses of the iManage infoCommerce Server, iManage infoRite and
iManage infoLink and related services. We currently expect that substantially
all of our total revenues will continue to be derived from our iManage
infoCommerce Server, iManage infoRite and iManage infoLink product lines and
related services. Our license revenues are based on the number of users and
servers. Support and services revenues consist of customer support, training and
consulting. Customers who license our products generally purchase support
contracts, which are billed on a subscription basis typically covering a
12-month period. Training services are billed on a per student or per class
session basis and consulting is customarily billed at a fixed daily rate plus
our out-of-pocket expenses.
We market our software and services primarily through our direct sales
organization, resellers and system integrators in Canada, the United Kingdom and
the United States, and through distributors in Australia and New Zealand.
Revenues from iManage infoCommerce Server, iManage infoRite and iManage infoLink
licenses and services to customers outside the United States and Canada have
been insignificant to date.
Through 1997, we recognized revenues based on the American Institute of
Certified Public Accountants Statement of Position 91-1. Commencing in 1998, we
began recognizing revenues based on the American Institute of Certified Public
Accountants Statement of Position 97-2, Software Revenue Recognition, or SOP
97-2, as amended by Statement of Position 98-4. Further implementation
guidelines relating to these standards may result in unanticipated changes in
our revenue recognition practices, and these changes could affect our future
revenues and earnings.
We recognize license revenues upon shipment of a product master if a
signed contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns can be reasonably
estimated and if applicable, acceptance criteria have been met. During the
fourth quarter of 1999, we implemented a subscription licensing model for a
newly released product whereby the customer licenses the product for one year to
18 month subscription periods under an arrangement that includes customer
support and software updates during the term of the license. Revenues
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<PAGE> 14
associated with this software product and related services are recognized
ratably over the applicable license period. Provisions for estimated warranty
costs and sale returns are recorded at the time of shipment.
For contracts with multiple obligations, for example, deliverable and
undeliverable products, support and other service, we allocate revenues to the
undelivered element of the contract based on objective evidence of its fair
value. This objective evidence is the sales price of the element when sold
separately by us or the renewal rate specified in the arrangement for licensing
arrangements with terms of one year to 18 months that include customer support
and software updates. 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, professional services 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 $10.4 million through December 31, 1999, of which approximately
$4.0 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 in
1997, $1.1 million in 1998 and $3.6 million in 1999, which includes stock-based
compensation expense amounts for services provided before the grant date of the
options. Future compensation expense from options granted through December 31,
1999 is estimated to be approximately $2.5 million for 2000, $1.0 million for
2001, $399,000 for 2002 and $57,000 for 2003.
We anticipate that our operating expenses will increase substantially as
we intend to continue to incur significant research and development costs and
invest heavily in the expansion of our sales, marketing and support
organizations to build an infrastructure to support our long-term growth
strategy. The number of our full-time employees increased from 59 as of December
31, 1998 to 119 as of December 31, 1999. We will seek to hire additional
employees in the future. As a result of investments relating to the expansion of
our business, we have incurred net losses in each quarter since inception and,
as of December 31, 1999, had an accumulated deficit of $10.0 million. To achieve
profitability, we will have to increase our total revenues significantly. We
cannot assure
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<PAGE> 15
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.
REVENUES
<TABLE>
<CAPTION>
% CHANGE
1997 1998 1999 97/98 98/99
------- ------- ------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
License $ 1,172 $ 6,509 $14,257 455.4% 119.0%
Support and services 358 1,232 4,313 244.1% 250.1%
------- ------- -------
Total revenues $ 1,530 $ 7,741 $18,570 405.9% 139.9%
======= ======= =======
</TABLE>
Sources of revenue as a percent of total revenue
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
License 76.6% 84.1% 76.8%
Support and services 23.4% 15.9% 23.2%
</TABLE>
License Revenues. Our license revenues increased $5.3 million, or
455.4%, from 1997 to 1998, and $7.7 million, or 119.0%, from 1998 to 1999. The
increase in our license revenues from 1997 to 1998 and from 1998 to 1999 was
primarily due to increased market acceptance of iManage infoCommerce Server,
iManage infoRite and iManage infoLink and increased prices for these products
for the period from 1997 to 1999.
Support and Services Revenues. Our support and services revenues
increased $874,000, or 244.1%, from 1997 to 1998, and $3.1 million, or 250.1%,
from 1998 to 1999. Support and services revenues consisted primarily of customer
support and, to a lesser extent, training and consulting services, associated
with the increasing license revenues during these periods. The increase in
absolute dollars in support and services revenues for the above periods reflects
the increasing customer installation base of our iManage infoCommerce Server,
iManage infoRite and iManage infoLink.
COST OF REVENUES
<TABLE>
<CAPTION>
% CHANGE
1997 1998 1999 97/98 98/99
---- ----- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
License $136 $ 414 $ 773 204.4% 86.7%
Support and services 163 1,213 2,732 644.2% 125.2%
</TABLE>
Cost of revenues as a percent of related revenue
<TABLE>
<CAPTION>
1997 1998 1999
---- ----- --------
<S> <C> <C> <C>
License 11.6% 6.4% 5.4%
Support and services 45.5% 98.5% 63.3%
</TABLE>
Cost of License Revenues. Cost of license revenues increased $278,000,
or 204.4%, from 1997 to 1998, and $359,000, or 86.7%, from 1998 to 1999. The
increase in 1997 to 1998 was a result of increased royalties to third parties
for technology integrated into our iManage infoCommerce Server in the fourth
quarter of 1997 and the first quarter of 1998. The increase from 1998 to 1999
was primarily the result of increased costs of media associated with the
increasing license revenues during this period.
Cost of Support and Services Revenues. Cost of support and services
revenues increased $1.0 million, or 644.2%, from 1997 to 1998 and $1.5
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<PAGE> 16
million, or 125.2%, from 1998 to 1999. The increases from 1997 to 1998 resulted
primarily from an increase of $689,000 in personnel-related expenses from
increases in technical support and training personnel and an increase of
$213,000 in increased travel-related costs to manage and support our growing
customer base. The increases from 1998 to 1999 were primarily the result of an
increase of $742,000 in personnel-related expenses from increases in technical
support, professional services personnel and training personnel and an increase
of $538,000 in facilities-related expenses.
OPERATING EXPENSES
<TABLE>
<CAPTION>
% CHANGE
1997 1998 1999 97/98 98/99
------ ------ -------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales and marketing $1,120 $4,393 $ 8,530 292.2% 94.2%
Research and development 935 2,351 4,180 151.4% 77.8%
General and administrative 706 1,295 2,227 83.4% 72.0%
Net interest income 13 139 718 969.2% 416.5%
Provision for income taxes -- -- 32 -- --
</TABLE>
Operating expenses as a percent of total revenue
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ --------
<S> <C> <C> <C>
Sales and marketing 73.2% 56.7% 45.9%
Research and development 61.1% 30.4% 22.5%
General and administrative 46.1% 16.7% 12.0%
Net interest income 0.8% 1.8% 3.9%
Provision for income taxes -- -- 0.2%
</TABLE>
Sales and Marketing. Sales and marketing expenses increased $3.3 million
from 1997 to 1998 and $4.1 million from 1998 to 1999. The increases from 1997
through 1999 primarily reflected investments in our sales and marketing
infrastructure, which included an increase of $2.3 million in 1998 and an
increase of $2.2 million in 1999 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 nine as of
December 31, 1997, 23 as of December 31, 1998 and 47 as of December 31, 1999,
representing increases of 155.6% from 1997 to 1998 and 104.3% from 1998 to 1999.
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. The increase in sales and marketing
expenses from 1998 to 1999 reflected an increase of $483,000 in travel and
entertainment expenses, $475,000 in facilities related expenses, $434,000 in
professional services costs, and an increase of $238,000 in public relations and
trade show expenses. The decreases in sales and marketing expenses as a
percentage of total revenues from 1997 through 1999 results from 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 increased
$1.4 million from 1997 to 1998 and $1.8 million from 1998 to 1999. The increases
from 1997 through 1999 were primarily related to increased personnel costs
resulting from the increase in the wage rates, benefits and the number of
software developers and quality assurance personnel and third-party consultants
to support our product development and testing activities related to the
development of iManage infoRite, iManage infoLink and iManage infoLook, as well
as enhancements to iManage infoCommerce Server. Our research and development
employees totaled 12 as of December 31, 1997, 16 as of December 31, 1998 and 33
as of December 31, 1999, representing increases of 33.3% from 1997 to 1998 and
106.3% from 1998 to 1999. The increase from 1998 to 1999 is also due to
increased facility costs. The decreases in research and development expenses as
a percentage of total revenues from 1997 through 1999 results from increases in
our total revenues.
General and Administrative. General and administrative expenses
increased $589,000 from 1997 to 1998 and $932,000 from 1998 to 1999. The
increases from 1997 through 1999 were primarily the result of increased
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<PAGE> 17
personnel costs of $339,000 in 1998 and $450,000 in 1999 resulting from
additional finance, executive and administrative personnel and increases of
$245,000 in 1998 in professional service costs, primarily accounting and legal,
to support the growth of our business during these periods. The increase from
1998 to 1999 is also due to increased facility costs.
Net Interest Income. Net interest income increased $126,000 from 1997 to
1998 and $579,000 from 1998 to 1999. The increases from 1997 through 1999 were
primarily related to higher invested cash balances as a result of proceeds
received from the issuance of our series A, B and C preferred stock and our
initial public offering in the fourth quarter of 1999, offset by interest
expense from our equipment line of credit.
Provision for Income Taxes. Income taxes are accounted for in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and assets are determined based on the temporary difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. Income tax expense is the tax
payable and the change during the period in deferred tax assets and liabilities.
LIQUIDITY AND CAPITAL RESOURCES
In November 1999, we completed the initial public offering of our common
stock and realized net proceeds from the offering of approximately $41.2
million. Prior to the offering, we had funded our operations primarily through
sales of convertible preferred stock, resulting in net proceeds of $10.9 million
through September 30, 1999. To a lesser extent, we have financed our operations
through lending arrangements. As of December 31, 1999, we had cash, cash
equivalents and short-term investments of $51.0 million and approximately $3.6
million of available borrowings under a line of credit.
Net cash used in operating activities was $1.8 million in 1997 and
$622,000 in 1998; $5.9 million was provided by operating activities in 1999. For
the 1997, 1998 and 1999 periods, cash used by operating activities was primarily
a result of funding ongoing operations. Cash provided by operations in 1997,
1998 and 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.
For the last 3 years, our investing activities have consisted of
purchases of property and equipment and, in 1999, the purchase of short-term and
long-term investments. Net cash used in investing activities totaled $192,000 in
1997, $431,000 in 1998 and $8.3 million in 1999. We finance the acquisition of
property and equipment primarily through a line of credit. Our property and
equipment largely consists of computer hardware and software and furniture and
fixtures for our increasing employee base as well as for our management
information systems. We anticipate that we will experience an increase in our
capital expenditures consistent with our anticipated growth in operations,
infrastructure and personnel.
Our financing activities provided $3.4 million in 1997, $6.9 million in
1998 and $42.7 million in 1999. 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 1999, cash provided by
financing activities consisted primarily of $41.2 million generated from our
initial public offering.
As of December 31, 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 December 31, 1999, we could have borrowed approximately $3.6 million but
had not borrowed any amount as of that date. In addition, as of December 31,
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 December 31,
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<PAGE> 18
1999, we had borrowed the full $2.0 million under the equipment line of credit.
Both lines of credit include covenant restrictions requiring us to:
(a) maintain a monthly quick assets to current liabilities ratio of at
least two to one;
(b) maintain a minimum profitability level requiring that we not incur
a net loss, as defined, in all quarters of a fiscal year, except we are
permitted to incur a loss of $150,000 in one quarter per fiscal year, and
(c) limit our ability to declare and pay dividends.
The net loss is determined based upon our operating results, excluding
charges for software development and non-cash charges for amortization of
stock-based compensation. We were in compliance with these covenants at December
31, 1999.
We currently anticipate that the net proceeds of our initial public
offering, together with our existing lines of credit and available funds, will
be sufficient to meet our anticipated needs for working capital and capital
expenditures at least through the next 12 to 24 months. However, we may be
required, or could elect, to seek additional funding before that time. Our
future capital requirements will depend on many factors, including our future
revenue, the timing and extent of spending to support product development
efforts and expansion of sales, general and administrative activities, the
timing of introductions of new products and market acceptance of our products.
We cannot assure you that additional equity or debt financing, if required, will
be available on acceptable terms or at all.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
unable to distinguish between twentieth century dates and twenty-first century
dates because the systems were developed using two digits rather than four to
determine the applicable year. For example, computer programs that have
date-sensitive software may recognize a date using 00 as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. As a result, many companies' software and computer systems
may need to be upgraded or replaced to comply with these year 2000 requirements.
To date, we have had no issues relating to our products due to year 2000
compliance issues. We have not encountered any material year 2000 problems with
our internal management information or computer systems or any other equipment
that might be subject to these problems.
To date, the total cost of year 2000 problems has not been material to
our business.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
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 (a) 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, (b) VSOE of fair value does not exist for one
or more of the delivered elements and (c) 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 98-9 that extend the
deferral of various paragraphs of SOP 97-2 became effective December 15, 1998.
These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Retroactive application is prohibited. We currently anticipate that there will
be no significant impact on our financial position or results of operations for
the implementation of the requirements of SOP 98-9.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, or SFAS 133, Accounting for
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<PAGE> 19
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 currently anticipate that there will be no significant impact on our
financial position or results of operations for the implementation of the
requirements of SFAS No. 133 and SFAS No. 137.
In November 1999, the SEC issued Staff Accounting Bulletin 100, or SAB
100, which clarifies the SEC's views on accounting for and disclosing certain
expenses incurred in connection with exit activities and business combinations.
In December 1999, SAB 101 was issued which summarizes the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We do not expect SAB 100 to have a material effect on our
financial position, results of operation, or cash flow. We are currently
evaluating the impact SAB 101 will have on our financial position and results of
operations.
FACTORS THAT MAY IMPACT FUTURE RESULTS
Our limited operating history may prevent us from achieving success in
our business.
We were founded in October 1995 and began shipping our first product in
October 1996. Because of our limited operating results, we have limited insight
into trends that may emerge and affect our business. As a result, an evaluation
of our prospects is difficult to make. The potential revenues and income of our
business and many of the markets we intend to target are unproven.
We face significant risks because of our limited operating history,
including:
- we have a limited number of product offerings and will need to
successfully introduce new products and enhance our existing
offering, with, for example, an enhanced version of iManage
infoLink, which we released in the fourth quarter of 1999 and an
enhanced version of iManage infoCommerce Server, which we
released in the first quarter of 2000;
- we need to sell additional licenses and software products to our
existing customers and expand our customer base beyond legal and
other professional service firms; and
- we need to expand our sales and marketing and customer support
organization to focus on a broad range of markets and build
strategic relationships with information technology consultants,
systems integrators and unified messaging original equipment
manufacturers to increase sales.
If we do not successfully address any of these and other challenges, our
business and operating results will be seriously harmed.
We have an accumulated deficit of approximately $10.0 million as of
December 31, 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. To increase our revenues, we must incur
significant expenses to increase our research and development, sales and
marketing and general and administrative resources. If our revenues do not grow
to offset these increased expenses, we will not be profitable. We may not be
able to sustain our recent revenue growth rates. In fact, we may not have any
revenue growth, and our revenues could decline.
Our quarterly operating results are volatile and difficult to predict.
If we fail to meet the expectations of public
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<PAGE> 20
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; 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.
Also, the adoption of our subscription licensing model, which requires
the recognition of license revenue over the term of the agreement, may result in
lower quarterly revenues in the period when the products were sold when compared
to quarters in which subscription licenses were not sold.
Furthermore, our expense levels are relatively fixed and are based, in
part, on expectations of future revenues. Therefore, if revenue levels fall
below our expectations, our net loss will increase because only a small portion
of our expenses vary with our revenues.
Our revenues will decline significantly if the market does not continue
to accept our iManage suite of products.
In 1998 and 1999, we derived substantially all of our license revenues
from the sale of licenses for our iManage infoCommerce Server, iManage infoRite
and iManage infoLink products. We currently expect to continue to derive a
majority of our license revenues from these products. If the market does not
continue to accept these products, our revenues will decline significantly and
this could negatively affect our operating results. Factors that may affect the
market acceptance of these products include the performance, price and total
cost of ownership of our products and the availability, functionality and price
of competing products and technologies. Many of these factors are beyond our
control.
We have always been heavily dependent upon law firm customers. If we do
not expand sales of our products to other customers, we may not be able to grow
our revenues consistent with past growth rates and our operating results will
suffer.
We derived 89.0% and 93.3% of our total revenues in 1998 and 1999,
respectively, from the sale of licenses to law firms and professional service
firms. Our future success is substantially dependent on our ability to sell a
significant number of licenses to customers in other businesses, particularly
large multi-national corporations. To sell a significant number of licenses to
these businesses, we must devote time and resources to train our sales employees
to work in industries outside law firms and professional service firms. We may
not be successful in our efforts. Unlike law firms and professional service
organizations, customers in other industries, including large multi-national
corporations, may not require or perceive the value of our content and
collaboration management solution. If we cannot license our products to
customers in other industries, our business could be significantly adversely
affected.
We may be unable to penetrate additional markets and grow our revenues
if we do not successfully obtain leads or referrals from our customers.
To increase sales of our e-business content and collaboration management
solution and grow our total revenues, we will try to obtain leads or referrals
from our current customers. If we are unable to maintain these existing customer
relationships, or fail to establish additional relationships, we will have to
devote substantially more
20
<PAGE> 21
resources, both financial and personnel, to the sales and marketing of our
products. As a result, our success depends in part on the ultimate success of
these current relationships and the willingness of our customers to provide us
with these introductions, referrals and leads. Our current customer
relationships do not, and any future relationships we establish may not, afford
us any exclusive marketing or distribution rights. In addition, at any time, our
customers may terminate their relationships with us, pursue other relationships
with our competitors or develop or acquire products that compete with our
products. Even if our customers provide us with leads and introductions, we may
not penetrate additional markets or grow our revenues.
If the emerging market for e-business content and collaboration
management software does not develop as quickly as we expect, our business will
suffer.
The market for e-business content and collaboration management software
has only recently begun to develop, is rapidly evolving and will likely have an
increasing number of competitors. We cannot be certain that a viable market for
our products will emerge or be sustainable. If the e-business content and
collaboration management market fails to develop, or develops more slowly than
expected, demand for our products will be less than anticipated and our business
and operating results would be seriously harmed.
Furthermore, to be successful in this emerging market, we must be able
to differentiate our business from our competitors through our product and
service offerings and brand name recognition. We may not be successful in
differentiating our business or achieving widespread market acceptance of our
products and services. In addition, enterprises that have already invested
substantial resources in other methods of managing their content and
collaborative process may be reluctant or slow to adopt a new approach that may
replace, limit or compete with their existing systems.
Due to our lengthy and variable sales cycle, we may not be able to
predict when or if sales will be made and we may experience unplanned shortfalls
in revenues.
Our products have an unpredictable sales cycle that contributes to the
uncertainty of our future operating results. Customers often view the purchase
of our products as a significant and strategic decision, and this decision
typically involves a considerable commitment of resources and is influenced by
the customers' budget cycles. Selling our products also requires us to educate
potential customers on their use and benefits because our e-business content and
collaboration management software is a new category of product. As a result, our
products have a lengthy sales cycle, which has historically ranged from
approximately two to six months.
As potential customers evaluate our products and before they place an
order with us, we typically expend significant sales and marketing expenses.
Larger customers may purchase our products as part of multiple, simultaneous
purchasing decisions, which may result in additional unplanned administrative
processing and other delays in our product sales. If sales forecasted from a
specific customer for a particular quarter are not realized, we may experience
unplanned shortfalls in revenues. As a result, we have only a limited ability to
forecast the timing and size of sales of our products.
Competition from providers of software enabling content and
collaboration management among businesses may increase, which could cause us to
reduce our prices, and result in reduced gross margins or loss of market share.
The market for products that enable companies to manage and share
content and collaborate throughout an extended enterprise is new, highly
fragmented, rapidly changing and increasingly competitive. We expect competition
to continue to intensify, which could result in price reductions for our
products, reduced gross margins and loss of market share, any of which would
have a material adverse effect on our business and financial condition.
If our efforts to enhance existing products and introduce new products
are not successful, we may not be able to generate demand for our products.
Our future success depends on our ability to provide a comprehensive
e-business content and collaboration
21
<PAGE> 22
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. If the market does not accept new products, our
business will suffer and our stock price will likely fall.
In addition, while our current product offerings have the ability to
manage many types of content, such as graphics, video, text, audio and data, we
are dependent upon third parties to develop additional interfaces that will
enable the deposit of other types of structured relational data, particularly
data generated by enterprise resource planning systems, into the iManage
infoCommerce Server. These third parties may not be able to develop these
technologies, and we may therefore not be able to continue to offer a
comprehensive e-business content and collaboration management solution. Our
failure to offer a comprehensive solution would seriously harm our business.
If our products cannot scale to meet the demands of thousands of
concurrent users, our targeted customers may not license our solutions, which
will cause our revenue to decline.
Our strategy is to target large organizations that, because of the
significant amounts of information and content that they generate and use,
require our e-business content and collaboration management solution. For this
strategy to succeed, our software products must be highly scalable; that is,
they must be able to accommodate thousands of concurrent users. If our products
cannot scale to accommodate a large number of concurrent users, our target
markets will not accept our products and our business and operating results will
suffer.
While we and independent test laboratories have tested the scalability
of our products in simulations, we have not had the opportunity to observe the
performance of our products in the context of an actual large-scale, that is,
tens to hundreds of thousands of concurrent users, customer implementation. If
our customers cannot successfully implement large-scale deployments, or if they
determine that our products cannot accommodate large-scale deployments, our
customers will not license our solutions and this will materially adversely
affect our financial condition and operating results.
Our products might not be compatible with all major platforms, which
could inhibit sales and harm our business.
We must continually modify and enhance our products to keep pace with
changes in computer hardware and software and database technology, as well as
emerging technical standards in the software industry. For example, we have
designed our products to work with databases and servers such as Informix,
Oracle and SQL Server and software applications including Microsoft Office,
Lotus Notes and Novell GroupWise. Any changes to these platforms could require
us to modify our products and could cause us to delay releasing a product until
the updated version of that platform or application has been released. As a
result, customers could delay purchases until they determine how our products
will operate with these updated platforms or applications.
In addition, our iManage infoCommerce Server runs on the Windows NT
platform. If a customer does not currently use the Windows NT platform and does
not choose to adopt this platform, we will be unable to license our products to
this customer. Furthermore, some of our products do not run on other popular
operating systems, such as the UNIX operating system. If another platform
becomes more widely used, we could be required to convert our product to that
platform. We may not succeed in these efforts, and even if we do, potential
customers may not choose to license our product.
Defects in our software products could diminish demand for our products.
Our software products are complex and may contain errors that may be
detected at any point in the life of the product. We cannot assure you that,
despite testing by us, our implementation partners and our current and potential
customers, errors will not be found in new products or releases after shipment,
resulting in loss of revenues, delay in market acceptance and sales, diversion
of development resources, injury to our reputation or increased service and
warranty costs. If any of these were to occur, our business would be adversely
affected and our stock price could fall.
22
<PAGE> 23
Because our products are generally used in systems with other vendors'
products, they must integrate successfully with these existing systems. System
errors, whether caused by our products or those of another vendor, could
adversely affect the market acceptance of our products, and any necessary
revisions could cause us to incur significant expenses.
If we are unable to respond to rapid market changes due to changing
technology and evolving industry standards, our future success will be adversely
affected.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
introductions and changes in customer demands. Our future success will depend to
a substantial degree on our ability to offer products and services that
incorporate leading technology, and respond to technological advances and
emerging industry standards and practices on a timely and cost-effective basis.
You should be aware that:
- our technology or systems may become obsolete upon the
introduction of alternative technologies, such as products that
better manage various types of content; and
- we may not have sufficient resources to develop or acquire new
technologies or to introduce new products or services capable of
competing with future technologies or service offerings.
Our products may lack essential functionality if we are unable to obtain
and maintain licenses to third-party software and applications.
We rely on software that we license from third parties, including
software that is integrated with internally developed software and used in our
products to perform key functions. For example, we license Search '97 from
Verity, Inc. and we license Outside In Viewer Technology and Outside In HTML
Export from INSO Corporation. The functionality of our products therefore
depends on our ability to integrate these third-party technologies into our
products. Furthermore, we may license additional software from third parties in
the future to add functionality to our products. If our efforts to integrate
this third-party software into our products are not successful, our customers
may not license our products and our business will suffer.
In addition, we would be seriously harmed if the providers from whom we
license software ceased to deliver and support reliable products, enhance their
current products or respond to emerging industry standards. Moreover, the
third-party software may not continue to be available to us on commercially
reasonable terms or at all. Our license agreement with Verity terminates in
January 2003 and our agreement with INSO terminates in December 2001. Each of
these license agreements may be renewed only with the other party's written
consent. The loss of, or inability to maintain or obtain licensed software,
could result in shipment delays or reductions. Furthermore, we might be forced
to limit the features available in our current or future product offerings.
Either alternative could seriously harm our business and operating results.
If we are unable to protect our intellectual property, we could lose
market share, incur costly litigation expenses or lose valuable assets.
We believe that our continued success depends on protecting our
proprietary technology. We rely on a combination of patent, trademark, service
mark, trade secret and copyright law and contractual restrictions to protect the
proprietary aspects of our technology. In addition, we enter into
confidentiality or license agreements with our employees and consultants, and
control access to and distribution of our software, documentation and other
proprietary information. These legal and practical protections afford only
limited protection. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use our proprietary information. These attempts, if successful, could cause
us to lose market share and thus harm our business and operating results.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets and to determine the validity and scope of the
proprietary rights of others. Any litigation could result in substantial costs
and diversion of resources and could seriously harm our business and operating
results. In addition, as we expand our international sales, we may find that the
laws of many countries, particularly those in the
23
<PAGE> 24
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 products to avoid infringing.
In the event of a successful claim of infringement against us and our
failure or inability to license the infringed technology, our business and
operating results would be significantly harmed.
We could be subject to product liability claims if our customers'
information or content is damaged through the use of our products.
If software errors or design defects in our products cause damage to
customers' data and our agreements do not protect us from related product
liability claims, our business, financial condition and operating results may be
materially adversely affected. Errors, bugs or viruses may result in the loss of
market acceptance or the loss of customer data. Our agreements with customers
that attempt to limit our exposure to product liability claims may not be
enforceable in jurisdictions where we operate.
We may be unable to retain our current key personnel and attract
additional qualified personnel to operate and expand our business.
Our success depends largely on the skills, experience and performance of
the members of our senior management and other key personnel, such as Mahmood
Panjwani, our president and chief executive officer, and Rafiq Mohammadi, our
chief technology officer. We may not be successful in attracting, assimilating
or retaining qualified personnel in the future. None of our senior management or
other key personnel is bound by an employment agreement. If we lose one or more
of these key employees, our business and operating results could be seriously
harmed. In addition, our future success will depend largely on our ability to
continue attracting and retaining highly skilled personnel. Like other
high-technology companies, we face intense competition for qualified personnel.
Our total revenues will not increase if we fail to successfully manage
our growth and expansion.
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our limited resources. We have grown
from 29 employees at January 1, 1998 to 119 employees at December 31, 1999. To
be successful, we will need to implement additional management information
systems, improve our operating, administrative, financial and accounting systems
and controls, train new employees and maintain close coordination among our
executive, research and development, accounting, finance, marketing, sales and
operations organizations. Any failure to manage growth effectively could
seriously harm our business and operating results.
As we expand our operations internationally, we will face significant
risks in doing business in foreign
24
<PAGE> 25
countries.
A key component to our business strategy is to expand our existing sales
and marketing activities internationally, particularly in Asia, Australia,
Europe, 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.
Our failure to successfully address any of these risks will hurt our operations
and may prevent our total revenues from growing.
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 acquisition in which the
consideration included cash, we could be required to use a substantial portion
of our available cash 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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE 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
substantially all of our revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our products less competitive in
25
<PAGE> 26
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, including money market funds and commercial
paper, and long-term investments mature between one and two years. Our interest
expense is also sensitive to changes in the general level of U.S. interest rates
because the interest rate charged varies with the prime rate. Due to the nature
of our investments, we believe that there is not a material risk exposure.
ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, member states of the European Economic Community, or
the EEC, fixed their currencies to a new currency, the euro. On that day, the
euro became a functional legal currency within these countries. Furthermore,
during the three years beginning on January 1, 1999, business in these EEC
member states will be conducted in both the existing national currency, such as
the Netherlands guilder, French franc or Deutsche mark, and the euro. Companies
operating in or conducting business in EEC member states will need to ensure
that their financial and other software systems are capable of processing
transactions and properly handling the existing currencies, as well as the euro.
We are still assessing the impact that the euro will have on our internal
systems and products. While we believe our enterprise-wide information systems
will be euro-compliant, we have not tested these systems. We have not determined
the costs related to any euro-related problems that may arise in the future.
These problems may materially adversely affect our business, operating results
and financial condition.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Supplementary Data required by
this Item are set forth at the pages indicated in Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
<PAGE> 27
PART III
The SEC allows us to include information required in this report by
referring to other documents or reports we have already filed or soon will be
filing. This is called "Incorporation by Reference." We intend to file our
definitive Proxy Statement pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report, and certain information
therein is incorporated in this report by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information concerning executive officers
of iManage as of December 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mahmood Panjwani............... 41 President, Chief Executive Officer and Chairman of the Board
of Directors
Owen Carton.................... 35 Vice President, Marketing and Strategic Planning
Mark Culhane................... 40 Chief Financial Officer and Secretary
Rafiq Mohammadi................ 39 Chief Technology Officer, Vice President, Engineering and
Director
Shamshad Rashid................ 39 Vice President, Business Development
Philip Uchno................... 44 Vice President, Worldwide Sales
</TABLE>
- ----------
Mahmood Panjwani is a co-founder of iManage and has served as our
president, chief executive officer and chairman of our board of directors since
October 1995. In August 1988, Mr. Panjwani founded Q-Image Corporation, a
consulting services company, and served as its president and chairman of the
board of directors until December 1997.
Owen Carton has served as our vice president, marketing and strategic
planning since July 1998. Before joining iManage, from November 1996 to June
1998, Mr. Carton was vice president, marketing at FrontOffice Technologies,
Inc., a messaging and knowledge management software company. From 1993 to 1996,
Mr. Carton was vice president, marketing for Timeline Inc., a financial
analysis, budgeting and reporting systems company. From 1985 to 1993, Mr. Carton
held various senior level product marketing positions for Microsoft Corporation.
Mark Culhane has served as our chief financial officer and secretary
since September 1998. From June 1992 to December 1997, Mr. Culhane held various
positions at SciClone Pharmaceuticals, a publicly-held life science company, his
last position being that of SciClone's chief financial officer, vice president,
finance and administration and secretary from May 1994 through December 1997.
From 1982 to the time that Mr. Culhane joined SciClone, he held various
positions at Price Waterhouse LLP, now known as PricewaterhouseCoopers LLP, most
recently as senior manager. Mr. Culhane is a certified public accountant.
Rafiq Mohammadi is a co-founder of iManage and has served as our chief
technology officer and director since October 1995. Between 1985 and 1995, Mr.
Mohammadi co-founded and served as president of M/H Manage, a company that
developed and distributed software that converted documents between different
platforms and formats.
Shamshad Rashid is a co-founder of iManage and has served as our vice
president, business development since October 1995. Ms. Rashid served as vice
president, operations at Q-Image, and has served as its president since December
1997.
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.
27
<PAGE> 28
The information regarding directors required by this Item is
incorporated by reference from the section entitled "Proposal No. 1 - Election
of Directors" in our definitive Proxy Statement.
The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the section entitled "Executive
Compensation" in our definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from
the section entitled "Executive Compensation" in our definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in our definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from
the section entitled "Certain Transactions" in our definitive Proxy Statement.
28
<PAGE> 29
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
<TABLE>
<CAPTION>
Index to Consolidated PAGE
Financial Statements NUMBER
--------------------- ------
<S> <C>
Report of Independent Accountants....................................... 30
Consolidated Balance Sheets as of December 31, 1998 and 1999............ 31
Consolidated Statements of Operations and Other Comprehensive
Loss for the years ended December 31, 1997, 1998 and 1999............ 32
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999..................................... 33
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999.................................................. 34
Notes to Consolidated Financial Statements.............................. 35
</TABLE>
2. Financial Statement Schedule:
See Exhibit 27.1 filed as part of this report.
All other schedules are omitted because they are not required or
the required information is shown in the financial statements or notes thereto.
3. Exhibits:
See Index to Exhibits on page 50 hereof. The exhibits listed in
the accompanying Index to Exhibits are filed as part of this report.
(b) Reports on Form 8-K:
None.
29
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of iManage, Inc.
In our opinion, the consolidated financial statements listed in the
index appearing under Item 14(a)(1) on page 29 present fairly, in all material
respects, the financial position of iManage, Inc. and its subsidiary at December
31, 1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)(2) on page 29 presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, 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
January 19, 2000
30
<PAGE> 31
IMANAGE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,617 $ 47,985
Short-term investments -- 3,028
Trade accounts receivable, net of allowance for doubtful accounts
of $175 in 1998 and $135 in 1999 4,194 5,704
Other current assets 443 831
-------- --------
Total current assets 12,254 57,548
Property and equipment, net 483 1,913
Long-term investments -- 3,223
Other assets 758 1,237
-------- --------
Total assets $ 13,495 $ 63,921
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 595 $ 1,627
Accrued liabilities 2,190 2,398
Equipment line of credit, current portion -- 612
Deferred revenue 3,350 9,068
-------- --------
Total current liabilities 6,135 13,705
Equipment line of credit, less current portion -- 1,388
-------- --------
Total liabilities 6,135 15,093
-------- --------
Commitments
Stockholders' Equity:
Preferred stock; $0.001 par value; authorized: 8,154 shares in
1998 and 2,000 shares in 1999; issued and outstanding: 8,033
shares in 1998 and no shares in 1999 8 --
Common stock, $0.001 par value; authorized: 20,000 shares in
1998 and 100,000 shares in 1999; issued and outstanding: 8,198
shares in 1998 and 21,916 shares in 1999 7 22
Additional paid-in capital 15,679 63,863
Deferred stock-based compensation (770) (4,046)
Notes receivable for common stock (372) (1,002)
Accumulated other comprehensive loss -- (42)
Accumulated deficit (7,192) (9,967)
-------- --------
Total stockholders' equity 7,360 48,828
-------- --------
Total liabilities and stockholders' equity $ 13,495 $ 63,921
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
31
<PAGE> 32
IMANAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Licenses $ 1,172 $ 6,509 $ 14,257
Support and services 358 1,232 4,313
------- -------- --------
Total revenues 1,530 7,741 18,570
------- -------- --------
Cost of revenues:
Licenses 136 414 773
Support and services 163 1,213 2,732
------- -------- --------
Total cost of revenues 299 1,627 3,505
------- -------- --------
Gross profit 1,231 6,114 15,065
------- -------- --------
Operating expenses:
Sales and marketing 1,120 4,393 8,530
Research and development 935 2,351 4,180
General and administrative 706 1,295 2,227
Stock-based compensation 2,079 1,054 3,589
------- -------- --------
Total operating expenses 4,840 9,093 18,526
------- -------- --------
Loss from operations (3,609) (2,979) (3,461)
Interest income 22 153 813
Interest expense (9) (14) (95)
------- -------- --------
Loss before provision for income taxes (3,596) (2,840) (2,743)
Provision for income taxes -- -- 32
------- -------- --------
Net loss $ (3,596) $ (2,840) $ (2,775)
Other comprehensive loss:
Unrealized loss on investments -- -- (42)
------- -------- --------
Comprehensive loss $ (3,596) $ (2,840) $ (2,817)
======= ======== ========
Net loss per share -- basic and diluted $ (0.57) $ (0.38) $ (0.28)
======= ======== ========
Shares used in net loss per share -- basic and
diluted 6,292 7,455 9,988
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
32
<PAGE> 33
IMANAGE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------------- --------------------------
PAR VALUE AND PAR VALUE
CAPITAL IN AND CAPITAL
EXCESS IN EXCESS
SHARES OF PAR SHARES OF PAR
-------- --------------- -------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1996 886 $ 624 6,291 $ 222
Issuance of Series A preferred stock,
net of issuance costs of $17 1,968 1,379 -- --
Issuance of Series B preferred stock,
net of issuance costs of $11 1,274 1,989 -- --
Exercise of common stock options -- -- 225 45
Options issued in exchange for services -- -- -- 47
Deferred stock-based compensation -- -- -- 2,368
Amortization of deferred stock-based compensation -- -- -- --
Deferred non-employee stock-based compensation -- -- -- 146
Amortization of non-employee stock-based
compensation -- -- -- --
Net loss -- -- -- --
------ ------- ------ --------
Balances, December 31, 1997 4,128 3,992 6,516 2,828
Issuance of Series B Preferred Stock,
net of issuance costs of $17 1,926 3,007 -- --
Issuance of Series C preferred stock,
net of issuance costs of $4 1,879 3,943 -- --
Issuance of Series C preferred stock to prepay rent 100 210 -- --
Exercise of common stock options -- -- 1,682 372
Options issued in exchange for services -- -- -- 89
Deferred stock-based compensation -- -- -- 1,204
Amortization of deferred stock-based compensation -- -- -- --
Deferred non-employee stock-based compensation -- -- -- 49
Amortization of non-employee stock-based
compensation -- -- -- --
Net loss -- -- -- --
------ ------- ------ --------
Balances, December 31, 1998 8,033 11,152 8,198 4,542
Exercise of common stock options -- -- 1,712 917
Options issued in exchange for services -- -- -- 208
Deferred stock-based compensation -- -- -- 6,612
Amortization of deferred stock-based compensation -- -- -- --
Deferred non-employee stock-based compensation -- -- -- 47
Amortization of non-employee stock-based
compensation -- -- -- --
Purchase of treasury stock -- -- (167) (750)
Conversion of preferred to common upon initial
public offering (8,033) (11,152) 8,033 11,152
Stock issued on initial public offering, including
treasury stock, net of expenses -- -- 4,140 41,157
Other comprehensive loss -- -- -- --
Net loss -- -- -- --
------ ------- ------ --------
Balances, December 31, 1999 -- $ -- 21,916 $ 63,885
====== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
DEFERRED COMPRE-
STOCK-BASED NOTES RECEIVABLE HENSIVE ACCUMULATED
COMPENSATION FOR COMMON STOCK LOSS DEFICIT TOTAL
------------ ---------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996 $ -- $ -- $ -- $ (756) $ 90
Issuance of Series A preferred stock,
net of issuance costs of $17 -- -- -- -- 1,379
Issuance of Series B preferred stock,
net of issuance costs of $11 -- -- -- -- 1,989
Exercise of common stock options -- -- -- -- 45
Options issued in exchange for services -- -- -- -- 47
Deferred stock-based compensation (2,368) -- -- -- --
Amortization of deferred stock-based compensation 1,951 -- -- -- 1,951
Deferred non-employee stock-based compensation (146) -- -- -- --
Amortization of non-employee stock-based
compensation 81 -- -- -- 81
Net loss -- -- -- (3,596) (3,596)
-------- -------- -------- -------- --------
Balances, December 31, 1997 (482) -- -- (4,352) 1,986
Issuance of Series B Preferred Stock,
net of issuance costs of $17 -- -- -- -- 3,007
Issuance of Series C preferred stock,
net of issuance costs of $4 -- -- -- -- 3,943
Issuance of Series C preferred stock to prepay rent -- -- -- -- 210
Exercise of common stock options -- (372) -- -- --
Options issued in exchange for services -- -- -- -- 89
Deferred stock-based compensation (1,204) -- -- -- --
Amortization of deferred stock-based compensation 866 -- -- -- 866
Deferred non-employee stock-based compensation (49) -- -- -- --
Amortization of non-employee stock-based
compensation 99 -- -- -- 99
Net loss -- -- -- (2,840) (2,840)
-------- -------- -------- -------- --------
Balances, December 31, 1998 (770) (372) -- (7,192) 7,360
Exercise of common stock options -- (630) -- -- 287
Options issued in exchange for services -- -- -- -- 208
Deferred stock-based compensation (6,612) -- -- -- --
Amortization of deferred stock-based compensation 3,355 -- -- -- 3,355
Deferred non-employee stock-based compensation (47) -- -- -- --
Amortization of non-employee stock-based
compensation 28 -- -- -- 28
Purchase of treasury stock -- -- -- -- (750)
Conversion of preferred to common upon initial
public offering -- -- -- -- --
Stock issued on initial public offering, including
treasury stock, net of expenses -- -- -- -- 41,157
Other comprehensive loss -- -- (42) -- (42)
Net loss -- -- -- (2,775) (2,775)
-------- -------- -------- -------- --------
Balances, December 31, 1999 $ (4,046) $ (1,002) $ (42) $ (9,967) $ 48,828
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
33
<PAGE> 34
IMANAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,596) $ (2,840) $ (2,775)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 61 313 545
Amortization of prepaid rent -- 12 216
Amortization of deferred stock-based compensation 2,032 965 3,383
Stock issued for services 47 89 208
Provision for doubtful accounts 65 100 40
Changes in operating assets and liabilities:
Trade accounts receivable (1,170) (3,195) (1,550)
Other current assets -- -- (604)
Other assets (99) (1,021) (479)
Accounts payable 6 407 1,032
Accrued liabilities 284 1,868 208
Deferred revenue 589 2,680 5,718
-------- -------- --------
Net cash provided by (used in) operating activities (1,781) (622) 5,942
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (192) (431) (1,975)
Purchases of investments -- -- (6,293)
-------- -------- --------
Net cash used in investing activities (192) (431) (8,268)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of advances and loans from stockholders (10) (69) --
Proceeds from equipment line of credit -- -- 2,000
Purchases of treasury stock -- -- (750)
Issuance of common stock, net 45 -- 41,444
Issuance of preferred stock, net 3,368 6,950 --
-------- -------- --------
Net cash provided by financing activities 3,403 6,881 42,694
-------- -------- --------
Net increase in cash and cash equivalents 1,430 5,828 40,368
Cash and cash equivalents at beginning of period 359 1,789 7,617
-------- -------- --------
Cash and cash equivalents at end of period $ 1,789 $ 7,617 $ 47,985
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 2 $ 17 $ 96
======== ======== ========
Cash paid for income taxes $ 3 $ 2 $ 111
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
Issuance of common stock in exchange for notes receivable $ -- $ 372 $ 630
======== ======== ========
Issuance of Series C preferred stock to prepay rent $ -- $ 210 $ --
======== ======== ========
Deferred stock based compensation $ 2,514 $ 1,253 $ 6,659
======== ======== ========
Conversion of preferred stock to common stock $ -- $ -- $ 11,152
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
34
<PAGE> 35
IMANAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ORGANIZATION AND NATURE OF OPERATIONS
iManage, Inc. (the "Company") supplies e-business content and
collaboration management software that provides organizations with a web-based
unified content platform that enables them to manage, organize and deliver
information in a centralized manner throughout the extended enterprise. The
Company markets and sells its software and services primarily through its direct
sales organization, resellers and system integrators in the United States,
Canada and the United Kindom, and through distributors in Australia and New
Zealand. In 1997, 1998 and 1999, 58.0%, 55.0% and 61.0%, of revenues,
respectively, were through resellers. The Company's license and support and
services revenues to date have substantially been derived from the sale of
iManage's suite of products, including iManage infoCommerce Server, iManage
infoLink, iManage infoLook and iManage infoRite, to customers primarily located
in the United States.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiary after elimination of intercompany accounts and
transactions. The functional currency of the Company's subsidiary is the U.S.
dollar. All gains and losses arising from the translation into U.S. dollars of
amounts denominated in foreign currencies are included in net loss.
USE OF ESTIMATES
The preparation of consolidated 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 consolidated
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,
government agencies, 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.
The Company's investments comprise commercial paper and corporate debt
obligations and are accounted for as available for sale. Investments with
maturities of less than one year are classified as short-term investments and
investments with maturities greater than one year are classified as long-term
investments. Realized gains and losses are calculated using the specific
identification method. There were no realized gains and losses in 1997, 1998 or
1999. Unrealized gains and losses are included as a separate component of other
comprehensive income and stockholders' equity. See "Balance Sheet Accounts" for
the fair value of the Company's short-term and long-term investments.
The carrying amounts of certain of the Company's other financial
instruments including accounts receivable, accounts payable and accrued
liabilities 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.
35
<PAGE> 36
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, accounts receivable and long-term investments. The
Company maintains substantially all of its cash and cash equivalent balances and
short- and long-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.
Two different customers accounted for 33.0% of trade accounts receivable
at December 31, 1998. Additionally, 84.0%, 89.0% and 93.3% of the Company's
revenues for 1997, 1998 and 1999, respectively, were derived from law firms.
The Company relies on software licensed from third parties, including
software that is integrated with internally developed software and used in the
Company's products to perform key functions. The functionality of the Company's
products, therefore, depends on its ability to integrate these third party
technologies into its products.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of three years. Depreciation
for leasehold improvements is recorded using the straight-line method over the
lesser of the estimated useful lives of the assets or the lease term, generally
three years. Upon sale or retirement of assets, cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations.
LONG-LIVED ASSETS
The Company reviews property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability is measured by comparison of its carrying
amount to future net cash flows the assets are expected to generate. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
projected discounted future cash flows arising from the asset.
SOFTWARE DEVELOPMENT COSTS
Costs related to research and development of new software products are
charged to research and development expenses as incurred. Software development
costs are capitalized beginning when a product's technological feasibility has
been established, which to date has been when the Company 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 can be reasonably
estimated and, if applicable, acceptance criteria have been met. During the
36
<PAGE> 37
fourth quarter of 1999, the Company implemented a subscription licensing model
for a newly released product whereby the customer licenses the product for one
year to 18 months under an arrangement that includes customer support and
software updates during the term of the license. Revenues associated with this
software product and related services are recognized ratably over the applicable
subscription license period. Provisions for estimated warranty costs and sales
returns are recorded at the time of shipment.
For contracts with multiple obligations (e.g. deliverable and
undeliverable products, support and other services), the Company allocates
revenues to the undelivered element of the contract based on objective evidence
of its fair value. This objective evidence is the sales price of the element
when sold separately by the Company or the renewal rate specified in the
arrangement for licensing arrangements with terms of one year to 18 months that
include customer support and software updates. The Company generally does not
allow the right of return but has accepted returns in isolated instances when
resellers, system integrators and distributors have incorrectly ordered product.
The Company recognizes revenues allocated to undelivered products when the
criteria for license revenues set forth above are met. The Company recognizes
support and services revenues, including amounts allocated from contracts with
multiple obligations and for ongoing customer support, ratably over the period
of the support contract. The Company's support and service arrangements entitle
customers to telephone support and unspecified upgrades and enhancements.
Payments for support and services are generally made in advance and are
non-refundable. For revenues allocated to training and consulting services or
derived from the separate sales of these services, the Company recognizes
revenues as the related services are performed.
Through 1997, the Company recognized license revenues upon shipment if
remaining obligations were insignificant, collection of the resulting receivable
was probable and if applicable, acceptance criteria were met. Provisions for
estimated warranty costs, estimated sales returns and insignificant vendor
obligations were recorded at the time products were shipped. Service and support
revenues, including revenues allocated from contracts including software
licenses, were recognized ratably over the period of the service and support
agreements. Training and consulting revenues were recognized as the related
services were performed.
As of December 31, 1998 and 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.
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 1997, 1998
and 1999, the Company incurred $88,000, $286,000 and $540,000, respectively, 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
37
<PAGE> 38
disclosable segment, using one measurement of profitability for its business.
Although the Company has sales outside North America, such sales are not
significant. All long-lived assets are maintained in the United States.
COMPREHENSIVE LOSS
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.
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 December 31, 1999, the Company capitalized all required
costs 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>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss $(3,596) $(2,840) $(2,775)
Shares used in net loss per share -- basic and diluted 6,292 7,455 9,988
------- ------- -------
Net loss per share -- basic and diluted $ (0.57) $ (0.38) $ (0.28)
======= ======= =======
Anti-Dilutive Securities:
Convertible preferred stock 4,128 8,033 --
Options to purchase common stock 2,174 1,620 1,567
Common stock subject to repurchase 150 346 697
------- ------- -------
6,452 9,999 2,264
======= ======= =======
</TABLE>
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 (a) 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, (b) VSOE of fair value does not exist for one or more of the
delivered elements, and (c) 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
38
<PAGE> 39
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 currently anticipates that there will be no significant
impact on the Company's financial position or results of operations for the
implementation of the requirements of SOP 98-9.
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 currently anticipates that there will be no significant
impact on the Company's financial position or results of operations for the
implementation of the requirements of SFAS No. 133 and SFAS No. 137.
In November 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 100, or SAB 100, which clarifies the SEC's views on
accounting for and disclosing certain expenses incurred in connection with exit
activities and business combinations. In December 1999, SAB 101 was issued which
summarizes the SEC's views in applying generally accepted accounting principles
to revenue recognition in financial statements. The Company does not expect SAB
100 to have a material effect on its financial position, results of operations
or cash flow. The Company is currently evaluating the impact SAB 101 will have
on its financial position and results of operations.
BALANCE SHEET ACCOUNTS
FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1998 1999
--------------------- ---------------------
COST FAIR VALUE COST FAIR VALUE
------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS
Cash $ 57 $ 57 $ 91 $ 91
Time deposits 4,842 4,842 -- --
Money market 2,718 2,718 2,037 2,037
Government agencies -- -- 3,480 3,480
Commercial paper -- -- 42,377 42,377
------- ------- ------- -------
$ 7,617 $ 7,617 $47,985 $47,985
======= ======= ======= =======
</TABLE>
INVESTMENTS
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
DECEMBER 31, 1999 COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. government agencies $ 1,499 $ $ (5) $ 1,494
Corporate notes and bonds 4,794 (37) 4,757
------- ---- ------- -------
$ 6,293 $ -- $ (42) $ 6,251
======= ==== ======= =======
Reported as:
Short-term investments $ 3,028
Long-term investments 3,223
-------
$ 6,251
=======
</TABLE>
39
<PAGE> 40
Long-term investments mature one year through two years.
PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures $ 198 $ 625
Computer software and equipment 550 1,602
Leasehold improvements -- 496
------- -------
748 2,723
Less accumulated depreciation (265) (810)
------- -------
$ 483 $ 1,913
======= =======
</TABLE>
Depreciation expense was $60,000, $185,000 and $545,000 for 1997, 1998
and 1999, respectively.
OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Technology licenses $ 725 $ 844
Less accumulated amortization (128) (302)
------- -------
597 542
161 695
------- -------
$ 758 $ 1,237
======= =======
</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. Each of these
license agreements may be renewed only with the other party's written consent.
The loss of, or inability to maintain or obtain licensed software, could result
in shipping delays or reductions. Furthermore, the Company may be forced to
limit the features available in our current or future product offerings. Either
alternative could seriously harm the Company's business and operating results.
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Technology licenses $ 425 $ --
Payroll and related 1,276 1,451
Other 489 947
------ ------
$2,190 $2,398
====== ======
</TABLE>
COMMITMENTS
The Company leases its office facilities in San Mateo, California and
Chicago, Illinois under non-cancelable operating leases which expire on March
31, 2003 and April 30, 2009, 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
accompanying notes). In addition, the lease has two one-year options to extend
upon six months written notice to the landlord.
40
<PAGE> 41
Future minimum payments under the non-cancelable operating leases as of
December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
<S> <C>
2000 $ 984
2001 1,140
2002 736
2003 377
2004 263
and thereafter 1,239
------
$4,739
======
</TABLE>
Rent expense was $111,000, $216,000 and $684,000 for 1997, 1998 and
1999, respectively. See accompanying notes for sublease income received.
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 compliance with these covenants at
December 31, 1999.
The revolving line of credit provides for borrowings of up to
$5,000,000, which can be used at the discretion of the Company through March 31,
2000. Borrowings are limited to the lesser of 80% of eligible accounts
receivable or $5,000,000, ($3,600,000 was available at December 31, 1999) bear
interest at prime plus 0.25% and are due at March 31, 2000. At December 31,
1999, no amounts have been drawn against this facility.
The equipment line of credit, which bears interest at prime plus 0.50%,
provides for borrowings of up to $2,000,000 to finance the Company's purchases
of property and equipment. At December 31, 1999, the line has been fully drawn.
Principal repayment begins in February 2000 and continues through February 2002
in equal monthly installments of principal and interest.
Principal payments due under the facility as of December 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
2000 $ 612
2001 666
2002 666
2003 56
------
$2,000
======
</TABLE>
STOCKHOLDERS' EQUITY
COMMON STOCK
In November 1998, the Company issued 100,000 shares of preferred stock,
which converted to common stock due to the initial public offering, 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 third
party investors for the Series C preferred stock (described below) in November
1998 multiplied by the number of shares issued. This amount was recorded as
prepaid rent and was fully amortized as of December 31, 1999.
At December 31, 1998 and 1999, 346,000 shares and 697,000 shares of
common stock were subject to the Company's right of repurchase at the shares'
41
<PAGE> 42
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.
On November 17, 1999, the Company completed an initial public offering
in which it sold 4.1 million shares of common stock, including 540,000 shares in
connection with the exercise of the underwriters' over-allotment option, at
$11.00 per share. The Company received $41.2 million of cash, net of
underwriting discounts, commissions and other offering costs.
CONVERTIBLE PREFERRED STOCK
In 1996 and 1997, the Company issued 2.9 million shares of Series A
convertible preferred stock at $0.71 per share. In 1997 and 1998, the Company
issued 3.2 million shares of Series B convertible preferred stock at $1.56 per
share. In 1999, the Company issued 2.0 million shares of Series C convertible
preferred stock at $2.10 per share. All outstanding shares of the Company's
convertible preferred stock automatically converted into common stock on a
one-for-one basis upon completion of the Company's initial public offering.
STOCK OPTION PLAN
The Company has reserved 6,000,000 shares of common stock for issuance
under the 1997 Stock Incentive Plan (the "Plan"). Automatic annual increases
occur beginning in 2001 equal to the lesser of (i) 1,200,000 common shares, (ii)
5% of the outstanding common shares of the Company at the last day of the
preceding year, or (iii) a lesser amount as determined by the Board. Under the
Plan, automatic grants for non-employee directors are 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. Under the Plan, the Board of Directors
issued 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. 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 EXERCISE EXERCISE
FOR GRANT OF 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
------ ------
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C> <C> <C>
Balances, December 31, 1998 653 1,620 0.20--0.40 0.27
Additional shares reserved 2,000 -- -- --
Options granted (1,740) 1,740 0.60--33.31 3.63
Options exercised -- (1,712) 0.20--1.65 0.53
Options canceled 81 (81) 0.30--1.80 0.86
------ ------
Balances, December 31, 1999 994 1,567 $0.20--$33.10 $ 3.69
====== ======
</TABLE>
The options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
NUMBER OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE SHARES LIFE IN EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING YEARS PRICE EXERCISABLE PRICE
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.20 - $1.00 637,000 8.44 $0.39 146,000 $0.27
$1.50 - $2.00 237,000 9.56 $1.77 9,000 $1.80
$4.50 302,000 9.66 $4.50 2,000 $4.50
$9.00 - $10.00 388,000 9.87 $9.46 310,000 $9.56
$33.31 3,000 9.95 $33.31 -- --
--------- -------
1,567,000 467,000
========= =======
</TABLE>
At December 31, 1997, 1998 and 1999, options to purchase 1,152,000,
775,000 and 467,000 shares of the Company's common stock, respectively, were
exercisable at weighted average exercise prices of $0.20, 0.24 and $6.46 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 are
subject to the Company's right of repurchase, which lapse as to 25% of the
shares one year from the date of grant and thereafter ratably over three years.
The options expire ten years from the date of grant. During November 1998 and as
permitted by the option agreement, these options were exercised in exchange for
a full recourse note receivable from the officer totaling $72,000 due November
12, 2002.
In February 1998, two other non-officer employees exercised options
issued under the Plan to purchase 1,500,000 shares of the Company's common stock
at $0.20 per share in exchange for full recourse notes receivable totaling
$300,000 that are payable in equal installments through September 1, 2001. These
notes receivable bear interest at 4.5% to 4.83% per annum.
In March 1999, a non-officer of the Company exercised options to
purchase 172,000 common shares in exchange for a full recourse note receivable
of approximately $34,000, which is due in March 2003 and bears interest at
4.57%.
In April and May 1999, an officer of the Company exercised options to
purchase approximately 178,000 and 127,000 common shares, respectively, in
exchange for two full recourse notes receivable of approximately $53,000 and
$39,000, respectively. These notes receivable are due in March and May 2003 and
bear interest at 4.71% and 4.83%, respectively.
In July 1999, two officers of the Company exercised options to purchase
230,000 and 180,000 shares of common stock, respectively, in exchange for full
recourse notes receivable of approximately $207,000 and $297,000, respectively.
43
<PAGE> 44
These notes receivable are due in July 2003 and July 2001 and bear interest at
5.22% and 4.90%, respectively. Additionally, three non-officers exercised
options to purchase common shares in exchange for full recourse notes receivable
totaling approximately $100,000. These notes receivable are due in July through
August 2003 and bear interest at rates ranging between 5.22% and 5.37%.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provision of SFAS 123. Had
compensation cost been determined for options issued under the Plan and outside
the Plan based on the fair value of the options at the grant date consistent
with the provisions of SFAS 123, the Company's net loss would have been
increased to the pro forma amounts indicated below (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported $(3,596) $(2,840) $(2,775)
======= ======= =======
Pro forma $(3,686) $(2,882) $(3,067)
======= ======= =======
Net loss per share -- basic and diluted as reported $ (0.57) $ (0.38) $ (0.28)
======= ======= =======
Net loss per share -- basic and diluted pro-forma $ (0.59) $ (0.39) $ (0.31)
======= ======= =======
</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 value of options granted during 1997,
1998 and 1999 was $0.05, $0.06 and $1.02 per share, respectively. The value of
each option grant is estimated on the date of grant using the minimum value
method prior to the effective date of the Company's initial public offering and
the Black-Scholes fair value method thereafter, with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
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% 5.68%
Dividend yield 0% 0% 0%
Volatility (used in the Black-Scholes model) -- -- 70%
</TABLE>
DEFERRED STOCK COMPENSATION
During 1997, 1998 and 1999, the Company issued options to purchase its
common stock to certain employees totaling 2.4 million, 967,000 and 1.7 million
respectively, under the Plan and outside the Plan with weighted average exercise
prices of $0.20, $0.32 and $3.63 per share, respectively, which are below the
deemed fair value of the Company's common stock at the date of grant. The
weighted average deemed fair value of the underlying common stock was $1.26,
$1.47 and $7.02 in 1997, 1998 and 1999, respectively. In accordance with the
requirements of APB 25, the Company has recorded deferred stock based
compensation for the difference between the exercise price of the stock options
and the deemed fair value of the Company's stock at the date of grant. This
deferred compensation is amortized to expense over the period during which the
Company's right to repurchase the stock lapses or options become exercisable,
generally four or five years consistent with the method described in FASB
Interpretation No. 28. At December 31, 1999, the Company had recorded deferred
compensation related to these options in an amount of $10.2 million, of which
$2.0 million, $866,000, and $3.4 million had been amortized to expense during
1997, 1998, and 1999, respectively.
Future compensation expense from options granted through December 31,
1999 is estimated to be $2.5 million, $1.0 million, $399,000, and $57,000 for
the remainder of 2000, 2001, 2002 and 2003, respectively.
44
<PAGE> 45
DEFERRED NON-EMPLOYEE STOCK-BASED COMPENSATION
In November 1997, the Company granted 165,000 options to purchase common
stock at an exercise price of $0.20 per share to various non-employee engineers
for consulting services, when the deemed fair market value of the Company's
common stock was $1.26 per share. Approximately 40,000 of these options were
100% vested upon grant and were valued at $47,000 using the Black-Scholes
pricing model with the following assumptions: 10 year term, 55% volatility,
5.73% discount rate and 0% dividend rate. This $47,000 was expensed immediately
as these options related to services provided prior to the grant date. The
remaining options were 50% vested at the grant date with the other 50% vesting
monthly over the next two years. Accordingly, these shares were valued under the
Black-Scholes pricing model with the same assumptions as those above at
$146,000, which was amortized in accordance with the vesting terms. Subsequent
to the initial valuation, these remaining options have been accounted for under
variable accounting, which requires that the fair value of the options be
remeasured at each balance sheet date using the Black-Scholes pricing model. An
additional $11,000 and $4,000 in deferred compensation has been recorded in 1998
and 1999, respectively, related to these options.
In 1998, the Company granted approximately 76,000 options to purchase
common stock at exercise prices ranging between $0.30 and $0.40 per share to
various non-employee engineers for consulting services, when the deemed fair
market value of the Company's common stock ranged from $1.30 to $1.90 per share.
Approximately 51,000 of these options were 100% vested upon grant and were
valued at a total of $89,000 using the Black-Scholes pricing model with the
following assumptions: 5 -- 10 year terms, 55% volatility, 5.73% discount rate
and 0% dividend rate. This $89,000 was expensed immediately as these options
related to services provided prior to the grant date. The remaining options were
50% vested at the grant date with the other 50% vesting monthly over the next
two years. Accordingly, these shares were valued under the Black-Scholes pricing
model with the same assumptions as those above at $39,000, which was amortized
in accordance with the vesting terms. Subsequent to the initial valuation, these
remaining options have been accounted for under variable accounting, which
requires their fair value to be remeasured at each balance sheet date using the
Black-Scholes pricing model. An additional $43,000 in deferred compensation has
been recorded in 1999 related to these options.
During 1999, the Company granted options to purchase common stock at
exercise prices ranging from $0.60 to $1.50 per share to various non-employee
engineers for consulting services, when the deemed fair market value of the
Company's common stock ranged from $4.29 to $7.41 per share. These options were
100% vested upon grant and were valued at a total of $208,000 using the
Black-Scholes pricing model with the following assumptions: 10 year terms, 55%
volatility, 5.73% discount rate and 0% dividend rate. This $208,000 was expensed
immediately as these options related to services provided prior to the grant
date.
EMPLOYEE STOCK PURCHASE PLAN
In November 1999, the Company adopted an Employee Stock Purchase Plan
("ESPP"). Under the terms of the ESPP, the maximum aggregate number of shares of
stock that may be issued under the ESPP is 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. During each six month offering period,
employees can choose to have up to 15% of their annual base earnings withheld to
purchase the Company's common stock. The purchase price of the common stock is
85% of the lesser of the fair value as of the beginning or ending of the
offering period. The first offering period ends July 31, 2000.
OTHER
In November 1999, the Company purchased approximately 167,000 shares of
outstanding common stock from an officer of the Company for approximately
$750,000. These shares were recorded as treasury shares by the Company and
subsequently reissued in the initial public offering.
INCOME TAXES
45
<PAGE> 46
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,
-----------------------
1998 1999
------- -------
<S> <C> <C>
Net operating loss carryforwards $ 991 $ 1,620
Deferred compensation 140 --
Depreciation 64 99
Allowance for doubtful accounts 87 75
Accrued liabilities 265 248
Research and development credit 195 195
------- -------
Total deferred tax assets $ 1,742 $ 2,237
Less valuation allowance (1,742) (2,237)
------- -------
Net deferred tax asset $ -- $ --
======= =======
</TABLE>
The valuation allowance increased by $683,000, $1.0 million and $495,000
for 1997, 1998 and 1999, respectively.
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its deferred tax assets. At such time as it is determined that it is
more likely than not that the deferred tax assets are realizable, the valuation
allowance will be reduced.
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>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
State taxes 6 5 5
Tax credits 2 5 --
Other -- 4 4
Deferred compensation (22) (12) (44)
Net operating losses and tax credits, not benefited (20) (36) --
--- --- ---
--% --% (1)%
=== === ===
</TABLE>
At December 31, 1999, the Company has federal and state net operating
loss carryforwards of approximately $4.1 million and $3.8 million available to
reduce future taxable income. Deferred tax assets and the related valuation
allowance include approximately $2.5 million related to certain U.S. operating
loss carryforwards resulting from the exercise of stock options, the tax benefit
of which, when recognized, will be accounted for as a credit to additional
paid-in capital rather than a reduction of its income tax provision. These
carryforwards expire 2002 to 2018. In addition, the Company has research and
development tax credit carryforwards of approximately $136,000 for federal
income tax purposes and $88,000 for Illinois purposes at December 31, 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.
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.
46
<PAGE> 47
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, 1998 and 1999. In addition, the 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, 1998 and 1999. 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>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Sublease rent expense $ 45 $ 54 $--
Sublease rent income -- -- 85
Consulting and other service expense 284 467 757
</TABLE>
At December 31, 1999, the Company has a receivable from this consulting
company of $1,000.
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. Beginning in 2000, the Company will make
matching contributions of 25% up to the first 6% of the employees' salary which
is contributed and vests ratably over a four-year period.
47
<PAGE> 48
Schedule II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended December 31, 1997 $ 10 $ 65 $-- $ 75
Year Ended December 31, 1998 75 100 -- 175
Year Ended December 31, 1999 175 40 80 135
Allowance for sales returns:
Year Ended December 31, 1997 -- 40 -- 40
Year Ended December 31, 1998 40 122 87 75
Year Ended December 31, 1999 75 2 -- 77
</TABLE>
48
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Registrant has duly caused this report 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 22nd day of March,
2000.
iMANAGE, INC.
By: /s/ Mahmood Panjwani
--------------------------------------
Mahmood Panjwani
President, Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Mahmood Panjwani and Mark Culhane,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution, each with power to act alone, to sign and execute on
behalf of the undersigned any and all amendments to this Report on Form 10-K,
and to perform any acts necessary in order to file the same, with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requested and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or their or his or her substitutes, shall
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MAHMOOD PANJWANI President, Chief Executive March 22, 2000
- --------------------------------- Officer
Mahmood Panjwani and Chairman of the Board
(Principal Executive Officer)
/s/ MARK CULHANE Chief Financial Officer and March 22, 2000
- --------------------------------- Secretary
Mark Culhane (Principal Financial and
Accounting Officer)
/s/ RAFIQ MOHAMMADI* Chief Technology Officer, Vice March 22, 2000
- --------------------------------- President, Engineering and
Rafiq Mohammadi Director
/s/ MARK PERRY* Director March 22, 2000
- ---------------------------------
Mark Perry
/s/ MOEZ VIRANI* Director March 22, 2000
- ---------------------------------
Moez Virani
/s/ DUWAYNE PETERSON* Director March 22, 2000
- ---------------------------------
Duwayne Peterson
*By /s/ MARK CULHANE March 22, 2000
-------------------------
Mark Culhane
Attorney-in-Fact
</TABLE>
50
<PAGE> 50
iMANAGE, INC.
EXHIBITS
TO
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
3.1* Restated Certificate of Incorporation of iManage, Inc.
3.2* Amended and Restated Bylaws of iManage, Inc.
3.3 Charter Documents of iManage Limited.
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.
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,
as amended to date.
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.
24.1 Power of Attorney (see signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* As filed with the Registrant's Registration Statement on Form S-1 (File
No. 333-86353) on September 1, 1999, as amended
50
<PAGE> 1
EXHIBIT 3.3
[COAT OF ARMS]
CERTIFICATE OF INCORPORATION
OF A PRIVATE LIMITED COMPANY
Company No. 3837314
The Registrar of Companies for England and Wales hereby certifies that
ACERESULT LIMITED
is this day incorporated under the Companies Act 1985 as a private company and
that the company is limited.
Given at Companies House, Cardiff, the 7th September 1999
[SEAL]
THE OFFICIAL SEAL OF THE
REGISTRAR OF COMPANIES
[COMPANIES HOUSE LOGO]
<PAGE> 2
[COAT OF ARMS]
CERTIFICATE OF INCORPORATION
ON CHANGE OF NAME
Company No. 3837314
The Registrar of Companies for England and Wales hereby certifies that
ACERESULT LIMITED
having by special resolution changed its name, is now incorporated under the
name of
IMANAGE LIMITED
Given at Companies House, Cardiff, the 29th September 1999
[SEAL]
THE OFFICIAL SEAL OF THE
REGISTRAR OF COMPANIES
[COMPANIES HOUSE LOGO]
<PAGE> 3
[ICSA SOFTWARE LOGO] 287
<TABLE>
<S> <C> <C>
CHANGE IN SITUATION OR ADDRESS OF REGISTERED OFFICE
COMPANY NUMBER 3837314
COMPANY NAME IN FULL ACERESULT LIMITED
[BAR CODE]
*F2870C50*
NEW SITUATION OF REGISTERED OFFICE
NOTE: Address 9 GREYFRIARS ROAD
The change in the Post town READING
situation of the
registered office does County/Region BERKSHIRE Postcode RG1 1JG
not take effect until the
Registrar has registered
this notice.
For 14 days beginning
with the date that a
change of registered
office is registered, a
person may validly serve
any document on the
company at its previous
registered office.
PO Box numbers only
are not acceptable.
SIGNED /s/ MARK CULHANE DATE: 22/9/99
+ Please delete as appropriate + a director / secretary / administrator / administrative receiver
liquidator / receiver manager / receiver
Please give the name, address, PricewaterhouseCoopers
telephone number and, if available, 6 Town Quay
a DX number and Exchange of Southampton
the person Companies House should Hampshire
contact if there is any query. SO142HJ
When you have completed and signed the form please send it to
Companies House receipt COMPANIES HOUSE, CROWN WAY, CARDIFF, CF4 3UZ DX 33050 CARDIFF
date barcode for companies registered in England and Wales or
COMPANIES HOUSE, 37 CASTLE TERRACE, EDINBURGH, EH1 2EB
for companies registered in Scotland DX 235 EDINBURGH
</TABLE>
<PAGE> 4
[ICSA SOFTWARE LOGO] 225
CHANGE OF ACCOUNTING REFERENCE DATE
COMPANY NUMBER 3937314
COMPANY NAME IN FULL IMANAGE LIMITED
[BAR CODE]
* F 2 2 5 0 C 5 0 *
<TABLE>
<S> <C>
NOTES
You may use this form to change the Day Month Year
accounting date relating to either the current -------------------------
or the immediately previous accounting The accounting reference period ending 30 09 00
period. -------------------------
a. You may not change a period for which Day Month Year
the accounts are already overdue. -------------------------
is extended + so as to end on 31 12 00
b. You may not extend a period beyond 18 -------------------------
months unless the company is subject to
an administration order. Subsequent periods will end on the same day and month in future years.
c. You may not extend periods more than
once in five years unless:
1. the company is subject to an If extending more than once in five years, please indicate in
administration order, or the box the number of the provision listed in note c, on which [ ]
you are relying.
2. you have the specific approval of the
Secretary of State, (please enclose a
copy), or
3. you are extending the company's
accounting reference period to align with
that of a partner or subsidiary undertaking
establishing in the European Economic
Area.
4. the form is being submitted by an
overseas company.
SIGNED /s/ MARK CULHANE DATE 12/10/99
----------------------------- ----------
+ Please delete as appropriate + a director / secretary / administrator / administrative receiver /
receiver and manager /receiver (Scotland) / person authorised on behalf
of an oversea company.
Please give the name, address, PricewaterhouseCoopers
telephone number and, if applicable, 5 Town Quay
a DX number and Exchange of Southampton
the person Companies House should SO14 2HJ
contact if there is any query
When you have completed and signed the form please send it to
Companies House receipt date barcode COMPANIES HOUSE, CROWN WAY, CARDIFF, CF4 3UZ DX 33050 CARDIFF
for companies registered in England and Wales or
COMPANIES HOUSE, 37 CASTLE TERRACE, EDINBURGH, EH1 2EB
for companies registered in Scotland DX 235 EDINBURGH
</TABLE>
<PAGE> 5
[ISCS SOFTWARE LOGO] 288a
APPOINTMENT OF DIRECTOR OR SECRETARY
(NOT FOR RESIGNATION (USE FORM 288b) OR
CHANGE OF PARTICULARS (USE FORM 288c))
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------------------------------------
COMPANY NUMBER 3837314
----------------------------------------------------------------------------
----------------------------------------------------------------------------
COMPANY NAME IN FULL ACERESULT LIMITED
----------------------------------------------------------------------------
Day Month Year Day Month Year
[BAR CODE] ----------------------------------------------------------------------------
* F 2 8 8 A C 5 0 * Date of 22 09 99 +Date of 17 12 59
appointment Birth
----------------------------------------------------------------------------
Appointment as director [X] as secretary [X]
Please mark the appropriate box. If appointment is as a director and
secretary mark both boxes.
----------------------------------------------------------------------------
APPOINTMENT NAME *Style/Title *Honours etc.
FORM
----------------------------------------------------------------------------
Forename(s) Mark
Notes on completion ----------------------------------------------------------------------------
appear on reverse. Surname CULHANE
----------------------------------------------------------------------------
Previous
Forename(s)
----------------------------------------------------------------------------
Previous
Surname
----------------------------------------------------------------------------
USUAL RESIDENTIAL 315 CONCORD DRIVE
ADDRESS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Post town MENLO PARK Postcode CA 94025
------------------------------ -------------------------------
County/Region CALIFORNIA Country United States of America
------------------------------ -------------------------------
+ Nationality American + Business Chief Financial Officer
occupation
------------------------------ -------------------------------
----------------------------------------------------------------------------
**Other directorships None
(additional space overleaf)
----------------------------------------------------------------------------
consent to act as **director/secretary of the above named company
----------------------------------------------------------------------------
------------------------------ -------------------------------
* Voluntary details.
+ Directors only. CONSENT SIGNATURE /s/ MARK CULHANE DATE 22/9/99
------------------------------ -------------------------------
A director, secretary, etc. must sign the form below.
------------------------------ -------------------------------
** please delete as appropriate
SIGNED /s/ MAHMOOD PANJWANI DATE 22/9/99
------------------------------ -------------------------------
a director (secretary/administrator/administrative receiver/receiver
manager/receiver)
----------------------------------------------------------------------------
Please give the name, address, PricewaterhouseCoopers
telephone number and, if available, 5 Town Quay
a DX number and Exchange of Southampton
the person Companies House should Hampshire
contact if there is any query 5014 ZMJ
- ------------------------------------ ----------------------------------------------------------------------------
When you have completed and signed the form please send it to
Companies House receipt date barcode COMPANIES HOUSE, CROWN WAY, CARDIFF, CF4 3UZ DX 33050 CARDIFF
for companies registered in England and Wales or
COMPANIES HOUSE, 37 CASTLE TERRACE, EDINBURGH, EH1 2EB
for companies registered in Scotland DX 235 EDINBURGH
- ------------------------------------ ----------------------------------------------------------------------------
</TABLE>
<PAGE> 6
[ISCS SOFTWARE LOGO] 288a
APPOINTMENT OF DIRECTOR OR SECRETARY
(NOT FOR RESIGNATION (USE FORM 288b) OR
CHANGE OF PARTICULARS (USE FORM 288c))
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------------------------------------
COMPANY NUMBER 3837314
----------------------------------------------------------------------------
----------------------------------------------------------------------------
COMPANY NAME IN FULL ACERESULT LIMITED
----------------------------------------------------------------------------
Day Month Year Day Month Year
[BAR CODE] ----------------------------------------------------------------------------
* F 2 8 8 A C 5 0 * Date of 22 09 99 +Date of Birth 19 12 58
appointment
----------------------------------------------------------------------------
Appointment as Director [X] as secretary [X]
Please mark the appropriate box. If appointment is as a director and
secretary mark both boxes.
----------------------------------------------------------------------------
APPOINTMENT NAME *Style/Title *Honours etc.
FORM
----------------------------------------------------------------------------
Forename(s) Mahmood
Notes on completion ----------------------------------------------------------------------------
appear on reverse. Surname PANJWANI
----------------------------------------------------------------------------
Previous
Forename(s)
----------------------------------------------------------------------------
Previous
Surname
----------------------------------------------------------------------------
USUAL RESIDENTIAL 85 SOUTHDOWN COURT
ADDRESS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Post town HILLSBOROUGH Postcode CA 94010
------------------------------ -------------------------------
County/Region CALIFORNIA Country United States of America
------------------------------ -------------------------------
+ Nationality American + Business Chief Executive Officer
occupation
------------------------------ -------------------------------
----------------------------------------------------------------------------
+Other directorships None
(additional space overleaf)
----------------------------------------------------------------------------
consent to act as **director of the above named company
----------------------------------------------------------------------------
------------------------------ -------------------------------
* Voluntary details.
+ Directors only. CONSENT SIGNATURE /s/ MAHMOOD PANJWANI DATE 22/9/99
------------------------------ -------------------------------
A director, secretary, etc. must sign the form below.
------------------------------ -------------------------------
** please delete as appropriate
SIGNED /s/ MARK CULHANE DATE 22/9/99
------------------------------ -------------------------------
a director (secretary/administrator/administrative receiver/receiver
manager/receiver)
----------------------------------------------------------------------------
Please give the name, address, PricewaterhouseCoopers
telephone number and, if available, 5 Town Quay
a DX number and Exchange of Southampton
the person Companies House should Hampshire
contact if there is any query 5014 ZMJ
- ------------------------------------ ----------------------------------------------------------------------------
When you have completed and signed the form please send it to
Companies House receipt date barcode COMPANIES HOUSE, CROWN WAY, CARDIFF, CF4 3UZ DX 33050 CARDIFF
for companies registered in England and Wales or
COMPANIES HOUSE, 37 CASTLE TERRACE, EDINBURGH, EH1 2EB
for companies registered in Scotland DX 235 EDINBURGH
- ------------------------------------ ----------------------------------------------------------------------------
</TABLE>
<PAGE> 7
THE COMPANIES ACTS 1985 to 1989
CERTIFICATION
WE HEREBY CERTIFY THAT THIS PRINT
INCORPORATES ALL ALTERATIONS MADE TO
THIS COMPANY'S MEMORANDUM AND ARTICLES
OF ASSOCIATION BY FILED RESOLUTIONS AND
IS LODGED IN COMPLIANCE WITH THE
REQUIREMENTS OF SECTION 18 OF THE
PRIVATE COMPANY LIMITED BY SHARES COMPANIES ACT 1983
MEMORANDUM OF ASSOCIATION OF
IMANAGE LIMITED
1. The Company's name is "IMANAGE LIMITED".
2. The Company's registered office is to be situated in England and Wales.
3.1 The object of the Company is to carry on business as a general commercial
company.
3.2 Without prejudice to the generality of the object and the powers of the
Company derived from Section 3A of the Act the Company has power to do all or
any of the following things:
3.2.1 To purchase or by any other means acquire and take options over any
property whatever, and any right or privileges of any kind over or in respect
of any property.
<PAGE> 8
3.2.2 To apply for, register, purchase, or by other means acquire and
protect, prolong and renew, whether in the United Kingdom or elsewhere, any
trade marks, patents, copyrights, trade secrets, or other intellectual property
rights, licenses, secret processes, designs, protections and concessions and to
disclaim, alter, modify, use and turn to account and to manufacture under or
grant licenses or privileges in respect of the same, and to expend money in
experimenting upon, testing and improving any patents, inventions or rights
which the Company may acquire or propose to acquire.
3.2.3 To acquire or undertake the whole or any part of the business,
goodwill, and assets of any person, firm, or company carrying on or proposing to
carry on any of the businesses which the Company is authorised to carry on and
as part of the consideration for such acquisition to undertake all or any of the
liabilities of such person, firm or company, or to acquire an interest in,
amalgamate with, or enter into partnership or into any arrangement for sharing
profits, or for co-operation, or for mutual assistance with any such person,
firm or company, or for subsidising or otherwise assisting any such person, firm
or company, and to give or accept, by way of consideration for any of the acts
or things aforesaid or property acquired, any shares, debentures, debenture
stock or securities that may be agreed upon, and to hold and retain, or sell,
mortgage and deal with any shares, debentures, debenture stock or securities so
received.
2.3.4 To improve, manage, construct, repair, develop, exchange, let on
lease or otherwise, mortgage, charge, sell, dispose of, turn to account, grant
licenses, options, rights and privileges in respect of, or otherwise deal with
all or any part of the property and rights of the Company.
3.2.5 To invest and deal with the moneys of the Company not immediately
required in such manner as may from time to time be determined and to hold or
otherwise deal with any investments made.
3.2.6 To lend and advance money or give credit on any terms and with or
without security to any person, firm or company (including without prejudice to
the generality of the foregoing any holding company, subsidiary or fellow
subsidiary of, or any other company associated in any way with, the Company),
to enter into guarantees, contracts of indemnity and suretyships of all kinds,
to receive money on deposit or loan upon any terms, and to secure or guarantee
in any manner and upon any terms the payment of any sum of money or the
performance of any obligation by any person, firm or company (including without
prejudice to the generality of the foregoing any such holding company,
subsidiary, fellow subsidiary or associated company as aforesaid).
3.2.7 To borrow and raise money in any manner and to secure the repayment
of any money borrowed, raised or owing by mortgage, charge, standard security,
lien or other security upon the whole or any part of the Company's property or
assets (whether present or future), including its uncalled capital, and also by
a similar mortgage, charge, standard security, lien or security to secure and
guarantee the performance by the Company of any obligation or liability it may
undertake or which may become binding on it.
<PAGE> 9
3.2.8 To draw, make, accept, endorse, discount, negotiate, execute and issue
cheques, bills of exchange, promissory notes, bills of lading, warrants,
debentures, and other negotiable or transferable instruments.
3.2.9 To apply for, promote, and obtain any Act of Parliament, order, or licence
of the Department of Trade or other authority for enabling the Company to carry
any of its objects into effect, or for effecting any modification of the
Company's constitution, or for any other purpose which may seem calculated
directly or indirectly to promote the Company's interests, and to oppose any
proceedings or applications which may seem calculated directly or indirectly to
prejudice the Company's interests.
3.2.10 To enter into any arrangements wit any government or authority (supreme,
municipal, local, or otherwise) that may seem conducive to the attainment of the
Company's objects or an of them, and to obtain from any such government or
authority any charters, decrees, rights, privileges or concessions which the
Company may think desirable and to carry out, exercise, and comply with any such
charters, decrees, rights, privileges, and concessions.
3.2.11 To subscribe for, take, purchase, or otherwise acquire, hold, sell, deal
with and dispose of, place and underwrite shares, stocks, debentures, debenture
stocks, bonds, obligations or securities issued or guaranteed by any other
company constituted or carrying on business in any part of the world, and
debentures, debenture stocks, bonds, obligations or securities issued or
guaranteed by any government or authority, municipal, local or otherwise, in any
part of the world.
3.2.12 To control, manage, finance, subsidise, co-ordinate or otherwise assist
any company or companies in which the Company has a direct or indirect financial
interest, to provide secretarial, administrative, technical, commercial and
other services and facilities of all kinds for any such company or companies and
to make payments by way of subvention or otherwise and any other arrangements
which may seem desirable with respect to any business or operations of or
generally with respect to any such company or companies.
3.2.13 To promote any other company for the purpose of acquiring the whole or
any part of the business or property or undertaking or any of the liabilities of
the Company, or of undertaking any business or operations which may appear
likely to assist or benefit the Company or to enhance the value of any property
or business of the Company, and to place or guarantee the placing of,
underwrite, subscribe for, or otherwise acquire all or any part of the shares or
securities of any such company as aforesaid.
3.2.14 To sell or otherwise dispose of the whole or any part of the business or
property of the Company, either together or in portions, for such consideration
as the Company may think fit, and in particular for shares, debentures, or
securities of any company purchasing the same.
3.2.15 To act as agents or brokers and as trustees for any person, firm or
company, and to undertake and perform sub-contracts.
<PAGE> 10
3.2.16 To remunerate any person, firm or company rendering services to the
Company either by cash payment or by the allotment of shares or other securities
of the Company credited as paid up in full or in part or otherwise as may be
thought expedient.
3.2.17 To distribute among the members of the Company in kind any property of
the Company of whatever nature.
3.2.18 To pay all or any expenses incurred in connection with the promotion,
formation and incorporation of the Company, or to contract with any person, firm
or company to pay the same, and to pay commissions to brokers and others for
underwriting, placing, selling, or guaranteeing the subscription of any shares
or other securities of the Company.
3.2.19 To support and subscribe to any charitable or public object an to support
and subscribe to any institution, society, or club which may be for the benefit
of the Company or its directors or employees, or may be connected with any town
or place where the Company carries on business; to give or award pensions,
annuities, gratuities, and superannuation or other allowances or benefits or
charitable aid and generally to provide advantages, facilities and services for
any persons who are or have been directors of, or who are or have been employed
by, or who are serving or have served the Company, or any company which is a
subsidiary of the Company or the holding company of the Company or a fellow
subsidiary of the Company or the predecessors in business of the Company or of
any such subsidiary, holding or fellow subsidiary company and to the wives,
widows, children and other relatives and dependants of such persons; to make
payments towards insurance including insurance for any director, officer or
auditor against any liability in respect of any negligence, default, breach of
duty or breach of trust (so far as permitted by law); and to set up, establish,
support and maintain superannuation and other funds or schemes (whether
contributory or non-contributory) for the benefit of any of such persons and of
their wives, widows, children and other relatives and dependants; and to set up,
establish, support and maintain profit sharing or share purchase schemes for the
benefit of any of the employees of the Company or of any such subsidiary,
holding or fellow subsidiary company and to lend money to any such employees or
to trustees on their behalf to enable any such schemes to be established or
maintained.
3.2.20 Subject to and in accordance with the provisions of the Act (if and so
far as such provisions shall be applicable) to give, directly or indirectly,
financial assistance for the acquisition of shares or other securities of the
Company or of any other company or for the reduction or discharge of any
liability incurred in respect of such acquisition.
3.2.21 To procure the Company to be registered or recognised in any part of the
world.
3.2.22 To cease carrying on or to wind up any business or activity of the
Company, and to cancel any registration of, and to wind up or procure the
dissolution of the Company in any state or territory.
3.2.23 To do all or any of the things or matters aforesaid in any part of the
world and either as principals, agents, contractors or otherwise, and by or
through
<PAGE> 11
agents, brokers, sub-contractors or otherwise and either alone or in
conjunction with others.
3.2.24 To do all such other things as may be deemed incidental or conducive
to the attainment of the Company's objects or any of them.
3.2.25 AND so that:-
3.2.25.1 None of the provisions set forth in any sub-clause of this clause
shall be restrictively construed but the widest interpretation shall be given to
each such provision, and none of such provisions shall, except where the context
expressly so requires, be in any way limited or restricted by reference to or
inference from any other provision set forth in such sub-clause, or by reference
to or inference from the terms of any other sub-clause or this clause, or by
reference to or inference from the name of the Company.
3.2.25.2 The word "company" in this clause, except where used in reference to
the Company, shall be deemed to include any partnership or other body of
persons, whether incorporated or unincorporated and whether domiciled in the
Untied Kingdom or elsewhere.
3.2.25.3 In this clause the expression "the Act" means the Companies Act of
1985, but so that any reference in this clause to any provision of the Act
shall be deemed to include a reference to any statutory modification or
re-enactment of that provision for the time being in force.
4. The liability of the members is limited.
5. The Company's share capital is L1,000 divided into 1,000 shares of L1
each.
<PAGE> 12
I, the subscriber to this Memorandum of Association, wish to be formed into a
Company pursuant to this Memorandum; and I agree to take the number of shares
shown opposite my name.
<TABLE>
<CAPTION>
Number of shares taken
Name and address of Subscriber by the Subscriber
- ------------------------------ ----------------------
<S> <C>
Instant Companies Limited One
1 Mitchell Lane
Bristol BS1 6BU
---
Total shares taken One
</TABLE>
Dated 31 August 1999
Witness to the above Signature:- Glenys Copeland
1 Mitchell Lane
Bristol BS1 6BU
<PAGE> 13
THE COMPANIES ACTS 1985 TO 1989
PRIVATE COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION OF
IMANAGE LIMITED
1. PRELIMINARY
1.1 The regulations contained in Table A in the Schedule to the Companies
(Tables A to F) Regulations 1985 (SI 1985 No. 805) as amended by the Companies
(Tables A to F) (Amendment) Regulations 1985 (SI 1985 No. 1052) (such Table
being hereinafter called "Table A") shall apply to the Company save in so far
as they are excluded or varied hereby and such regulations (save as so excluded
or varied) and the Articles hereinafter contained shall be the Articles of
Association of the Company.
1.2 In these Articles the expressions:-
"the Act" means the Companies Act 1985, but so that any
reference in these Articles to any provision of
the Act shall be deemed to include a reference to
any statutory modification or re-enactment of
that provision for the time being in force; and
"subsidiary company" means a company which is a subsidiary of another
within the meaning of Section 736 of the Act
except that a company shall not be regarded as a
subsidiary of another by reason only of the fact
that the other is a member of it and has the right
to appoint or remove a majority of its board of
directors and the definition of "holding company"
in the said Section shall be construed
accordingly.
2. ALLOTMENT OF SHARES
2.1 Notwithstanding any other provisions contained in this Article 2, for
so long as the Company is a subsidiary company, the directors shall not be
entitled to exercise any of the powers, authorities, rights or discretions
conferred on them
<PAGE> 14
by this Article 2 without the prior consent of the Company's holding company.
Authority given to the directors for the purposes of or pursuant to section 80
of the Act shall not constitute a consent pursuant to the provisions of this
Article 2.1
2.2 Shares which are comprised in the authorised but unissued share capital
of the Company shall be under the control of the directors who may (subject to
section 80 of the Act and to Article 2.4 below) allot, grant options over or
otherwise dispose of the same, to such persons, on such terms and in such
manner as they think fit.
2.3 In accordance with section 91(1) of the Act sections 89(1) and 90(1) to
(6) (inclusive) of the Act shall not apply to the Company.
2.4 The directors are generally and unconditionally authorised for the
purposes of section 80 of the Act to exercise any power of the Company to allot
and grant rights to subscribe for or convert securities into shares of the
Company up to the amount of the authorised share capital with which the Company
is incorporated at any time or times during the period of five years from the
date of incorporation and the directors may, after that period, allot any shares
or grant any such rights under this authority in pursuance of an offer or
agreement so to do made by the Company within that period. The authority
hereby given may at any time (subject to the said section 80) be renewed,
revoked or varied by ordinary resolution.
3. SHARES
3.1 The lien conferred by regulation 8 in Table A shall attach also to fully
paid-up shares, and the Company shall also have a first and paramount lien on
all shares, whether fully paid or not, standing registered in the name of any
person indebted or under liability to the Company, whether he shall be the sole
registered holder thereof or shall be one of two or more joint holders, for all
moneys presently payable by him or his estate to the Company, Regulation 8 in
Table A shall be modified accordingly.
3.2 The liability of any member in default in respect of a call shall be
increased by the addition at the end of the first sentence of regulation 18 in
Table A of the words "and all expenses that may have been incurred by the
Company by reason of such non-payment".
4. GENERAL MEETINGS AND RESOLUTIONS
4.1 Every notice convening a general meeting shall comply with the provisions
of section 372(3) of the Act as to giving information to members in regard to
their right to appoint proxies; and notices of and other communications
relating to any general meeting which any member is entitled to receive shall
be sent to the directors and to the auditors for the time being of the Company.
4.2 Regulation 37 in Table A shall be read and construed as if the last
sentence were omitted therefrom.
4.3.1 No business shall be transacted at any general meeting unless a quorum is
present. Subject to Article 4.3.2 below, two persons entitled to vote upon the
<PAGE> 15
business to be transacted, each being a member or a proxy for a member or a
duly authorised representative of a corporation, shall be a quorum.
4.3.2 If and for so long as the Company has only one member, that member
present in person or by proxy or (if that member is a corporation) by a duly
authorised representative shall be a quorum.
4.3.3 If a quorum is not present within half an hour from the time appointed
for a general meeting the general meeting shall stand adjourned to the same day
in the next week at the same time and place or to such other day and at such
other time and place as the directors may determine; and if at the adjourned
general meeting a quorum is not present within half an hour from the time
appointed therefor such adjourned general meeting shall be dissolved.
4.3.4 Regulations 40 and 41 in Table A shall not apply to the Company.
4.4.1 If and for so long as the Company has only one member and that member
takes any decision which is required to be taken in general meeting or by means
of a written resolution, that decision shall be as valid and effectual as if
agreed by the Company in general meeting, subject as provided in Article 4.4.3
below.
4.4.2 Any decision taken by a sole member pursuant to Article 4.4.1 above
shall be recorded in writing and delivered by that member to the Company for
entry in the Company's minute book.
4.4.3 Resolutions under section 303 of the Act for the removal of a director
before the expiration of his period of office and under section 391 of the Act
for the removal of an auditor before the expiration of his period of office
shall only be considered by the Company in general meeting.
4.5 A member present at a meeting by proxy shall be entitled to speak at
the meeting and shall be entitled to one vote on a show of hands. In any case
where the same person is appointed proxy for more than one member he shall on a
show of hands have as many votes as the number of members for whom he is proxy.
Regulation 54 in Table A shall be modified accordingly.
4.6.1 Regulation 62 in Table A shall be read and construed as if the words
"within the United Kingdom" were omitted therefrom.
4.6.2 Unless resolved by ordinary resolution that regulation 62 in Table A
shall apply without the following modification, the instrument appointing a
proxy and any authority under which it is executed or a copy of such authority
certified notarially or in some other way approved by the directors may be
deposited at the place specified in regulation 62 in Table A up to the
commencement of the meeting or (in any case where a poll is taken otherwise
than at the meeting) of the taking of the poll or may be handed to the chairman
of the meeting prior to the commencement of the business of the meeting. Unless
otherwise resolved by ordinary resolution the directors may at their discretion
treat a faxed copy of an instrument appointing a proxy as such an instrument
for the purpose of this Article 4.6.2.
<PAGE> 16
4.7 Any director may at his discretion treat a faxed copy of a signed
resolution in writing as an instrument or document executed or signed by the
signatory for the purposes of regulation 53 or regulation 93 in Table A, as the
case may be.
4.8 Any corporation which is a member of the Company may, by a document
signed by a duly authorised officer of that corporation, authorise such person
as it thinks fit to act as its representative at any meeting of the Company. The
person so authorised shall be entitled to exercise the same powers on behalf of
the corporation which he represents as that corporation could exercise if it
were an individual member of the Company personally present at such meeting. Any
director may (but is not bound to) require such evidence as he thinks fit of the
authority of the representative to act.
5. APPOINTMENT OF DIRECTORS
5.1.1 Regulation 64 in Table A shall not apply to the Company.
5.1.2 The maximum number and minimum number respectively of the directors may
be determined from time to time by ordinary resolution. Subject to and in
default of any such determination there shall be no maximum number of directors
and the minimum number of directors shall be one. Whenever the minimum number of
directors is one, a sole director shall have authority to exercise all the
powers and discretions by Table A and by these Articles expressed to be vested
in the directors generally, and regulation 89 in Table A shall be modified
accordingly.
5.2 The directors shall not be required to retire by rotation and
regulations 73 to 80 (inclusive in Table A shall not apply to the Company.
5.3 No person shall be appointed a director at any general meeting unless
either:
(a) he is recommended by the directors; or
(b) not less than 14 nor more than 35 clear days before the date
appointed for the general meeting, notice signed by a member qualified to vote
at the general meeting has been given to the Company of the intention to
propose that person for appointment, together with notice signed by that person
of his willingness to be appointed.
5.4.1 Subject to Article 5.3 above, the Company may by ordinary resolution
appoint any person who is willing to act to be a director, either to fill a
vacancy or as an additional director.
5.4.2 The directors may appoint a person who is willing to act to be a
director, either to fill a vacancy or as an additional director, provided that
the appointment does not cause the number of directors to exceed any number
determined in accordance with Article 5.1.2 above as the maximum number of
directors and for the time being in force.
<PAGE> 17
5.5 Notwithstanding any other provisions of this Article 5, for so long as the
Company is a subsidiary company, its holding company may appoint any person to
be a director or remove any director from officer howsoever appointed.
6. CONSENT, APPOINTMENT OR REMOVAL BY HOLDING COMPANY
6.1 Every consent or any appointment or removal of a director under the powers
conferred upon a holding company by these Articles shall be made by instrument
in writing and signed by a director or the company secretary of such holding
company and such instrument shall only take effect on the service thereof at
the registered office of the Company. Every such instrument shall be annexed to
the directors' minute book as soon as practicable after such service.
6.2 No person dealing with the Company shall be concerned to see or enquire as
to whether the powers of the directors have been in any way restricted
hereunder or as to whether any requisite consent of a holding company has been
obtained and any restriction imposed by these Articles shall be subject to the
provisions of the Act.
6.3 If the Company has more than one holding company then for the purpose of
these Articles references to its holding company shall be read and construed as
references to its immediate holding company.
7. BORROWING POWERS
7.1 The directors may exercise all the powers of the Company to borrow money
without limit as to amount and upon such terms and in such manner as they think
fit, and subject (in the case of any security convertible into shares) to
section 80 of the Act to grant any mortgage, charge or standard security over
its undertaking, property and uncalled capital, or any part thereof, and to
issue debentures, debenture stock, and other securities whether outright or as
security for any debt, liability or obligation of the Company or of any third
party.
8. ALTERNATE DIRECTORS
8.1 Unless otherwise determined by the Company in general meeting by ordinary
resolution an alternate director shall not be entitled as such to receive any
remuneration from the Company, save that he may be paid by the Company such
part (if any) of the remuneration otherwise payable to his appointor as such
appointor may by notice in writing to the Company from time to time direct, and
the first sentence of regulation 66 in Table A shall be modified accordingly.
8.2 A director, or any such other person as is mentioned in regulation 65 in
Table A, may act as an alternate director to represent more than one director,
and an alternate director shall be entitled at any meeting of the directors or
of any committee of the directors to one vote for every director whom he
represents in addition to his own vote (if any) as a director, but he shall
count as only one for the purposes of determining whether a quorum is present.
8.3 Regulation 66 in Table A shall be read and construed as if the last
sentence were omitted therefrom.
<PAGE> 18
9. GRATUITIES AND PENSIONS
9.1.1 The directors may exercise the powers of the Company conferred by
its Memorandum of Association in relation to the payment of pensions, gratuities
and other benefits and shall be entitled to retain any benefits received by them
or any of them by reason of the exercise of any such powers.
9.1.2 Regulation 87 in Table A shall not apply to the Company.
10. MEETINGS
10.1 In this Article "electronic" means actuated by electric, magnetic,
electro-magnetic, electro-chemical or electro-mechanical energy and "by
electronic means" means by any manner only capable of being so actuated.
10.2 A person in communication by electronic means with the chairman and
with all other parties to a meeting of the directors or of a committee of the
directors shall be regarded for all purposes as personally attending such a
meeting provided that but only for so long as at such a meeting he has the
ability to communicate interactively and simultaneously with all other parties
attending the meeting including all persons attending by electronic means.
10.3 A meeting at which one or more of the directors attends by
electronic means is deemed to be held at such place as the directors shall at
the said meeting resolve. In the absence of a resolution as aforesaid, the
meeting shall be deemed to be held at the place, if any, where a majority of the
directors attending the meeting are physically present, or in default of such a
majority, the place at which the chairman of the meeting is physically present.
11. PROCEEDINGS OF DIRECTORS
11.1.1 Regulation 88 in Table A shall be read and construed as if the third
sentence were omitted therefrom.
11.1.2 A director may vote, at any meeting of the directors or of any
committee of the directors, on any resolution, notwithstanding that it in any
way concerns or relates to a matter in which he has, directly or indirectly, any
kind of interest whatsoever, and if he shall vote on any such resolution his
vote shall be counted; and in relation to any such resolution as aforesaid he
shall (whether or not he shall vote on the same) be taken into account in
calculating the quorum present at the meeting.
11.1.3 Each director shall comply with his obligations to disclose his
interest in contracts under section 317 of the Act.
11.1.4 Regulations 94 to 97 (inclusive) in Table A shall not apply to the
Company.
12. THE SEAL
12.1 If the Company has a seal it shall only be used with the authority
of the directors or of a committee of directors. The directors may determine who
shall
<PAGE> 19
sign any instrument to which the seal is affixed and unless otherwise so
determined it shall be signed by a director and by the secretary or second
director. The obligation under regulation 6 of Table A relating to the sealing
of share certificates shall apply only if the Company ha a seal. Regulation 101
in Table A shall not apply to the Company.
12.2 The Company may exercise the powers conferred by section 39 of the Act
with regard to having an official seal for use abroad, and such powers shall be
vested in the directors.
13. NOTICES
13.1 Regulation 112 in Table A shall be read and construed as if the last
sentence was omitted therefrom.
13.2 Regulation 116 in Table A shall be read and construed as if the words
"within the United Kingdom" were omitted therefrom.
13.3 Without prejudice to regulations 112 to 116 inclusive in Table A (as
amended by Articles 13.1 and 13.2 above) the Company may give notice to a
member by electronic means provided that:
13.3.1 the member has given his consent in writing to receiving notice
communicated by electronic means and in such consent has set out an address to
which the notice shall be sent by electronic means; and
13.3.2 the electronic means used by the Company enables the member concerned
to read the text of the notice.
13.4 A notice given to a member personally or in a form permitted by Article
13.3 above shall be deemed to be given on the earlier of the day on which it is
delivered personally and the day on which it was dispatched by electronic
means, as the case may be.
13.5 Regulation 115 in Table A shall not apply to a notice delivered
personally or in a form permitted by Article 13.3 above.
13.6 In this article "electronic" means actuated by electric, magnetic,
electro-magnetic, electro-chemical or electro-mechanical energy and "by
electronic means" means by any manner only capable of being so actuated.
14. INDEMNITY
14.1 Every director or other officer or auditor of the Company shall be
indemnified out of the assets of the Company against all losses or liabilities
which he may sustain or incur in or about the execution of the duties of his
office or otherwise in relation thereto, including any liability incurred by him
in defending any proceedings, whether civil or criminal, or in connection with
any application under section 144 or section 727 of the Act in which relief is
granted to him by the Court, and no director or other officer shall be liable
for any loss, damage or misfortune which may happen to or be incurred by the
Company in the execution
<PAGE> 20
of the duties of his office or in relation thereto. But this Article shall only
have effect in so far as its provisions are not avoided by section 310 of the
Act.
14.2 The directors shall have power to purchase and maintain for any director,
officer of auditor of the Company insurance against any such liability as is
referred to in section 310(1) of the Act.
14.3 Regulation 118 in Table A shall not apply to the Company.
15. TRANSFER OF SHARES
15.1 The directors may, in their absolute discretion and without assigning any
reason therefor, decline to register the transfer of a share, whether or not it
is a fully paid share.
15.2 For so long as the Company is a subsidiary company, no transfer of a
share shall be registered without the prior consent of the Company's holding
company.
15.3 The first sentence of regulation 24 in Table A shall not apply to the
Company.
<PAGE> 21
- -------------------------------------------------------------------------------
Name and address of Subscriber
- -------------------------------------------------------------------------------
Instant Companies Limited
1 Mitchell Lane
Bristol BS1 6BU
- -------------------------------------------------------------------------------
Dated 31 August 1999
Witness to the above Signature: Glenys Copeland
1 Mitchell Lane
Bristol BS1 6BU
<PAGE> 22
The regulations of Table A to the Companies Act 1985 apply to the Company save
in so far as they are excluded or varied by its Articles of Association.
Table A as prescribed by the Companies (Tables A to F) Regulations 1985 (S.I.
1985 No. 805), amended by the Companies (Tables A to F) (Amendment) Regulations
1985 (S.I. 1985 No. 1052), is reprinted below.
TABLE A THE COMPANIES ACT 1985
REGULATIONS FOR MANAGEMENT
OF A COMPANY LIMITED BY SHARES
INTERPRETATION
1. IN THESE REGULATIONS
"THE ACT" means the Companies Act 1985 including any statutory modification or
re-enactment thereof for the time being in force.
"THE ARTICLES" means the articles of the company.
"CLEAR DAYS" in relation to the period of notice means that period excluding
the day when the notice is given or deemed to be given and the day for which it
is given or on which it is to take effect.
"EXECUTED" includes any notice of execution.
"OFFICE" means the registered office of the company.
"THE HOLDER" in relation to shares means the member whose name is entered in
the register of members as the holder of the shares.
"THE SEAL" means the common seal of the company.
"SECRETARY" means the secretary of the company or any other person appointed to
perform the duties of the secretary of the company, including a joint,
assistant or deputy secretary.
"THE UNITED KINGDOM" means Great Britain and Northern Ireland.
Unless the context otherwise requires, words or expressions contained in these
regulations bear the same meaning as in the Act but excluding any statutory
modification thereof not in force when these regulations become binding on the
company.
SHARE CAPITAL
2. Subject to the provisions of the Act and without prejudice to any
rights attached to any existing shares, any share may be issued with such
rights or restrictions as the company may by ordinary resolution determine.
3. Subject to the provisions of the Act, shares may be issued which are to
be redeemed or are to be liable to be redeemed at the option of the company or
the holder on such terms and in such manner as may be provided by the articles.
4. The company may exercise the powers of paying commissions conferred by
the Act. Subject to the provisions of the Act, any such commission may be
satisfied by the payment of cash or by the allotment of fully or partly paid
shares or partly in one way and partly in the other.
5. Except as required by law, no person shall be recognised by the company
as holding any share upon any trust and (except as otherwise provided by the
articles or by law) the company shall not be bound by or recognise any interest
in any share except an absolute right to the entirety thereof in the holder.
SHARE CERTIFICATES
6. Every member, upon becoming the holder of any shares, shall be entitled
without payment to one certificate for all the shares of each class held by him
(and, upon transferring a part of his holding of shares of any class, to a
certificate for the balance of such holding) or several certificates each for
one or more of his shares upon payment for every certificate after the first of
such reasonable sum as the directors may determine. Every certificate shall be
sealed with the seal and shall specify the number, class and distinguishing
numbers (if any) of the shares to which it relates and the amount or respective
amounts paid up thereon. The company shall not be bound to issue more than one
certificate for shares held jointly by several persons and delivery of a
certificate to one joint holder shall be a sufficient delivery to all of them.
7. If a share certificate is defaced, worn-out, lost or destroyed, it may
be renewed on such terms (if any) as to evidence and indemnify and payment of
the expenses reasonably incurred by the company in investigating evidence as
the directors may determine but otherwise free of charge, and (in the case of
defacement or wearing-out) on delivery up of the old certificate.
LIEN
8. The company shall have a first and paramount lien on every share (not
being a fully paid share) for all moneys (whether presently payable or not)
payable at a fixed time or called in respect of that share. The directors may
at any time declare any share to be wholly or in part exempt from the
provisions of this regulation. The company's lien on a share shall extend to any
amount payable in respect of it.
9. The company may sell in such manner as the directors determine any
shares on which the company has a lien if a sum in respect of which the lien
exists if presently payable and is not paid within fourteen clear days after
notice has been given to the holder of the share or to the person entitled to
it in consequence of the death or bankruptcy of the holder, demanding payment
and stating that if the notice is not complied with the shares may be sold.
10. To give effect to the sale the directors may authorise some person to
execute an instrument of transfer of the shares sold to, or in accordance with
the directions of, the purchaser. The title of the transferee to the shares
shall not be affected by any irregularity in or invalidity of the proceedings
in reference to the sale.
11. The net proceeds of the sale, after payment of the costs, shall be
applied in payment of so much of the sum for which the lien exists as is
presently payable, and any residue shall (upon surrender to the company for
cancellation of the certificate for the shares sold and subject to a like lien
for any moneys not presently payable as existed upon the shares before the
sale) be paid to the person entitled to the shares at the date of the sale.
CALLS ON SHARES AND FORFEITURE
12. Subject to the terms of allotment, the directors may make calls upon the
members in respect of any moneys unpaid on their shares (whether in respect of
nominal value or premium) and each member shall (subject to receiving at least
fourteen clear days' notice specifying when and where payment is to be made) pay
to the company as required by the notice the amount called on his shares. A call
may be required to be paid by installments. A call may, before receipt by the
company of any sum due thereunder, be revoked in whole or part and payment of a
call may be postponed in whole or part. A person upon whom a call is made shall
remain liable for calls made upon him notwithstanding the subsequent transfer of
the shares in respect whereof the call was made.
13. A call shall be deemed to have been made at the time when the
resolution of the directors authorising the call was passed.
14. The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
15. If a call remains unpaid after it has become due and payable the person
from whom it is due and payable shall pay interest on the amount unpaid from
the day it become due and payable until it is paid at the rate fixed by the
terms of allotment of the share or in the notice of the call, or if no rate is
fixed, at the appropriate rate (as defined by the Act) but the Directors may
waive payment of the interest wholly or in part.
16. An amount payable in respect of a share on allotment or at any fixed
date, whether in respect of nominal value or premium or as an installment of a
call, shall be deemed to be a call and if it is not paid the provisions of the
articles shall apply as if that amount had become due and payable by virtue of
a call.
17. Subject to the terms of allotment, the directors may make arrangements
on the issue of shares for a difference between the holders in the amounts and
times of payment of calls on their shares.
18. If a call remains unpaid after it has become due and payable the
directors may give to the person from whom it is due not less than fourteen
clear days' notice requiring payment of the amount unpaid together with any
interest which may have accrued. The notice shall name the place where payment
is to be made and shall state that if the notice is not complied with the
shares in respect of which the call was made will be liable to be forfeited.
19. If the notice is not complied with any share in respect of which it was
given may, before the payment required by the notice has been made, be
forfeited by a resolution of the directors and the forfeiture shall include all
dividends or other moneys payable in respect of the forfeited shares and not
paid before the forfeiture.
20. Subject to the provisions of the Act, a forfeited share may be sold,
re-allotted or otherwise disposed of on such terms and in such manner as the
directors determine either to the person who was before the forfeiture the
holder or to any other person and at any time before sale, re-allotment or
other disposition, the forfeiture may be cancelled on such terms as the
directors think fit. Where for the purposes of its disposal a forfeited share
is to be transferred to any person the directors may authorise some person to
execute an instrument of transfer of the share to that person.
21. A person any of whose shares have been forfeited shall cease to be a
member in respect of them and shall surrender to the company for cancellation
the certificate for the shares forfeited but shall remain liable to the company
for all moneys which at the date of forfeiture were presently payable by him to
the company in respect of those shares with interest at the rate at which
interest was payable on those moneys before the forfeiture or, if no interest
was so payable, at the appropriate rate (as defined in the Act) from the date
of forfeiture until payment but the directors may waive payment wholly or in
part or enforce payment without any allowance for the value of the shares at
the time of forfeiture or for any consideration received on their disposal.
22. A statutory declaration by a director or the secretary that a share has
been forfeited on a specified date shall be conclusive evidence of the facts
stated in it as against all persons claiming to be entitled to the share and
the declaration shall (subject to the execution of an instrument of transfer if
necessary) constitute a good title to the share and the person to whom the
share is disposed of shall not be bound to see to the application of the
consideration, if any, nor shall his title to the share be affected by any
irregularity in or invalidity of the proceedings in reference to the forfeiture
or disposal of the share.
TRANSFER OF SHARES
23. The instrument of transfer of a share may be in any usual form or in
any other form which the directors may approve and shall be executed by or on
behalf of the transferor and, unless the share is fully paid, by or on behalf
of the transferee.
24. The directors may refuse to register the transfer of a share which is
not fully paid to a person of whom they do not approve and they may refuse to
register the transfer of a share on which the company has a lien. They may also
refuse to register a transfer unless:
(a) it is lodged at the office or at such other place as the
directors may appoint and is accompanied by the certificate for the shares to
which it relates and such other evidence as the directors may reasonably
require to show the right of the transferor to make the transfer;
(b) it is in respect of only one class of shares; and
(c) it is in favour of not more than four transferees.
25. If the directors refuse to register a transfer of a share, they shall
within two months after the date on which the transfer was lodged with the
company send to the transferee notice of the refusal.
26. The registration of transfers of shares or of transfers of any class of
shares may be suspended at such times and for such periods (not exceeding
thirty days in any year) as the directors may determine.
27. No fee shall be charged for the registration of any instrument of
transfer or other document, relating to or affecting the title to any share.
28. The company shall be entitled to retain any instrument of transfer
which is registered, but any instrument of transfer which the directors refuse
to register shall be returned to the person lodging it when notice of the
refusal is given.
TRANSMISSION OF SHARES
29. If a member dies the survivor or survivors where he was a joint holder,
and his personal representatives where he was a sole holder or the only
survivor of joint holders, shall be the only persons recognised by the company
as having any title to his interest; but nothing herein contained shall release
the estate of a
<PAGE> 23
deceased member from any liability in respect of any share which had been
jointly held by him.
30. A person becoming entitled to a share in consequence of the death or
bankruptcy of a member may, upon such evidence being produced as the directors
may properly require, elect either to become the holder of the share or to have
some person nominated by him registered as the transferee. If he elects to
become the holder he shall give notice to the company to that effect. If he
elects to have another person registered he shall execute an instrument of
transfer of the share to that person. All the articles relating to the
transfer of shares shall apply to the notice or instrument of transfer as if it
were an instrument of transfer executed by the member and the death or
bankruptcy of the member had not occurred.
31. A person becoming entitled to a share in consequence of the death or
bankruptcy of a member shall have the rights to which he would be entitled if
he were the holder of the share, except that he shall not, before being
registered as the holder of the share, be entitled in respect of it to attend
or vote at any meeting of the company or at any separate meeting of the
holders of any class of shares in the company.
ALTERATION OF SHARE CAPITAL
32. The company may by ordinary resolution:
(a) increase its share capital by new shares of such amount
as the resolution prescribes.
(b) consolidate and divide all or any of its share capital into shares of
larger amount than its existing shares;
(c) subject to the provisions of the Act, sub-divide its shares, or any
of them, into shares of smaller amount and the resolution may determine that,
as between the shares resulting from the sub-division, any of them may have any
preference or advantage as compared with the others; and
(d) cancel shares which, at the date of the passing of the resolution,
have not been taken or agreed to be taken by any person and diminish the amount
of its share capital by the amount of the shares so cancelled.
33. Whenever as a result of a consolidation of shares any members would become
entitled to fractions of a share, the directors may, on behalf of those
members, sell the shares representing the fractions for the best price
reasonably obtainable to any person (including, subject to the provisions of
the Act, the company) and distribute the net proceeds of sale in due proportion
among those members, and the directors may authorise some person to execute an
instrument of transfer of the shares to, or in accordance with the direction
of, the purchaser. The transferee shall not be bound to see to the application
of the purchase money nor shall his title to the shares be affected by any
irregularity in or invalidity of the proceedings in reference to the sale.
34. Subject to the provisions of the Act, the company may by special
resolution reduce its share capital, any capital redemption reserve and any
share premium account in any way.
PURCHASE OF OWN SHARES
35. Subject to the provisions of the Act, the company may purchase its own
shares (including any redeemable shares) and, if it is a private company, make a
payment in respect of the redemption or purchase of its own shares otherwise
then out of distributable profits of the company or the proceeds of a fresh
issue of shares.
GENERAL MEETINGS
36. All general meetings other than annual general meetings shall be called
extraordinary general meetings.
37. The directors may call general meetings and, on the requisition of
members pursuant to the provisions of the Act, shall forthwith proceed to
convene an extraordinary general meeting for a date not later than eight weeks
after receipt of the requisition. If there are not within the United Kingdom
sufficient directors to call a general meeting, any director or any member of
the company may call a general meeting.
NOTICE OF GENERAL MEETINGS
38. An annual general meeting and an extraordinary general meeting called for
the passing of a special resolution or a resolution appointing a person as a
director shall be called by at least twenty-one clear days' notice. All other
extraordinary general meetings shall be called by at least fourteen clear days'
notice but a general meeting may be called by shorter notice if it is so agreed:
(a) in the case of an annual general meeting, by all the members entitled
to attend and vote thereat; and
(b) in the case of any other meeting by a majority in number of the
members having a right to attend and vote being a majority together holding not
less than ninety-five per cent, in nominal value of the shares giving that
right. The notice shall specify the time and place of the meeting and the
general nature of the business to be transacted and, in the case of an annual
general meeting, shall specify the meeting as such.
Subject to the provisions of the articles and to any restrictions imposed on
any shares, the notice shall be given to all the members, to all persons
entitled to a share in consequence of the death or bankruptcy of a member and
to the directors and auditors.
39. The accidental omission to give notice of a meeting to, or the non-receipt
of notice of a meeting by, any person entitled to receive notice shall not
invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
40. No business shall be transacted at any meeting unless a quorum is present.
Two persons entitled to vote upon the business to be transacted, each being a
member or a proxy for a member or a duly authorised representative of a
corporation, shall be a quorum.
41. If such a quorum is not present within half an hour from the time
appointed for the meeting, or if during a meeting such a quorum ceases to be
present, the meeting shall stand adjourned to the same day in the next week at
the same time and place or to such time and place as the directors may
determine.
42. The chairman, if any, of the board of directors or in his absence some
other director nominated by the directors shall preside as chairman of the
meeting, but if neither the chairman nor such other director (if any) be present
within fifteen minutes after the time appointed for holding the meeting and
willing to act, the directors present shall elect one of their number to be
chairman and, if there is only one director present and willing to act, he shall
be chairman.
43. If no director is willing to act as chairman, or if no director is present
within fifteen minutes after the time appointed for holding the meeting, the
members present and entitled to vote shall choose one of their number to be
chairman.
44. A director shall, notwithstanding that he is not a member, be entitled to
attend and speak at any general meeting and at any separate meeting of the
holders of any class of shares in the company.
45. The chairman may, with the consent of a meeting at which a quorum is
present (and shall if so directed by the meeting) adjourn the meeting from time
to time and from place to place, but no business shall be transacted at an
adjourned meeting other than business which might properly have been transacted
at the meeting had the adjournment not taken place. When a meeting is adjourned
for fourteen days or more, at least seven clear days' notice shall be given
specifying the time and place of the adjourned meeting and the general nature
of the business to be transacted. Otherwise it shall not be necessary to give
any such notice.
46. A resolution put to the vote of a meeting shall be decided on a show of
hands unless before, or on the declaration of the result of, the show of hands
a poll is duly demanded. Subject to the provisions of the Act, a poll may be
demanded:
(a) by the chairman; or
(b) by at least two members having the right to vote at the meeting; or
(c) by a member or members representing not less than one-tenth of the
total voting rights of all the members having the right to vote at the meeting;
or
(d) by a member or members holding shares conferring a right to vote at
the meeting being shares on which an aggregate sum has been paid up equal to
not less than one-tenth of the total sum paid up on all the shares conferring
that right;
and a demand by a person as proxy for a member shall be the same as a demand by
the member.
47. Unless a poll is duly demanded a declaration by the chairman that a
resolution has been carried or carried unanimously, or by a particular majority,
or lost, or not carried by a particular majority and an entry to that effect in
the minutes of the meeting shall be conclusive evidence of the fact without
proof of the number of proportion of the votes recorded in favour of or against
the resolution.
48. The demand for a poll may, before the poll is taken, be withdrawn but only
with the consent of the chairman and a demand so withdrawn shall not be taken
to have invalidated the result of a show of hands declared before the demand
was made.
49. A poll shall be taken as the chairman directs and he may appoint
scrutineers (who need not be members) and fix a time and place for declaring
the result of the poll. The result of the poll shall be deemed to be the
resolution of the meeting at which the poll was demanded.
50. In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman shall be entitled to a casting vote in addition to any other
vote he may have.
51. A poll demanded on the election of a chairman or on a question of
adjournment shall be taken forthwith. A poll demanded on any other question
shall be taken either forthwith or at such time and place as the chairman
directs not being more than thirty days after the poll is demanded. The demand
for a poll shall not prevent the continuance of a meeting for the transaction
of any business other than the question on which the poll was demanded. If a
poll is demanded before the declaration of the result of a show of hands and
the demand is duly withdrawn, the meeting shall continue as if the demand had
not been made.
52. No notice need be given of a poll not taken forthwith if the time and
place at which it is to be taken are announced at the meeting at which it is
demanded. In any other case at least seven clear days' notice shall be given
specifying the time and place at which the poll is to be taken.
53. A resolution in writing executed by or on behalf of each member who would
have been entitled to vote upon it if it had been proposed at a general meeting
at which he was present shall be as effective as if it had been passed at a
general meeting duly convened and held and may consist of several instruments
in the like form each executed by or on behalf of one or more members.
VOTES OF MEMBERS
54. Subject to any rights or restrictions attached to any shares, on a show of
hands every member who (being an individual) is present in person or (being a
corporation) is present by a duly authorized representative, not being himself
a member entitled to vote, shall have one vote and on a poll every member shall
have one vote for every share of which he is the holder.
55. In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders; and seniority shall be determined by the order in
which the names of the holders stand in the register of members.
56. A member in respect of whom an order has been made by any court having
jurisdiction (whether in the United Kingdom or elsewhere) in matters concerning
mental disorder may vote, whether on a show of hands or on a poll, by his
receiver, curator bonis or other person authorised in that behalf appointed by
that court, and any such receiver, curator bonis or other person may, on a
poll, vote by proxy. Evidence to the satisfaction of the directors of the
authority of the person claiming to exercise the right to vote shall be
deposited at the office, or at such other place as is specified in accordance
with the articles for the deposit of instruments of proxy, not less than 48
hours before the time appointed for holding the meeting or adjourned meeting at
which the right to vote is to be exercised and in default the right to vote
shall not be exercisable.
57. No member shall vote at any general meeting or at any separate meeting of
the holders of any class of shares in the company, either in person or by
proxy, in respect of any share held by him unless all moneys presently payable
by him in respect of that share have been paid.
58. No objection shall be raised to the qualification of any voter except at
the meeting or adjourned meeting at which the vote objected to is tendered, and
every vote not disallowed at the meeting shall be valid. Any objection made in
due time shall be referred to the chairman whose decision shall be final and
conclusive.
59. On a poll votes may be given either personally or by proxy. A member may
appoint more than one proxy to attend on the same occasion.
60. An instrument appointing a proxy shall be in writing, executed by or on
behalf of the appointor and shall be in the following form (or in a form as
near thereto as circumstances allow or in any other form which is usual or
which the directors may approve):
* Plc/Limited
I/We, , of , being a member/
members of the above-named company, hereby appoint of
or failing him, of ,
as my/our proxy to vote in my/our name(s) and on my/our behalf at the
annual/extraordinary general meeting of the company to be held on ,
19 , and at any adjournment thereof.
Signed on 19 .
61. Where it is desired to afford members an opportunity of instructing the
proxy how he shall act the instrument appointing a proxy shall be in the
following form (or in a form as near thereto as circumstances allow or in any
other form which is usual or which the directors may approve):
* Plc/Limited
I/We, , of being a member/
members of the above-named company, hereby appoint of
or failing him, of ,
as my/our proxy to vote in my/our name(s) and on my/our behalf at the
annual/extraordinary general meeting of the company, to be held on
19 , and at any adjournment thereof.
This form is to be used in respect of the resolutions mentioned below as
follows:
Resolution No. 1 *for *against
Resolution No. 2 *for *against
*Strike out whichever is not desired.
Unless otherwise instructed, the proxy may vote as he thinks fit or abstain
from voting.
Signed this day of 19 .
<PAGE> 24
62. The instrument appointing a proxy and any authority under which it is
executed or a copy of such authority certified notarially or in some other way
approved by the directors may:
(a) be deposited at the office or at such other place within the United
Kingdom as is specified in the notice convening the meeting or in any
instrument of proxy sent out by the company in relation to the meeting not less
than 48 hours before the time for holding the meeting or adjourned meeting at
which the person named in the instrument proposes to vote; or
(b) in the case of a poll taken more than 48 hours after it is demanded,
be deposited as aforesaid after the poll has been demanded and not less than
24 hours before the time appointed for the taking of the poll; or
(c) where the poll is not taken forthwith but is taken not more than 48
hours after it was demanded, be delivered at the meeting at which the poll was
demanded to the chairman or to the secretary or to any director;
and an instrument of proxy which is not deposited or delivered in a manner so
permitted shall be invalid.
63. A vote given or poll demanded by proxy or by the duly authorised
representative of a corporation shall be valid notwithstanding the previous
determination of the authority of the person voting or demanding a poll unless
notice of the determination was received by the company at the office or at
such other place at which the instrument of proxy was duly deposited before the
commencement of the meeting or adjourned meeting at which the vote is given or
the poll demanded or (in the case of a poll taken otherwise then on the same day
as the meeting or adjourned meeting) the time appointed for taking the poll.
NUMBER OF DIRECTORS
64. Unless otherwise determined by ordinary resolution, the number of
directors (other than alternate directors) shall not be subject to any maximum
but shall be not less than two.
ALTERNATE DIRECTORS
65. Any director (other than an alternate director) may appoint any other
director, or any other person approved by resolution of the directors and
willing to act, to be an alternate director and may remove from office an
alternate director so appointed by him.
66. An alternate director shall be entitled to receive notice of all meetings
of directors and of all meetings of committees of directors of which his
appointor is a member, to attend and vote at any such meeting at which the
director appointing him is not personally present, and generally to perform all
the functions of his appointor as a director in his absence but shall not be
entitled to receive any remuneration from the company for his services as an
alternate director. But it shall not be necessary to give notice of such a
meeting to an alternate director who is absent from the United Kingdom.
67. An alternate director shall cease to be an alternate director if his
appointor ceases to be a director; but, if a director retires by rotation or
otherwise but is reappointed or deemed to have been reappointed at the meeting
at which he retires, any appointment of an alternate director made by him which
was in force immediately prior to his retirement shall continue after his
reappointment.
68. Any appointment or removal of an alternate director shall be by notice to
the company signed by the director making or revoking the appointment or in any
other manner approved by the directors.
69. Save as otherwise provided in the articles, an alternate director shall be
deemed for all purposes to be a director and shall alone be responsible for his
own acts and defaults and he shall not be deemed to be the agent of the
director appointing him.
POWERS OF DIRECTORS
70. Subject to the provisions of the Act, the memorandum and the articles and
to any directions given by special resolution, the business of the company
shall be managed by the directors who may exercise all the powers of the
company. No alteration of the memorandum or articles and no such direction
shall invalidate any prior act of the directors which would have been valid if
that alteration had not been made or that direction had not been given. The
powers given by this regulation shall not be limited by any special power given
to the directors by the articles and a meeting of directors at which a quorum
is present may exercise all powers exercisable by the directors.
71. The directors may, by power of attorney or otherwise, appoint any person
to be the agent of the company for such purposes and on such conditions as they
determine, including authority for the agent to delegate all or any of his
powers.
DELEGATION OF DIRECTORS POWERS
72. The directors may delegate any of their powers to any committee
consisting of one or more directors. They may also delegate to any managing
director or any director holding any other executive office such of their
powers as they consider desirable to be exercised by him. Any such delegation
may be made subject to any conditions the directors may impose, and either
collaterally with or to the exclusion of their own powers and may be revoked or
altered. Subject to any such conditions, the proceedings of a committee with
two or more members shall be governed by the articles regulating the
proceedings of directors so far as they are capable of applying.
APPOINTMENT AND RETIREMENT OF DIRECTORS
73. At the first annual general meeting all the directors shall retire from
office, and at every subsequent annual general meeting one-third of the
directors who are subject to retirement by rotation or, if their number is not
three or a multiple of three, the number nearest to one-third shall retire from
office; but if there is only one director who is subject to retirement by
rotation, he shall retire.
74. Subject to the provisions of the Act, the directors to retire by rotation
shall be those who have been longest in office since their last appointment or
reappointment, but as between persons who became or were last reappointed
directors on the same day those to retire shall (unless they otherwise agree
among themselves) be determined by lot.
75. If the company, at the meeting at which a director retires by rotation,
does not fill the vacancy the retiring director shall, if willing to act, be
deemed to have been reappointed unless at the meeting it is resolved not to
fill the vacancy or unless a resolution for the reappointment of the director
is put to the meeting and lost.
76. No person other than a director retiring by rotation shall be appointed or
reappointed a director at any general meeting unless:-
(a) he is recommended by the directors; or
(b) not less than fourteen nor more than thirty-five clear days before
the date appointed for the meeting, notice executed by a member qualified to
vote at the meeting has been given to the company of the intention to propose
that person for appointment or reappointment stating the particulars which
would, if he were so appointed or reappointed, be required to be included in
the company's register of directors together with notice executed by that
person of his willingness to be appointed or reappointed.
77. Not less than seven nor more than twenty-eight clear days before the date
appointed for holding a general meeting notice shall be given to all who are
entitled to receive notice of this meeting of any person (other than a director
retiring by rotation at the meeting) who is recommended by the directors for
appointment or reappointment as a director at the meeting or in respect of whom
notice has been duly given to the company of the intention to propose him at
the meeting for appointment or reappointment as a director. The notice
shall give the particulars of that person which would, if he were so appointed
or reappointed be required to be included in the company's register of
directors.
78. Subject as aforesaid, the company may by ordinary resolution appoint a
person who is willing to act to be a director either to fill a vacancy or as an
additional director and may also determine the rotation in which any additional
directors are to retire.
79. The directors may appoint a person who is willing to act to be a director,
either to fill a vacancy or as an additional director, provided that the
appointment does not cause the number of directors to exceed any number fixed
by or in accordance with the articles as the maximum number of directors. A
director so appointed shall hold office only until the next following annual
general meeting and shall not be taken into account in determining the
directors who are to retire by rotation at the meeting. If not reappointed at
such annual general meeting, he shall vacate office at the conclusion thereof.
80. Subject as aforesaid, a director who retires at an annual general meeting
may, if willing to act, be reappointed. If he is not reappointed, he shall
retain office until the meeting appoints someone in his place, or if it does
not do so, until the end of the meeting.
DISQUALIFICATION AND REMOVAL OF DIRECTORS
81. The office of a director, shall be vacated if:-
(a) he ceases to be a director by virtue of any provision of the Act or
he becomes prohibited by law from being a director; or
(b) he becomes bankrupt or makes any arrangement or composition with his
Creditors generally; or
(c) he is, or may be, suffering from mental disorder and either:-
(i) he is admitted to hospital in pursuance of an application
for admission for treatment under the Mental Health Act, 1983 or, in Scotland,
an application for admission under the Mental Health (Scotland) Act 1960; or
(ii) an order is made by a court having jurisdiction (whether in
the United Kingdom or elsewhere) in matters concerning mental disorder for his
detention or for the appointment of a receiver, curator bonds or other person
to exercise powers with respect to his property or affairs; or
(d) he resigns his office by notice to the company; or
(e) he shall for more than six consecutive months have been absent
without permission of the directors from meetings of directors held during that
period and the directors resolve that his office be vacated.
REMUNERATION OF DIRECTORS
82. The directors shall be entitled to such remuneration as the company may by
ordinary resolution determine and, unless the resolution provides otherwise,
the remuneration shall be deemed to accrue from day to day.
DIRECTORS' EXPENSES
83. The directors may be paid all traveling, hotel and other expenses properly
incurred by them in connection with their attendance at meetings of directors
or committees of directors or general meetings or separate meetings of the
holders of any class of shares or of debentures of the company or otherwise in
connection with the discharge of their duties.
DIRECTORS' APPOINTMENTS AND INTERESTS
84. Subject to the provisions of the Act, the directors may appoint one or
more of their number to the office of managing director or to any other
executive officer under the company and may enter into an agreement or
arrangement with any director for his employment by the company or for the
provision by him of any services outside the scope of the ordinary duties of a
director. Any such appointment, agreement or arrangement may be made upon such
terms as the directors determine and they may remunerate any such director for
his services as they think fit. Any appointment of a director to an executive
office shall terminate if he ceases to be a director but without prejudice to
any claim to damages for breach of the contract of service between the director
and the company. A managing director and a director holding any other executive
office shall not be subject to retirement by rotation.
85. Subject to the provisions of the Act, and provided that he has disclosed
to the directors the nature and extent of any material interest of his, a
director notwithstanding his office:-
(a) may be a party to, or otherwise interested in, any transaction or
arrangement with the company or in which the company is otherwise interested;
(b) may be a director or other officer of, or employed by, or a party to
any transaction or arrangement with, or otherwise interested in, any body
corporate promoted by the company or in which the company is otherwise
interested; and
(c) shall not, by reason of his office, be accountable to the company for
any benefit which he derives from any such office or employment or from any
such transaction or arrangement or from any interest in any such body corporate
and no such transaction or arrangement shall be liable to be avoided on the
ground of any such interest or benefit.
86. For the purposes of regulation 85:-
(a) a general notice given to the directors that a director is to be
regarded as having an interest of the nature and extent specified in the notice
in any transaction or arrangement in which a specified person or class of
persons is interested shall be deemed to be a disclosure that the director has
an interest in any such transaction of the nature and extent so specified; and
(b) an interest of which a director has no knowledge and of which it is
unreasonable to expect him to have knowledge shall not be treated as an interest
of his.
DIRECTORS' GRATUITIES AND PENSIONS
87. The directors may provide benefits, whether by the payment of gratuities
or pensions or by insurance or otherwise, for any director who has held but no
longer holds any executive office or employment with the company or with any
body corporate which is or has been a subsidiary of the company or a
predecessor in business of the company or of any such subsidiary, and for any
member of his family (including a spouse and a former spouse) or any person who
is or was dependent on him, and may (as well before as after he ceases to hold
such office or employment) contribute to any fund and pay premiums for the
purchase or provision of any such benefit.
PROCEEDINGS OF DIRECTORS
88. Subject to the provisions of the articles, the directors may regulate
their proceedings as they think fit. A director may, and the secretary at the
request of a director shall, call a meeting of the directors. It shall not be
necessary to give notice of a meeting to a director who is absent from the
United Kingdom. Questions arising at a meeting shall be decided by a majority
of votes. In the case of an equality of votes, the chairman shall have a second
or casting vote. A director who is also an alternate director shall be entitled
in the absence of his appointor to a separate vote on behalf of his appointor
in addition to his own vote.
89. The quorum for the transaction of the business of the directors may be
fixed by the directors and unless so fixed at any other number shall be two. A
person who holds office only as an alternate director shall, if his appointor
is not present, be counted in the quorum.
90. The continuing directors or a sole continuing director may act
notwithstanding any vacancies in their number, but, if the number of directors
is less than the number fixed as the quorum, the continuing directors or
director may act only for the purpose of filling vacancies or of calling a
general meeting.
<PAGE> 25
91. The directors may appoint one of their number to be the chairman of the
board of directors and may at any time remove him from that office. Unless he
is unwilling to do so, the director so appointed shall preside at every meeting
of directors at which he is present. But if there is no director holding that
office, or if the director holding it is unwilling to preside or is not present
within five minutes after the time appointed for the meeting, the directors
present may appoint one of their number to be chairman of the meeting.
92. All acts done by a meeting of directors, or of a committee of directors,
or by a person acting as a director shall, notwithstanding that it be
afterwards discovered that there was a defect in the appointment of any
director or that any of them were disqualified from holding office, or had
vacated office, or were not entitled to vote, be as valid as if every such
person had been duly appointed and was qualified and had continued to be a
director and had been entitled to vote.
93. A resolution in writing signed by all the directors entitled to receive
notice of a meeting of directors or of a committee of directors shall be as
valid and effectual as if it had been passed at a meeting of directors or (as
the case may be) a committee of directors duly convened and held and may consist
of several documents in the like form each signed by one or more directors; but
a resolution signed by an alternate director need not also be signed by his
appointor and, if it is signed by a director who has appointed an alternate
director, it need not be signed by the alternate director in that capacity.
94. Save as otherwise provided by the articles, a director shall not vote at a
meeting of directors or of a committee of directors on any resolution
concerning a matter in which he has, directly or indirectly an interest or duty
which is material and which conflicts or may conflict with the interests of the
company unless his interest or duty arises only because the case falls within
one or more of the following paragraphs:-
(a) the resolution relates to the giving to him of a guarantee, security,
or indemnity in respect of money lent to, or an obligation incurred by him for
the benefit of, the company or any of its subsidiaries;
(b) the resolution relates to the giving of a third party of a guarantee,
security, or indemnity in respect of an obligation of the company or any of its
subsidiaries for which the director has assumed responsibility in whole or part
and whether alone or jointly with others under a guarantee or indemnity or by
the giving of security;
(c) his interest arises by virtue of his subscribing or agreeing to
subscribe for any shares, debentures or other securities of the company or any
of its subsidiaries, or by virtue of his being, or intending to become, a
participant in the underwriting or sub-underwriting of an offer of any such
shares, debentures, or other securities by the company or any of its
subsidiaries for subscription, purchase or exchange;
(d) the resolution relates in any way to a retirement benefits scheme
which has been approved, or is conditional upon approval, by the Board of
Inland Revenue for taxation purposes.
For the purposes of this regulation, an interest of a person who is, for any
purpose of the Act (excluding any statutory modification thereof not in force
when this regulation becomes binding on the company), connected with a director
shall be treated as an interest of the director and, in relation to an
alternate director, an interest of his appointor shall be treated as an
interest of the alternate director without prejudice to any interest which the
alternate director has otherwise.
95. A director shall not be counted in the quorum present at a meeting in
relation to a resolution on which he is not entitled to vote.
96. The company may by ordinary resolution suspend or relax to any extent,
either generally or in respect of any particular matter, any provision of the
articles prohibiting a director from voting at a meeting of directors of a
committee of directors.
97. Where proposals are under consideration concerning the appointment of two
or more directors to offices or employments with the company or any body
corporate in which the company is interested the proposals may be divided and
considered in relation to each director separately and (provided he is not for
another reason precluded from voting) each of the directors concerned shall be
entitled to vote and be counted in the quorum in respect of each resolution
except that concerning his own appointment.
98. If a question arises at a meeting of directors or of a committee of
directors as to the right of a director to vote, the question may, before the
conclusion of the meeting, be referred to the chairman of the meeting and his
ruling in relation to any director other than himself shall be final and
conclusive.
SECRETARY
99. Subject to the provisions of the Act, the secretary shall be appointed by
the directors for such term, at such remuneration and upon such conditions as
they may think fit; and any secretary so appointed may be removed by them.
MINUTES
100. The directors shall cause minutes to be made in books kept for the
purpose:-
(a) of all appointments of officers made by the directors; and
(b) of all proceedings at meetings of the company, of the holders of
any class of shares in the company, and of the directors, and of the committees
of directors, including the names of the directors present at such meeting.
THE SEAL
101. The seal shall only be used by the authority of the directors or of a
committee of directors authorised by the directors. The directors may determine
who shall sign any instrument to which the seal is affixed and unless otherwise
so determined it shall be signed by a director and by the secretary or by a
second director.
DIVIDENDS
102. Subject to the provisions of the Act, the company may by ordinary
resolution declare dividends in accordance with the respective rights of the
members, but no dividend shall exceed the amount recommended by the directors.
103. Subject to the provisions of the Act, the directors may pay Interim
dividends if it appears to them that they are justified by the profits of the
company available for distribution. If the share capital is divided into
different classes, the directors may pay interim dividends on shares which
confer deferred or non-preferred rights with regard to dividend as well as on
shares which confer preferential rights with regard to dividend, but no interim
dividend shall be paid on shares carrying deferred or non-preferred rights if,
at the time of payment, any preferential dividend is in arrear. The directors
may also pay at intervals settled by them any dividend payable at a fixed rate
if it appears to them that the profits available for distribution justify the
payment. Provided the directors act in good faith they shall not incur any
liability to the holders of shares conferring preferred rights for any loss
they may suffer by the lawful payment of an interim dividend on any shares
having deferred or non-preferred rights.
104. Except as otherwise provided by the rights attached to shares, all
dividends shall be declared and paid according to the amounts paid up on the
shares on which the dividend is paid. All dividends shall be apportioned and
paid proportionately to the amounts paid up on the shares during any portion or
portions of the period in respect of which the dividend is paid; but if any
share is issued on terms providing that it shall rank for dividend as from a
particular date, that share shall rank for dividend accordingly.
105. A general meeting declaring a dividend may, upon the recommendation of the
directors, direct that it shall be satisfied wholly or partly by the
distribution of assets and, where any difficulty arises in regard to the
distribution, the directors may settle the same and in particular may issue
fractional certificates and fix the value for distribution of any assets and may
determine that cash shall be paid to any member upon the footing of the value
so fixed in order to adjust the rights of members and may vest any assets in
trustees.
106. Any dividend or other moneys payable in respect of a share may be paid by
cheque sent by post to the registered address of the person entitled or, if two
or more persons are the holders of the share or are jointly entitled to it by
reason of the death or bankruptcy of the holder, to the registered address of
that one of those persons who is first named in the register of members or to
such person and to such address as the person or persons entitled may in
writing direct. Every cheque shall be made payable to the order of the person
or persons entitled or to such other person as the person or persons entitled
may in writing direct and payment of the cheque shall be a good discharge to
the company. Any joint holder or other person jointly entitled to a share as
aforesaid may give receipts for any dividend or other moneys payable in respect
of the share.
107. No dividend or other moneys payable in respect of a share shall bear
interest against the company unless otherwise provided by the rights attached
to the share.
108. Any dividend which has remained unclaimed for twelve years from the date
when it became due for payment shall, if the directors so resolve, be forfeited
and cease to remain owing by the company.
ACCOUNTS
109. No member shall (as such) have any right of inspecting any accounting
records or other book or document of the company except as conferred by statute
or authorised by the directors or by ordinary resolution of the company.
CAPITALISATION OF PROFITS
110. The directors may with the authority of an ordinary resolution of the
company:-
(a) subject as hereinafter provided, resolve to capitalise any undivided
profits of the company not required for paying any preferential dividend
(whether or not they are available for distribution) or any sum standing to the
credit of the company's share premium account or capital redemption reserve;
(b) appropriate the sum resolve to be capitalised to the members who would
have been entitled to it if it were distributed by way of dividend and in the
same proportions and apply such sum on their behalf either in or towards paying
up the amounts, if any, for the time being unpaid on any shares held by them
respectively, or in paying up in full unissued shares of debentures of the
company of a nominal amount equal to that sum, and allot the shares or
debentures credited as fully paid to those members, or as they may direct, in
those proportions, or partly in one way and partly in the other; but the share
premium accounts, the capital redemption reserve, and any profits which are not
available for distribution may, for the purposes of this regulation, only be
applied in paying up unissued shares to be allotted to members credited as
fully paid;
(c) make such provision by the issue of fractional certificates or by
payment in cash or otherwise as they determine in the case of shares or
debentures becoming distributable under this regulation in fractions; and
(d) authorise any person to enter on behalf of all the members concerned
into an agreement with the company providing for the allotment to them
respectively, credited as fully paid, of any shares or debentures to which they
are entitled upon such capitalisation, any agreement made under such authority
being binding on all such members.
NOTICES
111. Any notice to be given to or by any person pursuant to the articles shall
be in writing except that a notice calling a meeting of the directors need not
be in writing.
112. The company may give any notice to a member either personally or by
sending it by post in a prepaid envelope addressed to the member at his
registered address or by leaving it at that address. In the case of joint
holders of a share, all notices shall be given to the joint holder whose name
stands first in the register of members in respect of the joint holding and
notice so given shall be sufficient notice to all the joint holders. A member
whose registered address is not within the United Kingdom and who gives to the
company an address within the United Kingdom at which notices may be given to
him shall be entitled to have notices given to him at that address, but
otherwise no such member shall be entitled to receive any notice from the
company.
113. A member present, either in person or by proxy, at any meeting of the
company or of the holders of any class of shares in the company shall be deemed
to have received notice of the meeting and, where requisite, of the purposes
for which it was called.
114. Every person who becomes entitled to a share shall be bound by any notice
in respect of that share which, before his name is entered in the register of
members, has been duly given to a person from whom he derives his title.
115. Proof that an envelope containing a notice was properly addressed, prepaid
and posted shall be conclusive evidence that the notice was given. A notice
shall be deemed to be given at the expiration of 48 hours after the envelope
containing it was posted.
116. A notice may be given by the company to the persons entitled to a share in
consequence of the death or bankruptcy of a member by sending or delivering it,
in any manner authorised by the articles for the giving of notice to a member,
addressed to them by name, or by the title of representatives of the deceased,
or trustee of the bankrupt or by any like description at the address, if any,
within the United Kingdom supplied for that purpose by the persons claiming to
be so entitled. Until such an address has been supplied, a notice may be given
in any manner in which it might have been given if the death or bankruptcy had
not occurred.
WINDING UP
117. If the company is wound up, the liquidator may, with the sanction of an
extraordinary resolution of the company and any other sanction required by the
Act, divide among the members in specie the whole or any part of the assets of
the company and may, for that purpose, value any assets and determine how the
division shall be carried out as between the members or different classes of
members. The liquidator may, with the like sanction, vest the whole or any
part of the assets in trustees upon such trusts for the benefit of the members
as he with the like sanction determines, but no member shall be compelled to
accept any assets upon which there is a liability.
INDEMNITY
118. Subject to the provisions of the Act but without prejudice to any
indemnity to which a director may otherwise be entitled, every director or
other officer or auditor of the company shall be indemnified out of the assets
of the company against any liability incurred by him in defending any
proceedings, whether civil or criminal, in which judgment is given in his
favour or in which he is acquitted or in connection with any application in
which relief is granted to him by the court from liability for negligence,
default, breach of duty or breach of trust in relation to the affairs of the
company.
<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.
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2121 South El Camino Real
4. ADDITIONAL CHARGES FOR EXPENSES AND REAL ESTATE TAXES.
4.1 DEFINITION OF EXPENSES. For purposes of this Article 4, the
following terms shall have the meanings set forth in this Section 4.1. "Tenant's
Building Percentage Share", "Tenant's Common Area Expense percentage Share" and
"Base Year" shall be as set forth in the Summary. Landlord may adjust these
percentages as a result of any change in the rentable area of the Premises or
the total rentable area of the Building or the other building in the Complex.
"Computation Year" means each calendar year during the Term, including any
partial calendar year in which the Term may commence or terminate. "Real Estate
Taxes", "Building Expenses", "Insurance Expenses" and "Common Area Expenses" are
defined in Exhibit B to this Lease.
Exclusions from Definition of "Expenses", including Real Estate Taxes, Building
Expenses, Insurance Expenses and Common Area Expenses (collectively "Expenses")
as defined in Exhibit B to this Lease.
The term "Expenses" shall not include the following:
(a) Costs, including permit, license and inspection costs, incurred
with respect to the installation of tenant improvements made for Lessee or
present or prospective lessees of the Building;
(b) The cost of any service provided to Tenant which is provided to
other tenants of the Building or the Project in quantities which are materially
in excess of that which would represent a fair proportion of such services based
upon Tenant Proportionate Share, but the costs so excluded shall be limited to
that amount which is in excess of the fair proportion of such services provided
to Tenant.
(c) Interest, principal, points and fees on debts or amortization on
any mortgage or mortgages or any other debt instrument encumbering the Project
or any portion of the Project.
(d) Landlord's general corporate overhead and general and
administrative expenses not related to the Building or Project.
(e) Costs incurred in connection with the original acquisition of the
property upon which the Project is located and the original construction of the
Project.
(f) Legal fees, brokerage commissions, advertising costs, or other
related expenses incurred in connection with the leasing of the Building or the
Project or associated with disputes with tenants or other occupants of the
Building or the Project or with the enforcement of any lease or defense of
Landlord's title to or interest in the Building or the Project or any part
thereof.
(g) Any improvements, alterations or expenditures of a capital nature,
unless the costs are amortized in accordance with generally accepted accounting
principles with interest over the useful life of the improvement, alteration or
expenditure, and that only portion of the costs so amortized, with interest,
which is allocated to the period of the term of this Lease shall be included as
an Operating Expense during each calendar year of the term of this Lease.
(h) The cost of damage and repairs necessitated by the negligence or
willful misconduct of Landlord or of Landlord's agents, employees, contractors
or invitees.
(i) Executive salaries or salaries of service personnel to the extent
that such executives or service personnel perform services other than in
connection with the management, operation, repair or maintenance of the Building
or Project.
(j) Advertising or promotional expenditures and other costs (including
permit, license and inspections fees) related to or incurred in renovating or
otherwise improving, decorating, painting or altering vacant space in the
Building or the Project.
(k) The cost of any service provided to Tenant or other occupants of
the Building for which Landlord receives reimbursement.
(l) The cost of any service provided to any other tenant of the
Building or the Project which is not also provided to Tenant.
(m) Any cost or expense incurred by reason of the remediation or
clean-up of any contamination of the Building or Project, or the soils or ground
water underlying the Building or the Project, by hazardous materials or toxic
substances, except to the extent such contamination results from Tenant's
activities within the Premises.
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2121 South El Camino Real
4.2 PAYMENT OF CHARGES. From the first day of the thirteenth month
of the Term through the Expiration Date, Tenant shall pay to Landlord as
Additional Charges (i) Tenant's Building Share of the total dollar increase, if
any, in Building Expenses attributable to each Computation Year over Building
Expenses for the Base Year, (ii) Tenant's Building Share of the total dollar
increase, if any, in Real Estate Taxes attributable to each Computation Year
over Real Estate Taxes for the Base Year, (iii) Tenant's Building Share of the
total dollar increase, if any, in Insurance Expenses attributable to each
Computation Year over Insurance Expenses for the Base Year and (iv) Tenant's
Common Area Expense Share of the total dollar increase, if any, in Common Area
Expenses attributable to each Computation Year over Common Area Expenses for the
Base Year. During the last month of each Computation Year or as soon thereafter
as practicable, Landlord shall give to Tenant notice of Landlord's estimate of
the amounts payable by Tenant for the following Computation Year. On or before
the first day of each month during the following Computation Year, Tenant shall
pay to Landlord one- twelfth (1/12th) of the estimated amounts, provided that
until Landlord gives such notice, Tenant shall continue to pay on the basis of
the prior year's estimate until the first day of the calendar month after
Landlord gives such notice. If at any time or times Landlord determines that the
amounts payable by Tenant for the current Computation Year will vary from its
estimate given to Tenant , Landlord, by notice to Tenant, may revise its
estimate for the Computation Year, and subsequent payments for the Computation
year shall be based upon the revised estimate. Following the end of each
Computation Year, Landlord shall deliver to Tenant a statement of amounts
payable for the Computation Year. If the statement shows an amount owing by
Tenant that is less than the payments for such Computation Year previously made
by Tenant, and if no Event of Default is outstanding, Landlord shall credit the
amount to the next payments of rent due. If the statement shows an amount owing
by Tenant that is more than the estimated payments for the Computation Year
previously made by Tenant, Tenant shall pay the deficiency to Landlord within
thirty (30) days after delivery of such statement. The respective obligations of
Landlord and Tenant under this Section 4.2 shall survive the Expiration Date. If
the Commencement Date is a day other than the first day of a Computation Year or
the Expiration Date is a day other than the last day of a Computation Year, the
adjustment in rent pursuant to this Section 4.2 for such Computation Year shall
be prorated based on a 365-day year. Landlord shall deliver copies of invoices
and records for the computation year to Tenant supporting Landlord's estimates.
5. USE.
5.1 LIMITATIONS. Tenant shall use the Premises solely for the use or
uses specified in the Summary and for no other use or purpose. Tenant shall take
no action, nor permit any action to be taken, in or about the Premises that will
in any way increase the existing rate of or affect any fire or other insurance
upon the Building or any of its contents, or cause cancellation of any insurance
policy covering all or any part of the Building or any of its contents, or which
will in any way injure or interfere with the rights of other tenants or
occupants of the Building, nor shall Tenant use or allow the Premises to be used
for unlawful or objectionable purpose, nor cause, maintain or permit any
nuisance in, on or about the Premises, nor commit nor suffer to be committed any
waste in, on or upon the Premises. Tenant shall not use or operate any
equipment, machinery or apparatus within the Premises which will injure, vibrate
or shake the Premises or the Building, overload existing electrical systems or
other utilities or equipment servicing the Premises or Building, or impair the
efficient operation of the sprinkler system (if any) or the heating, ventilating
and air conditioning equipment within or servicing the Premises or the Building.
Tenant shall not cause or permit any Hazardous Materials to be brought upon,
stored, used, generated or released or disposed of on, under, from or about the
Premises, Building or Complex (including, without limitation, the soil and
groundwater thereunder) without the prior written consent of Landlord except for
office and janitorial supplies used in compliance with the laws.
5.2 COMMON AREA. Tenant shall have a non-exclusive right to use the
Common Area, provided, however, that Tenant's use of the Common Area shall be
subject to such rules and regulations as Landlord shall make from time to time.
As used in this Lease, the term "Common Area" shall mean the area and
improvements designated by Landlord from time to time as "Common Area" for the
use and enjoyment of tenants of the Complex. Landlord reserves the right, from
time to time provided the following does not unreasonably interfere with
Tenant's use of the Premises and access to the Premises, to: (i) utilize
portions of the Common Area for entertainment, displays, product shows, the
leasing of kiosks or such other uses as, in Landlord's judgment, tend to attract
the public, change the shape, size, location and extent of improvements on the
Common Area; (ii) eliminate or add any improvements; and (iii) temporarily close
any portion of the Common Areas for repairs, remodeling and/or alteration, to
prevent a public dedication or the accrual of prescriptive rights, or for any
other reason deemed sufficient by Landlord.
6. CONSTRUCTION OF PREMISES; BUILDING CHANGES.
Landlord shall construct the Premises and perform the work and make
the installations in the Premises substantially as set forth in Exhibit A to
this Lease (the "floor plan"). Landlord reserves the right, at any time and from
time to time, to make alterations, additions, repairs or improvements to or in
or to decrease the size or area of all or any part of the Building, the fixtures
and equipment therein and the areas outside the Building, and the Common Area,
and to change the arrangement and/or location of entrances or passageways,
doors, corridors, elevators, stairs,
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2121 South El Camino Real
toilets and other public parts of the Building, provided that any such
alterations or additions shall not materially diminish the quality or quantity
of services being provided to the Premises or adversely affect the functional
utilization of the Premises, Tenants use of or access to the Premises.
7. ALTERATIONS.
7.1 TRADE FIXTURES. During the Term of this Lease, Tenant may
install Tenant's Trade Fixtures which may be removed without material injury to
the Premises on the Premises without the prior consent of Landlord. All Trade
Fixtures shall remain Tenant's property. "Trade Fixtures" shall not include the
initial Tenant Improvements described in Exhibit A-1 nor any improvements
thereafter made to the Premises by Landlord at any time with Landlord's Funds.
7.2 CONSENT REQUIREMENT FOR ALTERATIONS. Tenant shall make no
alterations, additions or improvements (collectively, "Alterations") to the
Premises or any part thereof without obtaining the prior written consent of
Landlord, not to be unreasonably withheld. Landlord may impose as a condition to
such consent such requirements as Landlord may deem reasonably necessary,
without limitation: (i) that Landlord be furnished with working drawings before
work commences; (ii) that performance and labor and material payment bonds be
furnished; (iii) that Landlord approve the contractor by whom the work is to be
performed; (iv) that adequate course of construction insurance be in place and
the Landlord is named as an additional insured under the contractor's liability
and property damage policies; and (v) that Landlord's instructions relating to
the manner in which the work is to be done and the times during which it is to
be accomplished be complied with. All such alterations, additions or
improvements must be done in compliance with all applicable laws, in a good and
workmanlike manner and diligently prosecuted to completion. Tenant shall deliver
to Landlord upon commencement of such work, a copy of the building permit or
improvement plans with respect thereto. All such work shall be performed so as
not to obstruct the access to the Premises of any other tenant in the Building
or Complex. Should Tenant make any alterations without Landlord's prior written
consent, Landlord shall have the right, in addition to and without limitation of
any right or remedy Landlord may have under this Lease, at law or in equity, to
require the Tenant to remove all or some of the alterations at Tenant's sole
cost and restore the Premises to the same condition as existed prior to
undertaking the alterations. Tenant shall notify Landlord in writing at least
ten (10) days prior to the commencement of any such work in or about the
Premises and Landlord shall have the right at any time and from time to time to
post and maintain notices of nonresponsibility in or about the Premises. Not
withstanding the foregoing, Tenant shall have the right to make Tenant
Improvement's having a value up to Twenty Thousand Dollars ($20,000.00) upon ten
(10) days prior written notice to Landlord.
7.3 POSSESSION. All Tenant's Alterations (not including Trade
Fixtures) shall remain the property of Tenant during the Term but shall not be
altered or removed from the Premises. At the expiration or sooner termination of
the Term, all Tenant's Alterations shall be surrendered to Landlord and shall
then become Landlord's property, and Landlord shall have no obligation to
reimburse Tenant for all or any portion of the value or cost thereof; provided,
however, that if Landlord requires Tenant to remove any Tenant's Alterations,
which removal requirement Landlord shall notify Tenant of at the time Tenant
first requests Landlord's consent, Tenant shall so remove such Tenant's
Alterations, and Tenant shall restore the Premises to the condition which
existed prior to the installation of such Tenant's Alterations, prior to the
expiration or sooner termination of the Term.
8. REPAIRS AND MAINTENANCE.
8.1 TENANT'S OBLIGATIONS. By occupying the Premises, Tenant accepts
the Premises as being in the condition in which Landlord is obligated to deliver
the Premises under the terms of this Lease. Tenant shall at the end of the Term
surrender the Premises to Landlord in substantially the same condition as when
received, except for ordinary wear and tear and Alterations. Landlord has no
obligation and has made no promise to alter, remodel, improve, repair, decorate
or paint the interior all or any part of the Premises, the Building or the
Common Area except as specifically set forth in the Work Letter. Notwithstanding
the foregoing, Tenant shall have no obligation to make any structural or capital
improvements, repairs or replacements to any portion of the Premises.
8.2 LANDLORD'S OBLIGATIONS. Landlord shall repair, replace and
maintain the structural portions of the Building, the Building systems and the
Common Area. If the necessity for such maintenance and repairs is in any way
caused by the act, neglect, fault, or omission of Tenant, its agents, servants,
employees or invitees, Tenant shall pay promptly to Landlord the reasonable cost
of such maintenance and repairs. Landlord shall not be liable for any failure to
make any such repairs or to perform any such maintenance unless Landlord
receives notice of the need for such repairs or maintenance from Tenant and
fails to make such repairs or perform such maintenance for a reasonable period
of time following such notice by Tenant. Rent shall not abate nor shall Landlord
be liable as a result of any injury to or interference with Tenant's business
arising from the making of any repairs, or the performance of any maintenance,
in or to any portion of the Building, the Premises or the Common Area, excepting
the negligence or willful misconduct of Landlord, Agents, servants, employees,
licensees or contractors.
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2121 South El Camino Real
9. LIENS.
Tenant shall keep the Premises and the Building free from any liens
arising out of any work performed, material furnished or obligations incurred by
or for Tenant. In the event that Tenant shall not, within ten (10) days
following the imposition of any such lien, cause the lien to be released of
record by payment or posting of a proper bond, Landlord shall have in addition
to all other remedies provided herein and by law the right but not the
obligation to cause same to be released by such means as it shall deem proper,
including payment of the claim giving rise to such lien. All such sums paid by
Landlord and all expenses incurred by it in connection therewith (including
without limitation reasonable counsel fees) shall be payable to Landlord by
Tenant upon demand. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law or that Landlord
shall deem proper for the protection of Landlord, the Premises, and the
Building, from mechanics' and material men's liens. Tenant shall give to
Landlord at least ten (10) business days' prior written notice of commencement
of any repair or construction on the Premises.
10. COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS.
Tenant, at Tenant's cost and expense, and irrespective of the cost
of compliance, shall comply with all laws, orders and regulations of federal,
state, county and municipal authorities relating to the Premises or the use
thereof, and with all rules, orders, regulations or requirements of the American
Insurance Association (formerly the National Board of Fire Underwriters) and
with any similar body that shall hereafter perform the function of such
Association, except that Tenant shall not be required to make any structural
Alterations in order to comply unless such Alterations shall be necessitated by
Tenant's Alterations or Trade Fixtures, by Tenant's particular use of the
Premises, by Tenant's application for any permit or governmental approval,
and/or by the acts, omissions or negligence of Tenant or its servants,
employees, contractors, agents, visitors or licensees.
11. PROTECTION OF LENDERS.
11.1 SUBORDINATION. Without the necessity of any additional
document, this Lease shall be the subject and subordinate at all times to: (a)
all reciprocal easement agreements and all ground leases or underlying leases
which may now exist or hereafter be executed affecting the Building, the land on
which the Building is located or the Common Area, or any of the foregoing, and
(b) the lien of any mortgage or deed of trust which may now exist or hereafter
be executed in any amount for which the Building, land on which the Building is
located, ground leases or underlying leases, or Landlord's interest or estate in
any of said items, is specified as security. Notwithstanding the foregoing,
Landlord shall have the right to subordinate or cause to be subordinated to this
Lease any of the items referred to in clause (a) or (b) above. Tenant shall
execute and deliver, upon demand by Landlord and in the form requested by
Landlord, any additional documents evidencing the priority or subordination of
this Lease with respect to any such ground leases, underlying leases, reciprocal
easement agreements or similar documents or instruments, or with respect to the
lien of any such mortgage or deed of trust and containing such matters as
lenders customarily and reasonably require in connection with such agreements,
including, provisions that the lender will not be liable for: (i) the return of
any security deposit unless the lender receives it from Landlord and (ii) any
defaults on the part of Landlord occurring prior to the time lender takes
possession. Tenant's failure to execute any such document within ten (10) days
after written demand therefor shall constitute an event of Tenant's default by
Tenant under this Lease.
11.2 ATTORNMENT. If Landlord's interest in the Property is acquired
by any ground Landlord, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interests.
Notwithstanding the foregoing, as a condition precedent to Tenant's agreement to
be bound by Section 11.2 of this Lease, Landlord shall provide Tenant with
commercially reasonable non-disturbance agreements in favor of Tenant from any
ground lessors, mortgage holders or lien holders then in existence. Said
non-disturbance agreements shall be in recordable form and may be recorded at
Tenant's election and expense. In the event Landlord fails to provide such
commercially reasonable non-disturbance agreements within thirty (30) days after
the mutual execution of any subordination agreement affecting this Lease, Tenant
shall have the right, exercisable at any time thereafter to give ten (10)
business days' written notice to Landlord terminating this Lease. In the event
Landlord does not provide Tenant with the applicable non-disturbance agreements
within such ten (10) day period, the Lease shall terminate and Landlord shall
reimburse Tenant a proportionate share of all of Tenant's out-of-pocket costs
incurred in connection with the design and construction of any tenant
improvements and Tenant's reasonable legal fees incurred in connection with the
review and negotiation of this Lease. Upon such termination, neither party shall
have any further liability thereunder to the other. Landlord shall also provide
Tenant with commercially reasonable
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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
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2121 South El Camino Real
Section 12.6, if Tenant has been granted an option to extend or renew the Lease
Term pursuant to another provision of this Lease, then the damage or destruction
shall be deemed to have occurred during the last twelve (12) months of the Lease
Term if Tenant fails to exercise its option to extend or renew within twenty
(20) days of the event of damage or destruction.
12.7 TERMINATION OF LEASE. If the Lease is terminated pursuant to
this Article 12, the current Rentals shall be proportionately reduced during the
period following the event of damage or destruction until the date on which
Tenant surrenders the Premises, based upon the extent to which the damage or
destruction interferes with Tenant's business conducted in the Premises, as
reasonably determined by Landlord, to the extent such loss is covered as an
insured peril by the insurance carried by Landlord, and to the extent the
resulting loss of income is covered by rental income or other insurance carried
by Landlord.
12.8 ABATEMENT OF RENTALS. If the Premises are to be rebuilt or
restored pursuant to this Article 12, the then current Rentals shall be
proportionately reduced during the period of repair or restoration, based upon
the extent to which the making of repairs interferes with Tenant's business
conducted in the Premises, as reasonably determined by Landlord. In the event
Tenant reasonably disputes Landlord's determination regarding Rentals in Section
12.7 above and/or in the preceding sentence, then Tenant shall, within thirty
(30) days following written notice to Tenant of such determination by Landlord,
have the right to send Landlord written notice objecting to such determination
and requesting that Landlord and Tenant determine by arbitration the extent to
which Rentals should be proportionately reduced during the period described in
Section 12.7 above or the period of repair or restoration, which arbitration
shall be carried out pursuant to the rules and procedures of the American
Arbitration Association. All costs and expenses of any such arbitration shall be
shared equally by Landlord and Tenant. The determination of any such arbitration
shall be binding upon Landlord and Tenant.
12.9 LIABILITY FOR PERSONAL PROPERTY. In no event shall Landlord
have any liability for, nor shall it be required to repair or restore, any
injury or damage to any improvements, alterations or additions to the Premises
made by Tenant, trade fixtures, equipment, merchandise, furniture, or any other
property installed by Tenant or at the expense of Tenant. If Landlord or Tenant
do not elect to terminate this Lease pursuant to this Article 12, Tenant shall
be obligated to promptly rebuild or restore the same to the condition existing
immediately prior to the damage or destruction.
12.10 WAIVER OF CIVIL CODE REMEDIES. Landlord and Tenant
acknowledge that the rights and obligations of the parties upon damage or
destruction of the Premises are as set forth herein; therefore Tenant hereby
expressly waives any rights to terminate this Lease upon damage or destruction
of the Premises, except as specifically provided by this Lease, including
without limitation any rights pursuant to the provisions of Subdivision 2 of
Section 1932 and Subdivision 4 of Section 1933 of the California Civil Code, as
amended from time to time, and the provisions of any similar law hereinafter
enacted, which provisions relate to the termination of the hiring of a thing
upon its substantial damage or destruction.
13. EMINENT DOMAIN.
If all or any part of the Premises shall be taken as a result of
the exercise of the power of eminent domain or any transfer in lieu thereof,
this Lease shall terminate as to the part so taken as of the date of taking,
and, in the case of a partial taking, either Landlord or Tenant shall have the
right to terminate this Lease as to the balance of the Premises by written
notice to the other within thirty (30) days after such date; provided, however,
a condition to Tenant's right to terminate shall be that Tenant's use of the
balance of the Premises is substantially handicapped, impeded or impaired by the
taking. If any material part of the building consisting of seventy five percent
(75%) of rentable square feet shall be taken, Landlord shall have the right to
terminate this Lease by written notice to Tenant within thirty (30) days of the
date of taking. In the event of any taking, Landlord shall be entitled to any
and all compensation, damages, income, rent, awards, or any interest therein
whatsoever which may be paid or made in connection therewith, and Tenant shall
have no claim against the Landlord for the value of any unexpired term of this
Lease or otherwise; provided, Landlord shall have no claim to any portion of the
award that is specifically allocable to Tenant's relocation expenses or the
interruption of or damage to Tenant's business. In the event of a partial taking
of the Premises which does not result in a termination of this Lease, the Base
Rent and Additional Charges thereafter to be paid shall be equitably reduced.
14. ASSIGNMENT AND SUBLETTING.
14.1 IN GENERAL. Tenant shall not directly or indirectly,
voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise
transfer or hypothecate its interest in or rights with respect to the Premises
or Tenant's leasehold estate hereunder (collectively, "Assignment"), or permit
all or any portion of the Premises to be occupied by anyone by other than Tenant
or sublet all or any portion of the Premises or transfer a portion of its
interest
7.
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2121 South El Camino Real
in or rights with respect to Tenant's leasehold estate hereunder (collectively,
"Sublease") without Landlord's prior consent in each instance not to be
reasonably withheld.
14.2 NOTICE TO LANDLORD. If Tenant desires at any time to enter in
an Assignment or a Sublease, Tenant shall first give notice to Landlord of its
desire to do so, which notice shall contain (a) the name and address of the
proposed assignee or subtenant, (b) the nature of the proposed assignee's or
subtenant's business to be carried on in the Premises, (c) the terms and
provisions of the proposed Assignment or Sublease. In addition thereto, Tenant
shall furnish to Landlord such financial information as Landlord may reasonably
request concerning the proposed assignee or subtenant.
14.3 LANDLORD'S OPTION. At any time within ten (10) days after
Landlord's receipt of the notice specified in Section 14.2, Landlord may by
notice to Tenant elect to (a) terminate this Lease as to the portion (including
all) of the Premises that is specified in Tenant's notice, with a proportionate
abatement in the Base Rent, (b) consent to the Sublease or Assignment, or (c)
disapprove the Sublease or Assignment; Landlord shall not unreasonably withhold
its consent to the Assignment or Sublease. Tenant shall pay as additional rent,
Landlord's reasonable attorneys' fees incurred in connection with the review of
any proposed Assignment or Sublease. Tenant agrees to pay Landlord fifty percent
(50%) of the amount by which all sums payable to Tenant in connection with such
Assignment or Sublease exceed the total of (a) Base Rent payable by Tenant to
Landlord hereunder, (b) reasonable leasing commission incurred by Tenant in
connection therewith, and (c) the cost of any Alterations reasonably incurred in
connection therewith, and (d) advertisement costs. If Landlord consents to the
Sublease or Assignment within such ten (10) day period, Tenant may thereafter
within sixty (60) days after Landlord's consent enter into such Assignment or
Sublease with such approved assignee or subtenant upon the terms and conditions
set forth in the notice furnished by Tenant to Landlord pursuant to Section
14.2. No Assignment or Sublease shall be binding on Landlord until Tenant
delivers an executed copy of such Assignment or Sublease to Landlord.
Notwithstanding Section 14.3 or any other provision to the contrary, in the
event Landlord exercises its recapture right under this Section 14.3, Tenant
shall have the right to rescind its notice for request to sublease, assign or
transfer within three (3) business days following receipt of Landlord's notice
of recapture.
14.4 NO RELEASE. No consent by Landlord to any Assignment or
Sublease by Tenant shall relieve Tenant of any obligation to be performed by
Tenant under this Lease, whether arising before or after the Assignment or
Sublease. The consent by Landlord to any Assignment or Sublease shall not
relieve Tenant from the obligation to obtain Landlord's express consent to any
other Assignment or Sublease. Any Assignment or Sublease that fails to comply
with this Article 14 shall be void and, at the option of Landlord, shall
constitute an Event of Default by Tenant under this Lease. The acceptance of
Base Rent or Additional Charges by Landlord from a proposed assignee or
subleasee shall not constitute consent to such Assignment or Sublease by
Landlord.
14.5 AFFILIATES. Occupancy of all or part of the Premises by a
parent, subsidiary or affiliated companies of Tenant or Tenant's parent or
Tenant's subsidiary shall not be deemed an assignment or subletting provided
that such parent, subsidiary or affiliated companies were not formed as a
subterfuge to avoid the obligation of this Article 14.
15. UTILITIES AND SERVICES.
15.1 LANDLORD'S OBLIGATIONS. Landlord agrees to furnish to the
Premises, subject to the rules and regulations of the Building, (a) at all
times, electricity for normal lighting and fractional horsepower office machines
in an amount not to exceed .025 KWH per square foot per normal business day,
nonattended freight and passenger elevator service, and water for lavatory and
drinking purposes, and (b) from 8:00 a.m. to 6:00 p.m. Monday through Friday,
except for generally recognized business holidays in San Mateo, California, heat
and air-conditioning required in Landlord's judgment for the comfortable use and
occupation of the Premises. Landlord may reduce elevator service on evenings,
weekends and holidays. Landlord shall provide sufficient janitorial service for
general office use, as reasonably determined by Landlord. Landlord shall not be
liable for, and Tenant shall not be entitled to, any reduction of Base Rent by
reason of (x) the installation, use of or interruption of use of any equipment
in connection with the furnishing of any of the foregoing services (y) the
failure to furnish or delay in furnishing any of the foregoing services when
such failure is caused by accident, breakage, repairs, strikes, lockouts or
other labor disturbances or labor disputes of any character, or by any other
cause, similar or dissimilar, beyond the reasonable control of Landlord or by
the making of any repairs or improvements to the Premises or to the Building or
any portion of either, or (z) the limitation, curtailment, rationing or
restrictions on use of water, electricity, gas or any other utility servicing
the Premises or the Building by any utility or governmental agency. If Tenant
requests additional or after-hours heating or air conditioning, Landlord shall
provide such service provided that Tenant pays Landlord's reasonable charge for
such services. Tenant further agrees to cooperate fully at all times with
Landlord and to abide by all regulations and requirements which Landlord may
prescribe (including, without limitation, maintaining all window coverings in
the Premises closed whenever the system is in operation) for the proper function
and control of the air conditioning system.
8.
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2121 South El Camino Real
15.2 RESTRICTIONS. Tenant shall not use any apparatus or device in
the Premises using in excess of 120 volts, that will in any way increase the
amount of electricity usually furnished or supplied for the use of the Premises
as general office space; nor connect with electric current, except through
existing electrical outlets in the Premises, any apparatus or device, for the
purpose of using electric current. If the Tenant shall require water or electric
current in excess of the amount usually furnished or supplied for the use of the
Premises as general office space, Tenant shall first procure the prior
reasonable consent of Landlord to the use of such excess water or electric
current, which consent Landlord may refuse in its sole discretion. Landlord may
condition its consent upon Tenant's agreement to reimburse Landlord monthly for
the excess cost thereof, based upon an estimate agreed upon by Landlord and
Tenant, or, if the parties fail to agree, as established by an independent
licensed engineer.
16. DEFAULT.
16.1 EVENTS OF TENANT'S DEFAULT. Tenant shall be in default of its
obligations under this Lease if any of the following events occurs (an "Event of
Tenant's Default"):
(a) Tenant shall have failed to pay Base Rent or Additional
Charges when due, and such failure is not cured within five (5) days after
delivery of written notice from Landlord specifying such failure to pay; or
(b) Tenant shall have failed to perform any term, covenant,
or condition of this Lease except those requiring the payment of Base Rent or
Additional Charges, and Tenant shall have failed to cure such breach within
thirty (30) days after written notice from Landlord specifying the nature of
such breach where such breach could reasonably be cured within said thirty (30)
day period, or if such breach could not be reasonably cured within said thirty
(30) day period, Tenant shall have failed to commence such cure within said
thirty (30) day period and thereafter continue with due diligence to prosecute
such cure to completion within such time period as is reasonably needed.
(c) Tenant shall have sublet the Premises or assigned its
interest in the Lease in violation of the provisions contained in Section 14; or
(d) Tenant shall have abandoned the Premises or left the
Premises substantially vacant for thirty (30) consecutive days; or
(e) The occurrence of the following: (i) the making by
Tenant of any general arrangements or assignments for the benefit of creditors;
(ii) Tenant becomes a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Tenant, the same is dismissed within 60 days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Section 16.1 (e) is contrary to any applicable
Law, such provision shall be of no force or effect; or
(f) Tenant shall have failed to deliver documents required
of Tenant pursuant to Section 11 or 21 within the time periods specified
therein.
The notice periods provided for in this Section 16.1 are intended to satisfy any
and all notice requirements imposed on Landlord by law (including, without
limitation, California Code of Civil Procedure Section 1161) and are not in
addition to any such requirements.
16.2 LANDLORD'S REMEDIES. If an Event of Tenant's Default occurs,
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by any Law or otherwise provided in this Lease, to which
Landlord may resort cumulatively or in the alternative:
(a) Landlord may keep this Lease in effect and enforce its
rights and remedies under this Lease. Landlord may enter the Premises and
release them to third parties for Tenant's account for any period, whether
shorter or longer than the remaining Term. Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in releasing the Premises, including
brokers' commissions, expenses of altering and preparing the Premises required
by the releasing in substantially the same condition delivered to Tenant. No act
by Landlord allowed by this subparagraph or intended to mitigate the adverse
effects of a breach of this Lease by Tenant shall terminate this Lease unless
Landlord notifies Tenant in writing that Landlord elects to terminate this
Lease. Notwithstanding any releasing without termination, Landlord may later
elect to terminate this Lease because of the default by Tenant. Landlord may
enforce all its rights and remedies under this Lease, including the right to
recover the Rent as it becomes due under the Lease as provided in California
Civil Code Section 1951.4.
9.
<PAGE> 14
(b) Landlord may terminate this Lease by giving Tenant
written notice of termination in which event this Lease shall terminate on the
date set for termination in such notice. In the event Landlord terminates this
Lease, Landlord shall be entitled, at Landlord's election, to damages in an
amount as set forth in California Civil Code Section 1951.2 as in effect on the
Effective Date. For purposes of computing damages pursuant to California Civil
Code Section 1951.2, an interest rate equal to the Interest Rate shall be used
where permitted. Such damages shall include:
(1) The worth at the time of award of the amount by
which the unpaid Rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided, computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%); and
(2) Any other amount necessary to compensate Landlord
for all detriment approximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would be
likely to result therefrom, including the following: (i) expenses for cleaning,
repairing or restoring the Premises to substantially the same condition as
delivered to Tenant; (ii) broker's fees, advertising costs and other expenses of
reletting the Premises; (iii) costs of carrying the Premises, such as taxes,
insurance premiums, utilities and security precautions; (iv) expenses in
retaking possession of the Premises; and (v) attorneys' fees and court costs
incurred by Landlord in retaking possession of the Premises and in releasing the
Premises or otherwise incurred as a result of Tenant's default.
(c) Nothing in this Section 16.2 shall limit Landlord's
right to indemnification from Tenant as provided in Sections 17.3. Any notice
given by Landlord in order to satisfy the requirements of this Section 16.2
shall also satisfy the notice requirements of California Code of Civil Procedure
Section 1161 regarding unlawful detainer proceedings.
16.3 WAIVER. One party's consent to or approval of any act by the
other party requiring the first party's consent or approval shall not be deemed
to waive or render unnecessary the first party's consent to or approval of any
subsequent similar act by the other party. The receipt by Landlord of any rent,
payment, interest or late charge with or without knowledge of the breach of any
other provision hereof shall not be deemed a waiver of any such breach unless
such waiver is in writing and signed by Landlord. No delay or omission in the
exercise of any right or remedy accruing to either party upon any breach by the
other party under this Lease shall impair such right or remedy or be construed
as a waiver of any such breach therefore or thereafter occurring. The waiver by
either party of any breach of any provision of this Lease shall not be deemed to
be a waiver of any subsequent breach of the same or of any other provisions
herein contained.
16.4 LIMITATION ON EXERCISE OF RIGHTS. At any time that an Event of
Tenant's Default has occurred and remains uncured, (i) Landlord may deny or
withhold any consent or approval requested of it by Tenant which Landlord would
otherwise be obligated to give; and (ii) Tenant may not exercise any option to
extend, right to terminate this Lease, or other right granted to it by this
Lease which would otherwise be available to it.
16.5 WAIVER BY TENANT OF CERTAIN REMEDIES. Tenant waives the
provisions of Sections 1932(l), 1941 and 1942 of the California Civil Code and
any similar or successor law regarding Tenant's right to terminate this Lease or
to make repairs and deduct the expenses of such repairs from the rent due under
this Lease. Tenant hereby waives any right of redemption or relief from
forfeiture under the laws of the State of California, or under any other present
or future law, including the provisions of Sections 1174 and 1179 of the
California Code of Civil Procedure.
16.6 REMEDIES CUMULATIVE. All rights, privileges and remedies of
the parties are cumulative and not alternative or exclusive to the extent
permitted by law except as otherwise provided herein.
17. LIABILITY OF LANDLORD; INDEMNITY BY TENANT.
17.1 LIMITATION ON LANDLORD'S LIABILITY. Except to the extent
caused by Landlord's negligence or willful misconduct, Landlord shall not be
liable to Tenant, nor shall Tenant be entitled to terminate this Lease or to any
abatement of Rent, for any injury to Tenant or any parties affiliated with
Tenant, damage to the property of Tenant or any parties affiliated with Tenant,
or loss to Tenant's business resulting from any cause, including without
limitation any: (i) failure, interruption or installation of any HVAC or other
utility system or service; (ii) failure to furnish or delay in furnishing any
utilities or services when such failure or delay is caused by fire or other
peril, the elements, labor disturbances of any character, or any other accidents
or other conditions beyond the reasonable control of Landlord; (iii) limitation,
curtailment, rationing or restriction on the use of water or electricity, gas or
any other form of energy or any services or utility serving the Complex; (iv)
vandalism or forcible entry by unauthorized persons or the criminal act of any
person; or (v) penetration of water into or onto any portion of the Building
through roof leaks or otherwise.
10.
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2121 South El Camino Real
Notwithstanding the foregoing but subject to Sections 17.2 and 18.3, Landlord
shall be liable for any such injury, damage or loss which is approximately
caused by Landlord's willful misconduct or negligence.
17.2. LIMITATION ON TENANT'S RECOURSE. If Landlord is a
corporation, trust, partnership, joint venture, unincorporated association or
other form of business entity: (i) the obligations of Landlord shall not
constitute personal obligations of the officers, directors, trustees, partners,
joint ventures, members, owners, stockholders, or other principals or
representatives of such business entity; and (ii) Tenant shall not have recourse
to the assets of such officers, directors, trustees, partners, joint ventures,
members, owners, stockholders, principals or representatives except to the
extent of their interest in the Premises. Notwithstanding anything to the
contrary in this Lease, Tenant shall have recourse only to the interest of
Landlord in the Premises and proceeds thereof for the satisfaction of each and
every remedy of Tenant in the event of default by Landlord hereunder; such
exculpation of personal liability is absolute and without exception whatever.
17.3 MUTUAL INDEMNITY. Landlord and Tenant (the "Indemnifying
Party") shall each hold the other (the "Other Party") harmless, indemnify,
protect and defend the Other Party and the Other Party's employees, agents,
contractors, directors, partners, shareholders, officers, advisors, consultants
and lenders, with legal counsel satisfactory to the Other Party from all
liability, penalties, losses, damages, costs, expenses (including reasonable
attorneys' fees and court costs), causes of action, claims and/or judgments
arising by reason of any death, bodily injury, personal injury or property
damage resulting from (i) the acts or omissions of the Indemnifying Party inside
the Premises; (ii) the negligence or willful misconduct of the Indemnifying
Party or any party affiliated with the Indemnifying Party, wherever the same may
occur; or (iii) an Event of Tenant's Default or other breach of this Lease by
the Indemnifying Party.
17. 4 ASBESTOS. Notwithstanding anything to the contrary in the
Lease, Landlord shall indemnify, defend, protect and hold harmless Tenant from
and against any claims, injuries, causes of action, losses, demands, damages,
penalties, costs and expenses arising from the existence of asbestos containing
materials (ACM) in the Premises and Building unless the presence of airborne
asbestos is the direct result of the gross negligence or willful misconduct of
Tenant.
Landlord shall also comply with the Cornerstone Properties
Operations and Maintenance Program dated 11/16/98 and keep documents regarding
periodic ACM condition inspection reports, periodic air monitoring reports,
training for maintenance personnel, medical surveillance and respiratory
protection program for maintenance staff, and spot checks of the top side of
ceilings annually and after a significant earthquake.
Landlord, at its cost and expense, shall perform quarterly and as
soon as possible after any significant earthquake, air monitoring of the
Premises for the presence of asbestos at four locations on each floor of the
Premises and shall notify Tenant within one (1) business day of any sample
result in the Building that exceeds (1) the OSHA Permissible Exposure Limit
("Action Level") for airborne asbestos of 0.01 f/cc; and ; or (2) the "no
significant risk" level for asbestos under Prop. 65 ( 12 C.C.R. 12705 (b) (1) ),
or such stricter Action Limit or Prop. 65 Level as may be promulgated.
Landlord shall defend Tenant its employees, agents, contractors,
directors, shareholders, officers, advisors, consultants and invitees with legal
counsel reasonably satisfactory to Tenant, from all liability penalties, losses,
damages, costs, expenses (including attorney fees and court costs to a
reasonable extent), causes of action, claims and judgments arising by reason of
any death, bodily injury, personal injury or property damage resulting from
Landlord's negligence or willful misconduct.
17.5 NOTICE OF CLAIM OR SUIT. Tenant shall promptly notify Landlord
of any claim, action, proceeding or suit instituted or threatened against Tenant
of which Tenant received notice or of which Tenant acquires knowledge and which
names Landlord as a party thereto.
17.6 WAIVER OF JURY TRIAL.
PARAGRAPH DELETED.
17.7 SALE OF PREMISES. In the event of any sale or transfer of the
Premises, the seller, transferor or assignor shall be and hereby is entirely
freed and relieved of all agreements, covenants and obligations of Landlord
thereafter to be performed and it shall be deemed and construed without further
agreement between the parties or their successors in interest or between the
parties and the purchaser, transferee or assignee on any such sale, transfer or
assignment that such purchaser, transferee or assignee has assumed and agreed to
carry out any and all agreements, covenants and obligations of Landlord
hereunder.
11.
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2121 South El Camino Real
18. INSURANCE.
18.1 TENANT'S INSURANCE. Tenant shall procure at its cost and
expense and keep in effect during the Term broad form comprehensive general
liability insurance, including, without limitation, contractual liability for
Tenant's indemnity obligation contained in Section 17 and specific coverage of
risks arising out of any activities of Tenant pursuant to Articles 7 and 8, with
a combined single limit of liability in an amount equal to the amount set forth
in the Summary. Such coverage shall be in a comprehensive general liability form
with at least the following endorsements to the extent such endorsements are
generally available: (i) deleting any employee exclusion on personal injury
coverage, (ii) including employees as additional insured, (iii) providing for
blanket contractual coverage, broad form property damage coverage and products
completed operations coverage (where applicable), (iv) deleting any liquor
liability exclusions, and (v) providing for coverage of employees' automobile
non ownership liability. Such insurance shall name Landlord and any other party
designated by Landlord as an additional insured, shall be carried by companies
licensed to do business in California and which have a general policy holders'
rating of at least "VIII" as set forth in the most current issue of "Best's
Insurance Guide", shall specifically include the liability assumed hereunder by
Tenant, shall provide that it is primary insurance and not in excess over or
contributory with any other valid, existing and applicable insurance covering
the same loss carried by Landlord or any other party, shall provide for
severability of interests, shall further provide that an act or omission of one
of the named insiders which would void or otherwise reduce coverage shall not
reduce or void the coverage as to any insured, shall afford coverage for all
claims based on acts, omissions, injury or damage which occurred or arose (or
the onset of which occurred or arose) in whole or part during the policy period,
and shall provide that Landlord will receive thirty (30) days' written notice
from the insurer prior to any cancellation or change of coverage. Tenant shall
deliver policies of such insurance or certificates thereof to Landlord on or
before the Commencement Date, and thereafter at least thirty (30) days before
the expiration dates of expiring policies; and in the event Tenant shall fail to
procure such insurance, or to deliver such policies or certificates, Landlord
may, at its option, procure same for the account of Tenant, and the cost thereof
shall be paid to Landlord within five (5) days after delivery to Tenant of bills
therefore. Tenant shall be responsible, at its cost and expense, for separately
insuring Tenant's property. The amounts of such insurance shall be subject to
adjustment from time to time as requested by Landlord based upon Landlord's
determination of the amount of such insurance generally required for comparable
tenants, premises and buildings in the general geographic location of the
Building or required by a lender with an interest in the Building.
18.2 LANDLORD'S INSURANCE. Landlord shall maintain all risk
property insurance covering the estimated replacement cost of the Building.
Landlord may, but is not obligated to, maintain such other insurance and
additional coverages as it may deem necessary, including, but not limited to,
commercial liability insurance and rent loss insurance. The cost of such
insurance to Landlord shall be deemed an Insurance cost. The Building may be
included in a blanket policy (in which case the cost of such insurance allocable
to the Building will be determined by Landlord based upon the insurer's cost
calculations).
18.3 WAIVER OF SUBROGATION. Notwithstanding anything to the
contrary contained herein, to the extent of insurance proceeds received with
respect to the loss, Landlord and Tenant each hereby waives any right of
recovery against the other party and against any other party maintaining a
policy of insurance with respect to the Building or any portion thereof or the
contents of any of the same, for any loss or damage maintained by such other
party with respect to the Building, or the Premises or any portion thereof or
the contents of the same or any operation therein, whether or not such a loss is
caused by the fault or negligence of such other party.
19. ACCESS TO PREMISES.
Landlord, its agents and representatives shall have the right to
enter the Premises at all reasonable times and, except in cases of emergency,
after giving Tenant reasonable notice for any purpose deemed necessary or
desirable by Landlord. Rent shall not abate as a result thereof. Landlord shall
use reasonable efforts to minimize any interference with Tenant's use of the
Premises or access thereto for its normal business purposes. Tenant hereby
waives any claim for damages for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises
or any other loss occasioned thereby excepting the negligence or willful
misconduct of Landlord, agents, servants, employees, licensees or contractors.
No entry by Landlord under any circumstances shall be construed or deemed to be
a forcible or unlawful entry into or a detainer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof. Tenant acknowledges that in the event the Lease is not renewed, that
the Landlord shall have the right to show prospective tenants the Leased
premises during the last ninety (90) days of the Lease term without prior notice
to Tenant during reasonable business hours, provided Landlord comply with
Tenant's security procedures.
20. NOTICES.
Notices or other communications under this Lease shall be effective
only if given in writing, sent by certified mail, by facsimile telecopy or by
courier service with a return receipt requested or delivered personally: (a) to
12.
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2121 South El Camino Real
Tenant (i) at Tenant's address set forth in the Summary, if sent prior to
Tenant's taking possession of the Premises, or (ii) at the Premises, if sent
subsequent to Tenant's taking possession of the Premises, or (b) to Landlord at
Landlord's address set forth in the Summary, or (c) to either Landlord or Tenant
at such other address as either Landlord or Tenant may designate as its new
address for such purpose by notice given to the other in accordance with the
provisions of this Article. A notice shall be deemed to have been given (i) upon
actual receipt or refusal of delivery (ii) when delivered if given by personal
delivery; and in all other cases when actually received at the address for
notices set forth above.
21. TENANT'S CERTIFICATE.
Tenant, at any time and from time to time upon not less than ten
(10) day's prior written notice from Landlord, will execute, acknowledge and
deliver to Landlord a certificate stating that this Lease is in full force and
effect, specifying the dates to which rent has been paid thereunder and
certifying to such other matters as Landlord may reasonably request. Any such
certificate may be relied upon by Landlord and by any prospective purchaser or
mortgagee considering the purchase of or a loan on all or any part of the
Building or any interest therein.
22. TAX ON TENANT'S PERSONAL PROPERTY.
At least ten (10) days prior to delinquency, Tenant shall pay all
taxes levied or assessed upon Tenant's Property and shall deliver satisfactory
evidence of such payment to Landlord, If, as determined by Landlord, the
assessed value of Landlord's property is increased by the inclusion therein of a
value placed upon Tenant's Property, Tenant shall promptly pay such increased
amount to Landlord.
23. SECURITY DEPOSIT.
Upon execution of this Lease, Tenant shall pay to Landlord,
Tenant's security deposit for the faithful performance of all terms, covenants
and conditions of this Lease in the amount specified in the Summary. Landlord
may apply any part of the security deposit to: (i) remedy any default by Tenant
in the payment of rent; (ii) repair damage to the Premises caused by Tenant;
(iii) clean the Premises upon termination of the Lease; and (iv) remedy any
other default of Tenant to the extent provided by Law. Tenant hereby waives the
restriction contained in California Civil Code Section 1950.7. Should Landlord
use any portion of the security deposit, Tenant shall forthwith replenish the
security deposit to the original amount. If Tenant shall fully and faithfully
perform every provision of this Lease, the remaining balance of the security
deposit, if any, shall be returned to Tenant (or, at Landlord's option, to the
last assignee of Tenant's interest hereunder) within twenty-one (21) days after
the Expiration Date with any deductions itemized in writing. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer the
security deposit to Landlord's successor in interest and, upon such transfer,
Landlord shall be relieved of any and all liability for or obligation with
respect to the security deposit. Landlord shall not be deemed a Trustee of the
Security Deposit, may use the Security Deposit in Landlord's business, one shall
not be required to segregate it from its general accounts.
24. LANDLORD'S OPTION TO RELOCATE TENANT.
PARAGRAPH DELETED.
25. GUARANTOR.
PARAGRAPH DELETED.
26. SURRENDER OF LEASED PREMISES.
26.1 Tenant shall, at least ninety (90) days before the last day of
the term hereof, give to Landlord a written notice of intention to surrender the
leased premises on that date, but nothing contained herein shall be construed as
an extension of the term hereof or as consent of Landlord to any holding over by
Tenant. At the end of the term or any renewal thereof or other sooner
termination of this Lease, Tenant will peaceably deliver up to the Landlords
possession of the leased premises, together with all improvements or additions
upon or belonging to the same, by whosoever made, in substantially the same
condition as received, or first installed, ordinary wear and tear and damage by
fire, earthquake, act of God or the elements alone excepted. Tenant may, upon
the termination of this Lease, remove, at Tenants sole cost, all trade fixtures
installed by Tenant, title to which shall be in Tenant until such termination,
repairing any damage to the leased caused by such removal. Any of Tenants
personal property and trade fixtures not removed by Tenant at the end of the
term or other sooner termination of this Lease shall be deemed abandoned by the
Tenant if Landlord so elects, and Landlord shall remove, store and disposing of
Tenants abandoned personal property and trade fixtures. Tenant shall indemnify
Landlord against any loss or liability resulting from delay by Tenant in so
surrendering the leased premises, including without limitation, any claims made
by any succeeding Tenant founded on such delay.
13.
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2121 South El Camino Real
The voluntary or other surrender of this lease by Tenant, or a
mutual cancellation thereof, shall not work a merger, and shall, at the option
of Landlord, terminate all or any existing subleases or subtenancies, or may, at
the option of Landlord, operate as an assignment to it of any or all such
subleases or subtenacies.
26.2 If Tenant does not give Landlord ninety (90) days written
notice then Tenant will be obligated to pay rent ninety (90) days from when
written notice is given, unless the space has been leased to a new Tenant. In
the event Landlord leases the space to a new Tenant during the ninety (90) day
period, then Tenant will be released from the Lease obligation as of the date of
commencement of the new Lease.
27. MISCELLANEOUS.
27.1 The words "Landlord" and "Tenant" as used herein shall include
the plural as well as the singular. If there is more than one Tenant, the
obligations under this Lease imposed on Tenant shall be joint and several. The
captions preceding the articles of this Lease have been inserted solely as a
matter of convenience and such captions in no way define or limit the scope or
intent of any provision of this Lease.
27.2 The terms, covenants and conditions contained in this Lease
shall bind and inure to the benefit of Landlord and Tenant and, except as
otherwise provided herein, their respective personal representatives and
successors and assigns; provided, however, that upon the sale, assignment or
transfer by Landlord named herein (or by any subsequent landlord) of its
interest in the Building as owner or Tenant, including any transfer by operation
of law, Landlord (or such subsequent landlord) shall be relieved from all
subsequent obligations and liabilities arising under this Lease subsequent to
such sale, assignment or transfer.
27.3 Any provision of this Lease which shall prove to be invalid,
void, illegal or unenforceable shall in no way affect, impair or invalidate any
other provisions of this Lease, and such provisions and this Lease shall remain
in full force and effect.
27.4 This Lease shall be construed and enforced in accordance with
the laws of the State of California.
27.5 This instrument, including the exhibits hereto, which are made
a part of this Lease, contains the entire agreement between the parties and all
prior negotiations and agreements are merged herein. Tenant hereby acknowledges
that neither Landlord nor Landlord's agents have made any representations or
warranties with respect to the Premises, the Building or this Lease except as
expressly set forth herein.
27.6 In the event of any action or proceeding brought by either
party against the other under this Lease, the prevailing party shall be entitled
to recover all costs and expenses, including its attorneys' fees, in such action
or proceeding in such amount as the court may adjudge reasonable. The prevailing
party shall be determined by the court based upon an assessment of which party's
major arguments made or positions taken in the proceedings could fairly be said
to have prevailed over the other party's major arguments or positions on major
disputed issues in the court's or arbitrator's decision. If Landlord or Tenant,
through no fault of its own, is named as defendant in any suit brought against
Landlord or Tenant in connection with or in any way arising out of this Lease or
Tenant's use of occupancy of the Premises, Landlord or Tenant shall pay
Landlord's or Tenant's costs and expenses, including, without limitation,
reasonable attorneys fees, incurred in such suit or action.
27.7 If Landlord is unable to fulfill or is delayed in fulfilling
any of Landlord's obligations under this Lease, by reason of acts of God,
accidents, repairs, labor disputes, inability to obtain utilities or materials
or by any other reason beyond Landlord's reasonable control, then no such
inability or delay by Landlord shall constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of Base Rent or Additional Charges, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord or its
agents by reason of inconvenience, annoyance, interruption, injury or loss to or
interference with Tenant's business or use and occupancy or quiet enjoyment of
the Premises or any loss or damage occasioned thereby. Tenant hereby waives and
releases any right to terminate this Lease under Section 1932 (1) of the
California Civil Code or any similar law, statute or ordinance now or hereafter
in effect, provided Landlord make all reasonable efforts within a timely manner
to assist Tenant in relocating to suitable space within the project.
27.8 If Tenant shall retain possession of the Premises or any part
thereof without Landlord's consent following the expiration or sooner
termination of this Lease for any reason, then Tenant shall pay to Landlord one
hundred and twenty-five percent (125%) of the Base Rent in effect immediately
prior to the date of such expiration or termination, subject to adjustment as
provided in Article 4.
27.9 In the event of any default by Landlord hereunder, Tenant
shall look only to Landlord's interest in the Building and the land on which the
Building is located or proceeds thereof for the satisfaction of Tenant's
14.
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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.
<PAGE> 20
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.
<PAGE> 21
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.
<PAGE> 22
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.
<PAGE> 23
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.
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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> 27
AMENDMENT #1
EXPANSION
AMENDMENT, made this 30th day of November 1999, between CORNERSTONE PROPERTIES
I, LLC, having an office at 1720 So. Amphlett Blvd., Suite 110, San Mateo,
California, 94402, "Lessor", and I-MANAGE, INC. having an office at 2121 So. El
Camino Real, Suite 1200, San Mateo, California, 94403, "Lessee."
WHEREAS, CORNERSTONE PROPERTIES I, LLC, and I-MANAGE, INC. entered into a Master
Lease dated November 30, 1998, covering Suite 400 at 2121 So. El Camino Real,
San Mateo, California, 94403, at the rental and upon the terms and conditions
there more particularly set forth; and
WHEREAS, Lessor and Lessee are desirous of amending said Lease in the manner set
forth below.
RENTABLE AREA OF PREMISES: Effective April 1, 2000, Lessee will lease
approximately 11,516 square feet located at 2121 S. El Camino Real, Suite 1200.
Floor plan attached.
TERM: The term for the above mentioned space shall be from April 1, 2000 to
March 31, 2003.
RENT SCHEDULE:
<TABLE>
<S> <C> <C>
April 1, 2000 - March 31, 2001 $3.40/square foot $39,154.00/month
April 1, 2001 - March 31, 2002 $3.50/square foot $40,306.00/month
April 1, 2002 - March 31, 2003 $3.60/square foot $41,458.00/month
</TABLE>
SECURITY DEPOSIT: With the execution of this amendment, Lessee will provide
Lessor with a security deposit in the amount of $41,458.00.
COSTS PAID BY LESSOR:
1. New carpet in the elevator lobby, sitting area, boardroom, and in the two
guest offices.
2. Construction of two guest offices.
3. Full height wall with door separating the sitting area from the work area.
4. Kitchen floor and kitchen counter top.
COSTS PAID BY LESSEE: All other requested tenant improvements.
BUILDING SIGNAGE: In the event Tenant occupies four (4) or more floors in the
tower, and becomes the largest tenant on the property, and obtains City
approval, Landlord agrees to allow Tenant exterior signage on the building
tower. All terms and conditions to be mutually agreed upon by Tenant and
Landlord.
OPERATING EXPENSES: Lessee will be billed for Operating Costs and Property Taxes
at a proportionate rate of 5.90%. The base year for Operating Costs shall be
2000. The base year for Property Taxes shall be 2000.
GENERAL TERMS: All other terms, covenants, provisions, and agreements of the
Lease negotiated for Suite 400 dated November 30, 1998, and subsequent
Amendments, shall remain in full force. Item 11.2 Attornment; second paragraph,
third and fourth sentences shall be modified as follows: "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 thirty (30) 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 thirty (30) day period, the
Lease shall terminate...".
<PAGE> 28
IN WITNESS WHEREOF, this Amendment to Lessee has been duly executed by the
parties hereto.
Dated: Lessor: CORNERSTONE PROPERTIES I, LLC
-----------
---------------------------------------
By: Steve Kaufman
Dated: Lessee: I-MANAGE, INC.
-----------
---------------------------------------
By: Mahmood Panjwani, CEO
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 47,985
<SECURITIES> 3,028
<RECEIVABLES> 5,839
<ALLOWANCES> 135
<INVENTORY> 0
<CURRENT-ASSETS> 57,548
<PP&E> 2,723
<DEPRECIATION> 810
<TOTAL-ASSETS> 63,921
<CURRENT-LIABILITIES> 13,705
<BONDS> 1,388
0
0
<COMMON> 22
<OTHER-SE> 48,806
<TOTAL-LIABILITY-AND-EQUITY> 63,921
<SALES> 18,570
<TOTAL-REVENUES> 18,570
<CGS> 3,505
<TOTAL-COSTS> 3,505
<OTHER-EXPENSES> 18,526
<LOSS-PROVISION> (3,461)
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> (2,743)
<INCOME-TAX> 32
<INCOME-CONTINUING> (2,775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,775)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
