<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VIRAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7371 38-3171505
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
177 BOVET ROAD, SUITE 520
SAN MATEO, CALIFORNIA 94402
(650) 573-3210
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PAUL G. LEGO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIRAGE, INC.
177 BOVET ROAD, SUITE 520
SAN MATEO, CALIFORNIA 94402
(650) 573-3210
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JAMES M. KOSHLAND, ESQ. MARK A. BERTELSEN, ESQ.
DAVID HUBB, ESQ. HERBERT P. FOCKLER, ESQ.
GRAY CARY WARE & FREIDENRICH LLP WILSON SONSINI GOODRICH & ROSATI
400 HAMILTON AVENUE PROFESSIONAL CORPORATION
PALO ALTO, CALIFORNIA, 94301-1825 650 PAGE MILL ROAD
(650) 833-2000 PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE REGISTRATION FEE(1)
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Common Stock ($0.001 par value)............................. $63,250,000 $16,698
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(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 7, 2000
SHARES
[VIRAGE LOGO]
VIRAGE, INC.
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our common stock
on The Nasdaq Stock Market's National Market under the symbol "VRGE."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS VIRAGE
------------- ------------- -------------
<S> <C> <C> <C>
Per
Share... $ $ $
Total... $ $ $
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Delivery of the shares of common stock will be made on or
about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
ROBERTSON STEPHENS
WIT SOUNDVIEW
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.............. 3
RISK FACTORS.................... 7
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS.... 20
USE OF PROCEEDS................. 21
DIVIDEND POLICY................. 21
CAPITALIZATION.................. 22
DILUTION........................ 23
SELECTED CONSOLIDATED FINANCIAL
DATA.......................... 24
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS.................... 25
BUSINESS........................ 37
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PAGE
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MANAGEMENT...................... 54
RELATED PARTY TRANSACTIONS...... 65
PRINCIPAL STOCKHOLDERS.......... 69
DESCRIPTION OF CAPITAL STOCK.... 74
SHARES ELIGIBLE FOR FUTURE
SALE.......................... 78
UNDERWRITING.................... 81
NOTICE TO CANADIAN
RESIDENTS..................... 84
LEGAL MATTERS................... 85
EXPERTS......................... 85
WHERE YOU CAN FIND MORE
INFORMATION................... 86
INDEX TO FINANCIAL
STATEMENTS.................... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000, 25 DAYS AFTER COMMENCEMENT OF THIS OFFERING, ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 4
PROSPECTUS SUMMARY
You should read this summary together with the entire prospectus, including
the more detailed information in our financial statements and accompanying notes
appearing elsewhere in this prospectus. In this prospectus, Virage, we, us and
our refer to Virage, Inc. and its consolidated subsidiary and not to the
underwriters.
VIRAGE, INC.
Virage is a leading provider of software products and application services
that allow media and entertainment companies, enterprises and consumers to
deploy, manage and distribute their video content over the Internet and
intranets. We have a proprietary video indexing technology that transforms
analog and digital video content into a structured video database that is
designed for use on Internet sites. Owners of video content can leverage our
technology either by licensing our products or by employing our application
services to outsource their needs. We currently have over 100 customers
including media and entertainment companies such as ABC News, CNN and The Walt
Disney Co., corporations such as Boeing, CNET and Yahoo!, educational
institutions such as Harvard Business School and government entities such as the
FBI and the Library of Congress.
Very few communication technologies have had as much of an impact on our
society as video and the Internet. Each of these communication mediums has
touched the lives of hundreds of millions of people and generated billions of
dollars in advertising and commerce revenues. Even though significant
infrastructure investments and technology improvements are now driving these two
technologies toward convergence, some basic challenges remain that inhibit the
widespread adoption of video on the Internet.
In its native format, video is difficult to index, manage and search, does
not lend itself to user interaction, and today is largely a one-way experience
where the viewer is relegated to a passive role. While the use of streaming
video on Internet sites has become more prevalent, today the viewer's experience
is still largely one-way and non-interactive. Internet users have high
expectations for interactivity, quality and ease of use. Additionally, content
providers require technologies that allow them to control the distribution
channels, leverage the production process by enabling reuse of their digital
video, and facilitate rapid time to market.
Our products and application services help content owners adapt their video
content to the Internet and intranets quickly and cost-effectively. We enable
Internet users to rapidly search, locate and use video content. By improving the
end users' video experience, we increase the value of video content to content
owners by enabling them to use their video in targeted applications such as
advertising and electronic commerce. The key benefits of our solutions include:
- Improved access to video content
- Enhanced user interactivity and community building
- Greater personalization
- Increased commerce opportunities
- Expanded syndication abilities
3
<PAGE> 5
Our goal is to strengthen our position as a leading provider of products
and application services in the video and digital media infrastructure
marketplace. To achieve this objective, our business strategy includes the
following key components:
- Become the de facto standard for deploying, managing and distributing
video content over the Internet and intranets
- Generate multiple revenue streams through new products and services
- Empower content providers without competing against them
- Enhance and leverage our technical leadership position
- Expand our international presence
We were incorporated in Michigan in April 1994 and reincorporated in
Delaware in March 1995 under the name Virage, Inc. Our principal offices are
located at 177 Bovet Road, Suite 520, San Mateo, California 94402. Our telephone
number is (650) 573-3210. Our website address is located at www.virage.com but
the information on our website does not constitute a part of this prospectus.
4
<PAGE> 6
THE OFFERING
Common stock offered by Virage.... shares
Common stock to be outstanding.... shares
Use of proceeds................... For general corporate purposes, capital
expenditures and working capital. See "Use of Proceeds" on page 21.
Proposed Nasdaq National Market
symbol.......................... VRGE
The number of shares of our common stock outstanding after the offering is
based on shares outstanding as of December 31, 1999 and does not include:
- 6,159,769 shares of common stock issuable upon exercise of outstanding
stock options under our equity incentive plans as of December 31, 1999 at
a weighted average exercise price of $1.313;
- shares of common stock reserved and available for issuance
under our equity incentive plans as of December 31, 1999; and
- 63,974 shares of common stock subject to warrants at a weighted average
exercise price of $0.625.
VIRAGE(R), the Virage "V" Logo(R), PINPOINT(R), VIDEOLOGGER(TM),
AUDIOLOGGER(TM), MYLOGGER(TM) and "We make video searchable"(TM) are trademarks
or registered trademarks of Virage, Inc. This prospectus contains other trade
names, trademarks and service marks of Virage and of other companies.
Unless otherwise indicated, all information contained in this prospectus
assumes:
- no exercise of the underwriters' over-allotment option;
- the conversion of all outstanding preferred stock into common stock
immediately prior to the consummation of this offering; and
- the cash exercise of warrants to purchase 188,980 shares of common stock.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
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NINE MONTHS
ENDED
FISCAL YEARS ENDED MARCH 31, DECEMBER 31,
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1995 1996 1997 1998 1999 1998 1999
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CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues............ $ -- $ 99 $ 1,445 $ 2,702 $ 3,350 $ 2,323 $ 3,887
Gross profit.............. -- 61 839 1,377 1,668 1,087 1,833
Total operating
expenses................ 551 1,607 2,472 5,496 7,960 5,578 9,519
Loss from operations...... (551) (1,546) (1,633) (4,119) (6,292) (4,491) (7,686)
Net loss per share
applicable to common
stockholders............ (543) (1,469) (1,599) (4,100) (6,170) (4,378) (10,401)
Net loss applicable to
common stockholders:
basic and diluted....... $ (0.21) $ (0.56) $ (0.72) $ (1.42) $ (1.84) $ (1.36) $ (2.43)
Weighted average shares:
basic and diluted....... 2,561 2,622 2,232 2,886 3,359 3,217 4,274
Pro forma net loss per
share applicable to
common stockholders:
basic and diluted....... $ (0.40) $ (0.50)
Weighted average shares:
basic and diluted....... 15,472 20,650
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DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents........................ $ 16,362 $ 16,982 $
Total assets..................................... 21,512 22,132
Long-term liabilities............................ 115 115
Accumulated deficit.............................. (24,282) (24,282)
Total stockholders' equity (net capital
deficiency).................................... (21,902) 18,615
</TABLE>
The pro forma data gives effect to the conversion of all of our outstanding
shares of preferred stock into common stock upon the closing of this offering
and the cash exercise of warrants to purchase 188,980 shares of common stock.
The pro forma as adjusted data gives effect to the foregoing and to the sale of
the shares of common stock that we are offering under this
prospectus at an assumed initial public offering price of $ per share and
after deducting the underwriting discounts and commissions and estimated
offering expenses. See "Capitalization" on page 22.
6
<PAGE> 8
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks and uncertainties described below, together with all other
information in this prospectus, before buying shares in this offering.
RISKS RELATED TO OUR BUSINESS
OUR NEWLY INTRODUCED VIDEO SOFTWARE PRODUCTS AND APPLICATION SERVICES MAKE IT
DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.
We incorporated in April 1994 and to date we have generated only limited
revenues. Most of our revenues were generated in the last six quarters. We
introduced our first video software products in December 1997, and our
application services, named Virage Interactive, in May 1999. We anticipate that
a growing percentage of our revenues will come from our application services.
Because we have a limited operating history with our video software products and
application services and because our revenue sources may continue to shift as
our business develops, you must consider the risks and difficulties that we may
encounter when making your investment decision. These risks include our ability
to:
- expand our customer base;
- increase penetration into key customer accounts;
- maintain our pricing structure;
- develop new video products and application services; and
- adapt our products and services to meet changes in the video and digital
media infrastructure marketplace.
If we do not successfully address these risks, our business will be seriously
harmed.
OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT BE SUCCESSFUL.
We do not know whether our business model and strategy will be successful
in the video and digital media infrastructure marketplace. Our business model is
based on the premise that content providers will use our licensed products and
application services to deploy, manage and distribute their video content over
the Internet and intranets. Our potential customers may elect to rely on their
internal resources or on lower priced products and services that do not offer
the full range of functionality offered by our products and services. If the
assumptions underlying our business model are not valid or if we are unable to
implement our business plan, our business will suffer.
WE HAVE NOT BEEN PROFITABLE AND MAY NOT EVER BE ABLE TO ACHIEVE PROFITABILITY.
We incurred net losses of $1.6 million in fiscal 1997, $4.1 million in
fiscal 1998, $6.2 million in fiscal 1999 and $7.5 million in the nine months
ended December 31, 1999. As of December 31, 1999, our accumulated deficit was
$24.3 million. To become profitable, we must control our costs and generate
significant revenues by obtaining new customers, particularly for our
application services, and by generating additional revenues
7
<PAGE> 9
from our existing customers. Our failure to increase our revenues significantly
or improve our gross margins will harm our business. Although our license and
service revenues have grown in recent quarters, we may not be able to sustain
these growth rates. We also expect to continue to incur increasing research and
development, sales and marketing and general and administrative expenses. Even
if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future. If our revenues grow
more slowly than we anticipate, if our gross margins do not improve, or if our
operating expenses exceed our expectations, our operating results will suffer.
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE MARKET
PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Our quarterly operating results have varied significantly in the past and
are likely to vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. If securities analysts follow
our stock, our operating results will likely fall below their expectations in
some future quarter or quarters. Our failure to meet these expectations would
likely adversely affect the market price of our common stock.
Our quarterly revenues depend on a number of factors, many of which are
beyond our control. For example, our licensing arrangements relating to our
visual information retrieval product have resulted in significant revenues in
some quarters and nominal revenues in other quarters. These revenues will be
difficult to predict going forward. Other factors that cause our quarterly
operating results to vary include:
- our ability to attract and retain customers for our existing and future
products and services;
- new products or services that we or our competitors introduce;
- changes in our pricing policies;
- failure of our contract activity to meet our standards for revenue
recognition;
- customer budgetary cycles, particularly those of government agencies that
rely upon appropriations funding; and
- user traffic on customer sites that use our application services.
We plan to increase our operating expenses and if our revenues and gross
margins do not increase, our business could be seriously harmed. We plan to
increase our operating expenses to expand our sales and marketing operations,
fund greater levels of research and development, expand our Virage Interactive
services and develop our infrastructure. Many of these expenditures are planned
or committed in advance in anticipation of future revenues, and if our revenues
in a particular quarter are lower than we anticipate, we may be unable to reduce
spending in that quarter. As a result, any shortfall in revenues or a failure to
improve gross margins would likely adversely affect our quarterly operating
results.
8
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THE LENGTH OF OUR SALES AND DEPLOYMENT CYCLE IS UNCERTAIN, WHICH MAY CAUSE OUR
REVENUES AND OPERATING RESULTS TO VARY SIGNIFICANTLY FROM QUARTER TO QUARTER.
During our sales cycle, we spend considerable time and expense providing
information to prospective customers about the use and benefits of our products
and services without generating corresponding revenue. Our expense levels are
relatively fixed in the short term and based in part on our expectations of
future revenues. Therefore, any delay in our sales cycle could cause significant
variations in our operating results, particularly because a relatively small
number of customer orders represents a large portion of our revenues.
Some of our largest sources of revenues are government entities and large
corporations that often require long testing and approval processes before
making a decision to license our products. In general, the process of entering
into a licensing arrangement with a potential customer may involve lengthy
negotiations. As a result, our sales cycle has been and may continue to be
unpredictable. In the past, our sales cycle has ranged from one to 12 months.
Our sales cycle is also subject to delays as a result of customer-specific
factors over which we have little or no control, including budgetary constraints
and internal acceptance procedures. In addition, because our technology must
often be integrated with the products and services of other vendors, there may
be a significant delay between the use of our software and services in a pilot
system and our customers' volume deployment of our products and services.
IF OUR CUSTOMERS FAIL TO GENERATE TRAFFIC ON THE VIDEO-RELATED SECTIONS OF THEIR
INTERNET SITES, OUR RECURRING REVENUES MAY DECREASE, WHICH MAY ADVERSELY AFFECT
OUR BUSINESS AND FINANCIAL RESULTS.
Our ability to achieve recurring revenues from our application services is
largely dependent upon the success of our customers in generating traffic on the
video-related sections of their Internet sites. Generally, we generate recurring
revenue from our application services whenever our customers add more hours of
video to an existing project and with each additional video query on a
customer's site. If our customers do not attract and maintain traffic on
video-related sections of their sites, video queries may decrease and customers
may decide not to add more hours of video to existing projects. This result
would cause revenues from our application services to decrease, which will
adversely affect our business and financial results.
IF WE FAIL TO INCREASE THE SIZE OF OUR CUSTOMER BASE OR INCREASE OUR REVENUES
WITH OUR EXISTING CUSTOMERS, OUR BUSINESS WILL SUFFER.
Increasing the size of our customer base and increasing the revenues we
generate from our customer base are critical to the success of our business. To
expand our customer base and the revenues we generate from our customers, we
must:
- generate additional revenues from different organizations within our
customers;
- continue to offer compelling products and services;
- conduct effective marketing and sales programs to acquire new customers;
and
- establish and maintain distribution relationships with value added
resellers and system integrators.
Our failure to achieve one or more of these objectives could adversely affect
our revenues.
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THE PRICES WE CHARGE FOR OUR PRODUCTS AND SERVICES MAY DECREASE, WHICH WOULD
REDUCE OUR REVENUES AND HARM OUR BUSINESS.
The prices we charge for our products and services may decrease as a result
of competitive pricing pressures, promotional programs and customers who
negotiate price reductions. For example, some of our competitors have provided
their services without charge in order to gain market share or new customers and
key accounts. The prices at which we sell and license our products and services
to our customers depend on many factors, including:
- purchase volumes;
- competitive pricing;
- the specific requirements of the order;
- the duration of the licensing arrangement; and
- the level of sales and service support.
If we are unable to sell our products or services at acceptable prices
relative to our costs, or if we fail to develop and introduce on a timely basis
new products and services from which we can derive additional revenues, our
financial results will suffer.
WE RELY ON, AND EXPECT TO CONTINUE TO RELY ON, A LIMITED NUMBER OF CUSTOMERS FOR
A SIGNIFICANT PORTION OF OUR REVENUES.
Historically, a limited number of customers has accounted for a significant
portion of our revenues. For the nine months ended December 31, 1999, two
corporate customers accounted for 31% of our revenues and several U.S.
government agencies accounted for 22% of our revenues. We anticipate that our
operating results in any given period will continue to depend to a significant
extent upon revenues from a small number of customers. We do not have long-term
contracts with our customers obligating them to license our software or purchase
our products or services. We cannot be certain that we will retain our current
customers or that we will be able to recruit additional or replacement
customers. If we were to lose one or more customers, our business and operating
results could be significantly harmed.
ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD LEAD TO SIGNIFICANT DISRUPTIONS
IN OUR VIRAGE INTERACTIVE SERVICES BUSINESS WHICH COULD DAMAGE OUR REPUTATION,
REDUCE OUR REVENUES OR OTHERWISE HARM OUR BUSINESS.
Our Virage Interactive services business is dependent upon providing our
customers with fast, efficient and reliable services. To meet our customers'
requirements, we must protect our network infrastructure against damage from,
among other things:
- human error;
- physical or electronic security breaches;
- computer viruses;
- fire, earthquake, flood and other natural disasters;
- power loss;
- telecommunications failure; and
- sabotage and vandalism.
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<PAGE> 12
Our failure to protect our network infrastructure against damage from any of
these events will hurt our business.
WE DEPEND ON AN OUTSIDE THIRD PARTY TO MAINTAIN OUR COMMUNICATIONS HARDWARE AND
PERFORM MOST OF OUR COMPUTER HARDWARE OPERATIONS.
Substantially all of our communications hardware and most of our computer
hardware operations are located at Exodus Communications' facility in Santa
Clara, California. We do not have complete backup systems for these operations.
A problem with, or failure of, our communications hardware or operations could
result in interruptions or increases in response times on the Internet sites of
our customers. Furthermore, if Exodus fails to adequately maintain or operate
our communications hardware or does not perform our computer hardware operations
adequately, our services to our customers may not be available. We have
experienced system failures in the past. For example, in October 1999, one
outage at Exodus caused all of our application services to become unavailable
for approximately 90 minutes. In December 1999, a second outage at Exodus, which
slowed the response times of our application services, lasted 18 hours. Other
outages or system failures may occur. Any disruptions could damage our
reputation, reduce our revenues or otherwise harm our business. Our insurance
policies may not adequately compensate us for any losses that may occur due to
any failures or interruptions in our systems.
IF WE ARE UNABLE TO SCALE OUR CAPACITY SUFFICIENTLY AS DEMAND FOR OUR SERVICES
INCREASES, WE MAY LOSE CUSTOMERS WHICH WOULD BE DETRIMENTAL TO OUR BUSINESS.
We plan to increase significantly the number of customers who use our
application services. We cannot be certain that if we increase our customers we
will be able to correspondingly increase our personnel and infrastructure to
perform our application services at satisfactory levels. In addition, our
application services may need to accommodate an increasing volume of traffic. If
we are not able to expand our infrastructure to accommodate such an increase in
traffic, our customers' Internet sites may in the future experience slower
response times or outages. If we cannot adequately handle a significant increase
in customers or customers' traffic, we may lose customers or fail to gain new
ones, which may reduce our revenues and cause our business and financial results
to suffer.
IF WE DO NOT SUCCESSFULLY DEVELOP NEW PRODUCTS AND SERVICES TO RESPOND TO RAPID
MARKET CHANGES DUE TO CHANGING TECHNOLOGY AND EVOLVING INDUSTRY STANDARDS, OUR
BUSINESS WILL BE HARMED.
The market for our products and services is characterized by rapidly
changing technology, evolving industry standards, frequent new product and
service introductions and changes in customer demands. The recent growth of
video on the Internet and intense competition in our industry exacerbate these
market characteristics. 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. To succeed, we
must anticipate and adapt to customer requirements in an effective and timely
manner, and offer products and services that meet customer demands. If we fail
to do so, our products and services will not achieve widespread market
acceptance, and we may not generate significant revenues to offset our
development costs, which will hurt our business.
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The development of new or enhanced products and services is a complex and
uncertain process that requires the accurate anticipation of technological and
market trends. We may experience design, manufacturing, marketing and other
technological difficulties that could delay our ability to respond to
technological changes, evolving industry standards, competitive developments or
customer requirements. You should additionally be aware that:
- our technology or systems may become obsolete upon the introduction of
alternative technologies, such as products that better manage and search
video content;
- we could incur substantial costs if we need to modify our products and
services to respond to these alternative technologies;
- 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; and
- when introducing new or enhanced products or services, we may be unable
to manage effectively the transition from older products and services and
ensure that we can deliver products and services to meet anticipated
customer demand.
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES, AND THE LOSS OF OR OUR
INABILITY TO MAINTAIN THESE LICENSES COULD RESULT IN INCREASED COSTS OR DELAY
SALES OF OUR PRODUCTS.
We license technology from third parties, including software that is
integrated with internally-developed software and used in our products to
perform key functions. We anticipate that we will continue to license technology
from third parties in the future. This software may not continue to be available
on commercially reasonable terms, if at all. Some of the software we license
from third parties could be difficult for us to replace. The loss of any of
these technology licenses could result in delays in the license of our products
until equivalent technology, if available, is developed or identified, licensed
and integrated. The use of additional third-party software would require us to
negotiate license agreements with other parties, which could result in higher
royalty payments and a loss of product differentiation. In addition, the
effective implementation of our products depends upon the successful operation
of third-party licensed products in conjunction with our products, and therefore
any undetected errors in these licensed products could prevent the
implementation or impair the functionality of our products, delay new product
introductions and/or damage our reputation.
IF WE ARE UNABLE TO RETAIN OUR KEY PERSONNEL, OUR BUSINESS MAY BE HARMED.
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, and particularly Paul
Lego, our chief executive officer. The loss of either this individual or other
key employees would likely have an adverse effect on our business. We do not
have employment agreements with most of our senior management team. If one or
more of our senior management team were to resign, the loss could result in loss
of sales, delays in new product development and diversion of management
resources.
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<PAGE> 14
BECAUSE COMPETITION FOR QUALIFIED PERSONNEL IS INTENSE, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN PERSONNEL, WHICH COULD IMPACT THE DEVELOPMENT AND ACCEPTANCE
OF OUR PRODUCTS AND SERVICES.
We expect that we will need to hire additional personnel in all functional
areas in the foreseeable future. Competition for personnel throughout our
industry is intense. We may be unable to attract or assimilate other
highly-qualified employees in the future. We have in the past experienced, and
we expect to continue to experience, difficulty in hiring highly-skilled
employees with appropriate qualifications. In addition, new hires frequently
require extensive training before they achieve desired levels of productivity.
Several members of our existing management team have been employed at Virage for
less than one year, including our chief financial officer. We may fail to
attract and retain qualified personnel, which could have a negative impact on
our business.
FAILURE TO PROPERLY MANAGE OUR POTENTIAL GROWTH WOULD BE DETRIMENTAL TO OUR
BUSINESS.
We have experienced and are currently experiencing a period of significant
growth in our operations. This growth has placed, and our anticipated future
growth in our operations will continue to place, a significant strain on our
resources. As part of this growth, we will have to implement new operational and
financial systems, procedures and controls to expand, train and manage our
employee base and to maintain close coordination among our technical,
accounting, finance, marketing, sales and editorial staffs. We will also need to
continue to attract, retain and integrate personnel in all aspects of our
operations. To the extent we acquire other businesses, we will also need to
integrate and assimilate new operations, technologies and personnel. Failure to
manage our growth effectively could adversely affect our business.
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 and our current and potential customers, errors will not
be found in new products or releases after shipment, resulting in loss of
revenues, delay in market acceptance and sales, diversion of development
resources, injury to our reputation or increased service and warranty costs. If
any of these were to occur, our business would be adversely affected and our
stock price could fall.
Because our products are generally used in systems with other vendors'
products, they must integrate successfully with these existing systems. System
errors, whether caused by our products or those of another vendor, could
adversely affect the market acceptance of our products, and any necessary
revisions could cause us to incur significant expenses.
WE COULD BE SUBJECT TO LIABILITY CLAIMS AND NEGATIVE PUBLICITY IF OUR CUSTOMERS'
SYSTEMS, INFORMATION OR VIDEO CONTENT IS DAMAGED THROUGH THE USE OF OUR PRODUCTS
OR OUR APPLICATION SERVICES.
If our customers' systems, information or video content is damaged by
software errors, product design defects or use of our application services, our
business may be harmed. In addition, these errors or defects may cause severe
customer service and public relations problems. Errors, bugs, viruses or
misimplementation of our products or services may cause liability claims and
negative publicity ultimately resulting in the loss of market acceptance
13
<PAGE> 15
of our products and services. Our agreements with customers that attempt to
limit our exposure to liability claims may not be enforceable in jurisdictions
where we operate.
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
conduct our business. These companies could assert, and it may be found, that
our technologies infringe their proprietary 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 technology 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.
From time to time, we have received notices claiming that our technology
infringes patents held by third parties. In the event any such claim is
successful and we are unable to license the infringed technology on commercially
reasonable terms, our business and operating results would be significantly
harmed.
IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY IS INADEQUATE, OUR COMPETITORS
MAY GAIN ACCESS TO OUR TECHNOLOGY, AND WE MAY LOSE CUSTOMERS.
We depend on our ability to develop and maintain the proprietary aspects of
our technology. We seek to protect our software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. Our proprietary rights may not prove viable or of value in the
future since the validity, enforceability and type of protection of proprietary
rights in Internet-related industries are uncertain and still evolving.
Unauthorized parties may attempt to copy aspects of our products or to
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products is difficult, and while we are unable to determine the
extent to which piracy of our software or code exists, software piracy can be
expected to be a persistent problem. We license our proprietary rights to third
parties, and these licensees may not abide by our compliance and quality control
guidelines or they may take actions that would materially adversely affect us.
In addition, the laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States, and effective
patent, copyright, trademark and trade secret protection may not be available in
these foreign jurisdictions. To date, we have not sought protection of our
proprietary rights in any foreign jurisdiction. Our efforts to protect our
intellectual property rights through patent, copyright, trademark and trade
secret laws may not be effective to prevent misappropriation of our technology,
or may not prevent the development and design by others of products or
technologies similar to or competitive with those developed by us. Our failure
or inability to protect our proprietary rights could harm our business.
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<PAGE> 16
AS WE EXPAND OUR OPERATIONS INTERNATIONALLY, WE WILL FACE SIGNIFICANT RISKS IN
DOING BUSINESS IN FOREIGN COUNTRIES.
A key component to our business strategy is to expand our existing sales
and marketing activities and service operations internationally, particularly in
Europe and Asia. 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 and services 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 products and services 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.
FAILURE TO INCREASE OUR BRAND AWARENESS AMONG CONTENT OWNERS COULD LIMIT OUR
ABILITY TO COMPETE EFFECTIVELY.
We believe that establishing and maintaining a strong brand name is
important to the success of our business. Competitive pressures may require us
to increase our expenses to promote our brand name, and the benefits associated
with brand creation may not outweigh the risks and costs associated with brand
name establishment. Our failure to develop a strong brand name or the incurrence
of excessive costs associated with establishing our brand name, may harm our
business.
WE MAY NEED TO MAKE ACQUISITIONS IN ORDER TO REMAIN COMPETITIVE IN OUR MARKET,
AND POTENTIAL FUTURE ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS AND DILUTE STOCKHOLDER VALUE.
Although we have no current plans to do so, we may acquire other businesses
in the future in order to remain competitive or to acquire new technologies. As
a result of these acquisitions, we may need to integrate products, technologies,
widely dispersed operations and distinct corporate cultures. The products,
services or technologies of the acquired companies may need to be altered or
redesigned in order to be made compatible with our software products and
services, or the software architecture of our customers. These integration
efforts may not succeed or may distract our management from operating our
existing business. Our failure to successfully manage future acquisitions could
seriously harm our operating results. In addition, our stockholders would be
diluted if we finance the acquisitions by incurring convertible debt or issuing
equity securities.
15
<PAGE> 17
RISKS RELATING TO THE VIDEO AND DIGITAL MEDIA INFRASTRUCTURE
MARKETPLACE AND THE INTERNET
COMPETITION AMONG VIDEO AND DIGITAL MEDIA INFRASTRUCTURE COMPANIES IS INTENSE.
IF WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR BUSINESS WILL FAIL.
Competition among video and digital media infrastructure companies seeking
to attract new customers is intense and we expect this intensity of competition
to increase in the future. Our competitors vary in size and in the scope and
breadth of the products and services they offer and may have significantly
greater financial, technical and marketing resources. Our current direct
competitors include Excalibur Technologies and MediaSite. We may also compete
indirectly with system integrators to the extent they may embed or integrate
competing technologies into their product offerings, and in the future we may
compete with video service providers and searchable video portals. In addition,
we may compete with our current and potential customers who may contemplate
developing software or performing application services internally. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which will adversely affect our business.
IF BROADBAND TECHNOLOGY IS NOT ADOPTED OR DEPLOYED AS QUICKLY AS WE EXPECT,
DEMAND FOR OUR PRODUCTS AND SERVICES MAY NOT GROW AS QUICKLY AS ANTICIPATED.
Broadband technology such as digital subscriber lines, commonly referred to
as DSL, and cable modems, which allows video content to be transmitted over the
Internet more quickly than current technologies, has only recently been
developed and is just beginning to be deployed. The growth of our business
depends in part on the broad market acceptance of broadband technology. If the
market does not adopt broadband technology, or adopts it more slowly than we
anticipate, demand for our products and services may not grow as quickly as we
anticipate, which will harm our business.
We depend on the efforts of third parties to develop and provide the
infrastructure for broadband transmission. Even if broadband access becomes
widely available, heavy use of the Internet may negatively impact the quality of
media delivered through broadband connections. If these third parties experience
delays or difficulties establishing a widespread broadband transmission
infrastructure, or if heavy usage limits the broadband experience, the market
acceptance of our products and services could be materially adversely affected.
Because the anticipated growth of our business depends in part on broadband
transmission infrastructure, we are subject to a number of risks, including:
- changes in content delivery methods and protocols;
- the need for continued development by our customers of compelling content
that takes advantage of broadband access and helps drive market
acceptance of our products and services;
- the emergence of new competitors, including traditional broadcast and
cable television companies, which have significant control over access to
content, substantial resources and established relationships with media
providers;
- the development of relationships by our competitors with companies that
have significant access to or control over the broadband transmission
infrastructure or content; and
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<PAGE> 18
- the need to establish new relationships with non-PC based providers of
broadband access, such as providers of television set-top boxes and cable
television.
GOVERNMENT REGULATION OF THE INTERNET COULD LIMIT OUR GROWTH.
We are not currently subject to direct regulation by any government agency,
other than laws and regulations generally applicable to businesses, although
certain U.S. export controls and import controls of other countries may apply to
our products. While there are currently few laws or regulations that
specifically regulate communications or commerce on the Internet, due to the
increasing popularity and use of the Internet, it is possible that a number of
laws and regulations may be adopted in the U.S. and abroad in the near future
with particular applicability to the Internet. It is possible that governments
will enact legislation that may be applicable to us in areas such as content,
network security, access charges and retransmission activities. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, content, taxation, defamation and personal privacy is uncertain. The
adoption of new laws or the adaptation of existing laws to the Internet may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for our services, increase the cost of doing business or otherwise harm
our financial condition and operating results.
RISKS RELATED TO THE OFFERING AND OTHER RISKS
OUR SECURITIES HAVE NO PRIOR MARKET AND OUR STOCK PRICE MAY DECLINE AFTER THIS
OFFERING.
Before this offering, there has not been a public market for our common
stock and the trading price of our common stock may decline below the initial
public offering price. The initial public offering price will be determined by
negotiations between us and the representatives of the underwriters. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
An active trading market may not develop and you may not be able to resell
the shares you purchase at or above the initial public offering price, or at
all. The trading price of our common stock may fluctuate significantly in
response to a number of factors, some of which are beyond our control,
including:
- quarterly declines in operating results;
- changes in financial estimates or recommendations by securities analysts;
- announcements by us or our competitors of financial results, new
services, significant technological innovations, contracts, acquisitions,
strategic partnerships, joint ventures, capital commitments or other
events;
- stock market price and volume fluctuations, which are particularly common
among securities of Internet-related companies;
- changes in market valuation; and
- losses in key personnel.
In recent years the stock market in general, and the market for shares of
small capitalization and technology stocks in particular, have experienced
extreme price
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<PAGE> 19
fluctuations, which have often been unrelated to the operating performance of
affected companies. There can be no assurance that the market price of our
common stock will not experience significant fluctuations in the future,
including fluctuations unrelated to our performance. Such fluctuations could
materially adversely affect the market price of our common stock.
In addition, in the past, securities class action litigation has often been
brought against a company following periods of volatility in the market price of
its securities. This risk is especially acute for us because the extreme
volatility of market share prices of technology companies has resulted in a
greater number of securities class action claims than companies in other
industries. Due to the potential volatility of our stock price, we may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and divert management's attention and resources.
WE RECENTLY SOLD SHARES OF CONVERTIBLE PREFERRED STOCK AT A SUBSTANTIAL DISCOUNT
TO THE INITIAL PUBLIC OFFERING PRICE AND IT IS UNCERTAIN WHETHER THE INITIAL
PUBLIC OFFERING PRICE WILL PREVAIL IN THE MARKET.
In September 1999 and December 1999, we sold an aggregate of 6,067,401
shares of series E convertible preferred stock, which will convert into common
stock at a 1-to-1 ratio upon the closing of this offering, at $3.28 per share, a
price well below the assumed initial public offering price of $ per share
for our common stock. No current public market existed for our stock, and
therefore the initial public offering price for the shares of common stock was
determined by negotiations between us and the representatives of the
underwriters. We cannot assure you that the price that prevails in the market
will not be less than the initial public offering price, particularly in light
of our recent sales of securities at a lower price.
WE HAVE NO SPECIFIC PLAN FOR ANY SIGNIFICANT PORTION OF THE NET PROCEEDS AND OUR
INVESTMENT OF THE NET PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
We plan to use the proceeds from this offering for working capital and
other general corporate purposes. We may use the proceeds in ways with which you
do not agree or that prove to be disadvantageous to our stockholders. We may not
be able to invest the proceeds of this offering in our operations or external
investments to yield a favorable return.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, WHICH IF AVAILABLE, MAY
NOT BE AVAILABLE ON FAVORABLE TERMS, AND WHICH MAY CAUSE DILUTION.
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. 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. 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.
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<PAGE> 20
AFTER THIS OFFERING WE WILL CONTINUE TO BE CONTROLLED BY OUR EXECUTIVE OFFICERS,
DIRECTORS AND MAJOR STOCKHOLDERS WHOSE INTERESTS MAY CONFLICT WITH YOURS.
Upon completion of this offering, our executive officers, directors and
major stockholders will beneficially own approximately % of our outstanding
common stock. As a result, these stockholders will be able to exercise control
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions, which could have
the effect of delaying or preventing a third party from acquiring control over
or merging with us. We also plan to reserve up to 10% of the shares offered in
this offering under a directed share program in which our executive officers,
directors, principal stockholders, employees, business associates and related
persons may be able to purchase shares in this offering at the initial public
offering price. This program may further increase the amount of stock held by
persons whose interests are closely aligned with management's interests.
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL, WHICH COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws may have the
effect of delaying or preventing a change of control or changes in our
management. In addition, provisions of Delaware law may discourage, delay or
prevent someone from acquiring or merging with us. These provisions could limit
the price that investors might be willing to pay in the future for shares of our
common stock. For more information, see "Description of Capital Stock."
THERE ARE A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of substantial numbers of shares of our common stock in the public
market after this offering, or the perception that sales may be made, could
cause the market price of our common stock to decline. In addition, the sale of
these shares could impair our ability to raise capital through the sale of
additional equity securities. Based on shares outstanding as of December 31,
1999, following this offering, we will have shares of common
stock outstanding or shares if the underwriters' over-allotment
is exercised in full. Of these, shares will become available for
sale 180 days following the date of this prospectus upon the expiration of
lock-up agreements, subject to the restrictions imposed by the federal
securities laws on sales by affiliates. Credit Suisse First Boston Corporation,
however, may waive these lock-up restrictions at its sole discretion without
notice.
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<PAGE> 21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Business and elsewhere in this prospectus constitute forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as may,
will, should, expect, plan, intend, forecast, anticipate, believe, estimate,
predict, potential, continue or the negative of these terms or other comparable
terminology. The forward-looking statements contained in this prospectus involve
known and unknown risks, uncertainties and situations that may cause our or our
industry's actual results, level of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these statements. These factors include
those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. You should not place undue reliance on
these forward-looking statements.
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<PAGE> 22
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the
shares of common stock we are offering will be approximately $ million,
at an assumed initial public offering price of $ per share and after
deducting underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate that our net proceeds will be approximately $ million.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock, to enhance our ability to
acquire other businesses, products or technologies, to invest in additional
research and development to expand sales and marketing initiatives, expand our
Virage Interactive services, and to facilitate future access to public equity
markets. We intend to use the proceeds for working capital, capital expenditures
and other general corporate purposes. We currently have no commitments or
agreements with respect to any acquisitions. Pending our use of the net
proceeds, we intend to invest them in cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying such cash dividends in the foreseeable future. We
currently anticipate that we will retain all of our future earnings for use in
the development and expansion of our business and for general corporate
purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our financial
condition, operating results and other factors as determined by our board of
directors. Additionally, we have entered into a loan agreement with a creditor
that restricts our ability to pay dividends.
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<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999
on the following three bases:
- On an actual basis;
- On a pro forma basis to reflect (1) the conversion of all outstanding
shares of our redeemable convertible preferred stock into 20,632,401
shares of common stock effective automatically upon the closing of this
offering, and (2) the cash exercise of warrants to purchase 188,980
shares of common stock; and
- On a pro forma as adjusted basis to reflect (1) the sale of
shares of common stock in this offering at an assumed
initial public price of $ per share and the application of the net
proceeds, after deducting underwriting discounts and commissions and
estimated offering expenses, (2) the conversion of all outstanding shares
of our preferred stock into 20,632,401 shares of common stock effective
automatically upon the closing of this offering, and (3) the cash
exercise of warrants to purchase 188,980 shares of common stock.
This table should be read in conjunction with our consolidated financial
statements and the related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term portion of borrowings under bank
equipment term loans............................ $ 115 $ 115 $ 115
Redeemable convertible preferred stock, $0.001 par
value, 22,092,404 shares authorized, 20,632,401
shares issued and outstanding, actual; no shares
authorized, issued or outstanding, pro forma or
pro forma as adjusted........................... 39,897 -- --
Stockholders' equity (net capital deficiency):
Preferred stock, $0.001 par value, no shares
authorized, issued or outstanding, actual;
2,000,000 shares authorized, no shares issued
or outstanding, actual, pro forma and pro
forma as adjusted............................. -- -- --
Common stock, $0.001 par value, 40,000,000
shares authorized, 5,604,756 shares issued and
outstanding, actual; 100,000,000 shares
authorized, 26,426,137 shares issued and
outstanding, pro forma; 100,000,000 shares
authorized, shares issued and
outstanding, pro forma as adjusted............ 6 26
Additional paid-in capital...................... 8,965 49,462
Deferred compensation........................... (6,591) (6,591) (6,591)
Accumulated deficit............................. (24,282) (24,282) (24,282)
-------- -------- --------
Total stockholders' equity (net capital
deficiency)................................ (21,902) 18,615
-------- -------- --------
Total capitalization..................... $ 18,110 $ 18,730 $
======== ======== ========
</TABLE>
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<PAGE> 24
DILUTION
If you invest in our common stock, your interest will be diluted in an
amount equal to the difference between:
- the public offering price per share of our common stock; and
- the pro forma net tangible book value per share of our common stock after
this offering.
The pro forma net tangible book value per share after this offering equals:
- the net tangible book value, which is tangible assets less total
liabilities after giving effect to the assumed cash exercise of warrants
to purchase 188,980 shares of common stock, divided by
- the number of outstanding shares of common stock after the offering,
which will include 22,092,404 shares of common stock from the conversion
of preferred stock upon consummation of this offering and the cash
exercise of warrants to purchase 188,980 shares of common stock.
Our pro forma net tangible book value as of December 31, 1999 was
approximately $17.2 million or $0.65 per share of common stock. The pro forma as
adjusted net tangible book value per share takes into account the estimated net
proceeds from this offering. Based upon an assumed initial public offering price
of $ per share and after deducting the underwriting discounts and
commissions and estimated offering expenses, our pro forma as adjusted net
tangible book value as of December 31, 1999 would have been approximately
$ , or $ per share. This represents an immediate increase in pro
forma as adjusted net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to investors
purchasing common stock in this offering. The following table illustrates the
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $ 0.65
Increase per share attributable to new investors..........
----------
Pro forma as adjusted net tangible book value per share
after the offering........................................
----------
Dilution per share to new investors......................... $
==========
</TABLE>
The following table summarizes as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this
offering, before deducting the estimated underwriting discounts and commissions
and estimated offering expenses. Additionally, as detailed below, new investors
purchasing shares in this offering at the initial public offering price will
contribute % of the total consideration paid to us but will own only %
of our shares.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
----------- ------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 26,426,137 % $ % $
New investors............................. % %
----------- --- -------- ---
Total................................... 100% $ 100%
=========== === ======== ===
</TABLE>
Except as noted above, the foregoing discussion and tables assume no
exercise of any stock options or warrants outstanding at December 31, 1999. As
of December 31, 1999, there were options outstanding to purchase 6,159,769
shares of common stock at a weighted average exercise price of $1.313 and
warrants to purchase 63,974 shares of common stock at a weighted average
exercise price of $0.625. To the extent that any of these options are exercised,
there will be further dilution to investors purchasing our common stock.
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<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and the
Notes thereto included elsewhere in this prospectus. The consolidated statement
of operations data for the fiscal years ended March 31, 1997, 1998 and 1999 and
for the nine months ended December 31, 1999 and the consolidated balance sheet
data at March 31, 1998 and 1999 and at December 31, 1999 are derived from, and
are qualified by reference to, the audited Consolidated Financial Statements and
Notes thereto appearing elsewhere in this prospectus. The statement of
operations data for the fiscal years ended March 31, 1995 and 1996 and the
balance sheet data as of March 31, 1995, 1996 and 1997 are derived from, and are
qualified by reference to, financial statements not appearing in this
prospectus. The consolidated statement of operations data for the nine months
ended December 31, 1998 is unaudited. In the opinion of management, all
necessary adjustments, consisting only of normal recurring adjustments, have
been included to present fairly the unaudited nine months results when read in
conjunction with the audited Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this prospectus. Historical results are not
necessarily indicative of results that may be expected for any future period.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
License revenues.......................... $ -- $ 35 $ 376 $ 1,438 $ 1,956 $ 1,303 $ 3,144
Service revenues.......................... -- -- 43 130 253 155 578
Other revenues............................ -- 64 1,026 1,134 1,141 865 165
------- ------- ------- ------- ------- ------- --------
Total revenues..................... -- 99 1,445 2,702 3,350 2,323 3,887
Cost of revenues:
License revenues.......................... -- -- -- 454 397 287 686
Service revenues.......................... -- -- 22 62 426 292 1,196
Other revenues............................ -- 38 584 809 859 657 172
------- ------- ------- ------- ------- ------- --------
Total cost of revenues............. -- 38 606 1,325 1,682 1,236 2,054
Gross profit................................ -- 61 839 1,377 1,668 1,087 1,833
Operating expenses:
Research and development.................. 401 969 758 1,751 2,325 1,700 2,654
Sales and marketing....................... 65 210 1,020 2,810 4,362 3,058 5,094
General and administrative................ 85 428 694 935 1,273 820 1,566
Stock-based compensation.................. -- -- -- -- -- -- 205
------- ------- ------- ------- ------- ------- --------
Total operating expenses........... 551 1,607 2,472 5,496 7,960 5,578 9,519
Loss from operations........................ (551) (1,546) (1,633) (4,119) (6,292) (4,491) (7,686)
Interest and other income, net.............. 9 78 34 19 122 113 223
------- ------- ------- ------- ------- ------- --------
Loss before income taxes.................... (542) (1,468) (1,599) (4,100) (6,170) (4,378) (7,463)
Provision for income taxes.................. (1) (1) -- -- -- -- (36)
------- ------- ------- ------- ------- ------- --------
Net loss.................................... (543) (1,469) (1,599) (4,100) (6,170) (4,378) (7,499)
Series E convertible preferred stock
dividend.................................. -- -- -- -- -- -- (2,902)
------- ------- ------- ------- ------- ------- --------
Net loss applicable to common
stockholders.............................. $ (543) $(1,469) $(1,599) $(4,100) $(6,170) $(4,378) $(10,401)
======= ======= ======= ======= ======= ======= ========
Basic and diluted net loss per share
applicable to common stockholders......... $ (0.21) $ (0.56) $ (0.72) $ (1.42) $ (1.84) $ (1.36) $ (2.43)
======= ======= ======= ======= ======= ======= ========
Shares used in computation of basic and
diluted net loss per share applicable to
common stockholders....................... 2,561 2,622 2,232 2,886 3,359 3,217 4,274
Pro forma basic and diluted net loss per
share applicable to common stockholders... $ (0.40) $ (0.50)
======= ========
Shares used to compute pro forma basic and
diluted net loss per share applicable to
common stockholders....................... 15,472 20,650
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
----- ------- ------- ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash and cash equivalents...................... $ 1 $ 774 $ 2,387 $ 5,780 $ 4,357 $ 16,362
Working capital (deficit)...................... (298) 643 2,273 4,723 3,879 15,791
Total assets................................... 114 1,228 3,418 7,289 6,605 21,512
Long-term obligations, net of current
portion...................................... -- 46 163 311 241 115
Redeemable convertible preferred stock......... -- 2,449 5,823 12,472 17,936 39,897
Accumulated deficit............................ (543) (2,013) (3,612) (7,712) (13,881) (24,282)
Total stockholders' equity (net capital
deficiency).................................. (186) (1,642) (3,224) (7,257) (13,326) (21,902)
</TABLE>
24
<PAGE> 26
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 Consolidated
Financial Data" and our consolidated financial statements and related notes
included elsewhere in this prospectus. In addition to historical information,
the discussion in this prospectus contains certain forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated by these forward-looking statements due to factors,
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this prospectus.
OVERVIEW
Virage is a leading provider of software products and application services
that allow owners of video content to deploy, manage and distribute their video
assets over the Internet and corporate intranets. Depending on their particular
needs and resources, these video content owners may elect either to license our
software products or to subscribe to our application services. Our customers
include media and entertainment companies, other corporations, government
agencies and educational institutions. As of December 31, 1999, over 100
customers had purchased our software products or application services. Our
customers include CNET Networks, CNN, the FBI, General Motors, Harvard Business
School, the Library of Congress, the New York Stock Exchange, The Walt Disney
Co., and Yahoo!
During the period from our inception in April 1994 through February 1996,
we were a development stage enterprise and had no revenues. Our operating
activities during this period related primarily to developing products, building
our corporate infrastructure and raising capital. In November 1995, we released
our first version of software for still image search. In December 1997, we
started shipping VideoLogger, the first of our video and audio indexing
products. To date, we have derived substantially all of our revenues from these
product lines and related services. In May 1999, we launched Virage Interactive
services, an application services offering which allows our customers to
outsource the deployment, management and distribution of their video content
over the Internet and intranets.
Our total revenues consist of license revenues, service revenues and other
revenues.
License revenues are recognized upon contract execution, provided all
shipment obligations have been met, fees are fixed or determinable, collection
is probable, and vendor specific objective evidence exists to allocate the total
revenues among all elements of the arrangement. Some of our products, such as
VideoLogger and AudioLogger, are licensed on a per copy basis, and other
products, such as our Video Search Tools, are licensed on a per user or per
server basis.
Service revenues consist primarily of fees for customer support, upgrades
to licensed software products and revenues associated with our Virage
Interactive services offering. Most of our customers purchase support and
maintenance contracts. These contracts provide unspecified software upgrades, on
a when-and-if available basis, and technical support over a stated term, which
is generally a twelve-month period. Our support and maintenance revenues are
recognized ratably over the contract period. Virage Interactive services
revenues consist of set up fees, video processing fees and transaction fees. Set
up
25
<PAGE> 27
fees are recognized ratably over the contract term, which is generally six to 18
months. We generate video processing fees for each hour of video that a customer
deploys. Processing fees are recognized as encoding, indexing and editorial
services are performed. We generate transaction fees with each video query on a
customer's site. Transaction fees are recognized at the end of each month based
on the number of video queries processed, subject in some cases to monthly
minimums and maximums.
Other revenues include government research grants, and fees for engineering
services for customization or enhancement of our licensed products. These
services are generally provided on a fixed-price basis and the related revenues
are typically recognized as services are provided or upon contract completion.
We anticipate that these revenues will not represent a material percentage of
our total revenues in the future.
Cost of license revenues consists primarily of royalty fees for third-party
software products integrated into our products. Our cost of service revenues
includes personnel expenses, related overhead, communication expenses and
capital depreciation costs for maintenance and support activities and Virage
Interactive services. Our cost of other revenues includes engineering personnel
expenses and related overhead for custom engineering and government projects.
We incurred net losses of approximately $1.6 million in fiscal 1997, $4.1
million in fiscal 1998, $6.2 million in fiscal 1999 and $7.5 million in the nine
months ended December 31, 1999. In addition, during the nine months ended
December 31, 1999, we recorded a dividend to certain purchasers of our series E
preferred stock of $2.9 million representing the difference between the purchase
price and the deemed fair value of those shares at the time of issuance. This
deemed dividend brought the net loss for that period applicable to common
stockholders to $10.4 million. As of December 31, 1999, we had an accumulated
deficit of $24.3 million. We expect to continue to incur operating losses for
the foreseeable future. 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 other operating results are not necessarily meaningful and
should not be relied upon as indications of future performance. Our historic
revenue growth rates are not necessarily sustainable or indicative of our future
growth.
26
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth consolidated financial data for the periods
indicated, expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED ENDED
MARCH 31, DECEMBER 31,
-------------------- ------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
License revenues...................... 26% 53% 58% 56% 81%
Service revenues...................... 3 5 8 7 15
Other revenues........................ 71 42 34 37 4
---- ---- ---- ---- ----
Total revenues................ 100 100 100 100 100
---- ---- ---- ---- ----
Cost of revenues:
License revenues...................... -- 17 12 12 18
Service revenues...................... 2 2 13 13 31
Other revenues........................ 40 30 26 28 4
---- ---- ---- ---- ----
Total cost of revenues........ 42 49 51 53 53
---- ---- ---- ---- ----
Gross profit............................ 58 51 49 47 47
Operating expenses:
Research and development.............. 52 65 69 73 69
Sales and marketing................... 71 104 130 132 131
General and administrative............ 48 35 38 35 40
Stock-based compensation.............. -- -- -- -- 5
---- ---- ---- ---- ----
Total operating expenses...... 171 204 237 240 245
---- ---- ---- ---- ----
Loss from operations.................... (113) (153) (188) (193) (198)
Interest and other income, net.......... 2 1 4 5 6
---- ---- ---- ---- ----
Loss before income taxes................ (111) (152) (184) (188) (192)
Provision for income taxes.............. -- -- -- -- (1)
---- ---- ---- ---- ----
Net loss................................ (111) (152) (184) (188) (193)
Series E convertible preferred stock
dividend.............................. -- -- -- -- (75)
---- ---- ---- ---- ----
Net loss applicable to common
stockholders.......................... (111)% (152)% (184)% (188)% (268)%
==== ==== ==== ==== ====
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1998 AND 1999
Total Revenues. Total revenues increased from $2.3 million for the nine
months ended December 31, 1998 to $3.9 million for the nine months ended
December 31, 1999, an increase of $1.6 million. This increase was due to
increases in license and service revenues, offset by a decrease in other
revenues. International revenues increased from $253,000, or 11% of total
revenues, for the nine months ended December 31, 1998 to $1.0 million, or 27% of
total revenues, for the nine months ended December 31, 1999. Sales to our two
largest customers accounted for 17% and 13%, respectively, of total revenues for
the nine months ended December 31, 1998. In addition, sales to our two largest
customers accounted for 16% and 15%, respectively, of total revenues for the
nine months ended December 31, 1999. Sales to agencies of the U.S. government
accounted for 43% of total revenues for the nine months ended December 31, 1998
and 22% of total revenues for the comparable period in 1999. Sales of licenses
and services to agencies of
27
<PAGE> 29
the U.S. government, excluding other revenues, accounted for 17% of total
revenues for the nine months ended December 31, 1998 and 20% of total revenues
for the comparable period in 1999.
License revenues increased from $1.3 million for the nine months ended
December 31, 1998 to $3.1 million for the nine months ended December 31, 1999,
an increase of $1.8 million. The increase was primarily due to the introduction
of new product lines, expansion of our domestic sales and marketing operations,
and the opening of a European sales office in November 1998.
Service revenues increased from $155,000 for the nine months ended December
31, 1998 to $578,000 for the nine months ended December 31, 1999, an increase of
$423,000. This growth was primarily due to an increase in the number of
customers purchasing maintenance contracts and the introduction of our Virage
Interactive services in May 1999.
Other revenues decreased from $865,000 for the nine months ended December
31, 1998 to $165,000 for the nine months ended December 31, 1999, a decrease of
$700,000. This decrease was primarily due to a decline in government research
grants and contract work as well as a decline in the amount of engineering
services we provided to customers.
Total Cost of Revenues. Total cost of revenues increased from $1.2 million,
or 53% of total revenues, for the nine months ended December 31, 1998 to $2.1
million, or 53% of total revenues, for the nine months ended December 31, 1999.
This increase in total cost of revenues was due to increases in cost of license
and service revenues, offset by a decrease in cost of other revenues.
Cost of license revenues increased from $287,000, or 22% of license
revenues, for the nine months ended December 31, 1998 to $686,000, or 22% of
license revenues, for the nine months ended December 31, 1999. This increase in
absolute dollars was primarily due to royalty payments for new licensed
technologies which first became payable by us during the nine months ended
December 31, 1999.
Cost of service revenues increased from $292,000, or 189% of service
revenues, for the nine months ended December 31, 1998 to $1.2 million, or 207%
of service revenues for the nine months ended December 31, 1999. This increase
was due to increased support costs for a larger base of maintenance customers
and expenditures for personnel and equipment for Virage Interactive services. We
expect the cost of service revenues to increase substantially, and margins on
our service revenues to remain negative for the foreseeable future as we expand
our Virage Interactive services and worldwide support capabilities.
Cost of other revenues decreased from $657,000, or 76% of other revenues,
for the nine months ended December 31, 1998 to $172,000, or 104% of other
revenues, for the nine months ended December 31, 1999. This decrease was due
primarily to a reduction in other revenues.
Research and Development Expenses. Research and development expenses
consist primarily of personnel and related costs for our development efforts.
Research and development expenses increased from $1.7 million, or 73% of total
revenues, for the nine months ended December 31, 1998 to $2.7 million, or 69% of
total revenues, for the nine months ended December 31, 1999. The increase in
absolute dollars was primarily due to an increase in our research and
development staff from 25 at December 31, 1998 to 43 at December 31, 1999. We
expect research and development expenses to increase substantially for the
foreseeable future as we believe that significant product development
28
<PAGE> 30
expenditures are essential for us to maintain and enhance our market position.
To date, we have not capitalized any software development costs.
Sales and Marketing Expenses. Sales and marketing expenses consist of
personnel and related costs for our direct sales force, pre-sales support and
marketing staff, and marketing programs including trade shows and advertising.
Sales and marketing expenses increased from $3.1 million, or 132% of total
revenues, for the nine months ended December 31, 1998 to $5.1 million, or 131%
of total revenues, for the nine months ended December 31, 1999. This increase in
absolute dollars was primarily due to growth in our sales and marketing
personnel, which increased from 21 at December 31, 1998 to 37 at December 31,
1999, as well as increased expenses incurred in connection with trade shows and
additional marketing programs. The increase in our sales and marketing staff
related to the opening of new sales offices in the United States, a new sales
office in Europe, and the launch of Virage Interactive services. We expect sales
and marketing expenses to increase substantially for the foreseeable future as
we hire additional sales and marketing personnel, increase spending on
advertising and marketing programs, and expand our operations in North America
and internationally.
General and Administrative Expenses. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including finance, accounting, legal and human resources, facilities
and information system expenses not allocated to other departments, as well as
the costs of our external audit firm and our outside legal counsel. General and
administrative expenses increased from $820,000, or 35% of total revenues, for
the nine months ended December 31, 1998 to $1.6 million, or 40% of total
revenues, for the nine months ended December 31, 1999. This increase was
primarily due to an increase in headcount. General and administrative headcount
increased from 8 at December 31, 1998 to 12 at December 31, 1999. We expect
general and administrative expenses to increase substantially for the
foreseeable future as we hire additional general and administrative personnel
and enhance our information systems to support our expected growth.
Stock-Based Compensation Expense. We recognized stock-based compensation
expense of $205,000 for the nine months ended December 31, 1999, in connection
with the granting of stock options to our employees. We did not recognize any
stock-based compensation expense for the nine months ended December 31, 1998.
Future compensation expense from options granted to employees through January
10, 2000, is estimated to be approximately $414,000 for the fourth quarter of
fiscal 2000, $1.7 million for fiscal 2001, and $1.7 million for fiscal 2002.
Interest and Other Income, Net. Interest and other income, net, includes
interest income from cash and cash equivalents offset by interest on capital
leases and bank debt. Interest and other income, net, increased from $113,000
for the nine months ended December 31, 1998 to $223,000 for the nine months
ended December 31, 1999, an increase of $110,000. The increase was primarily due
to interest income from increased cash balances.
Provision for Income Taxes. We have not recorded a provision for federal
and state or foreign income taxes, except for immaterial current foreign and
state income taxes, because we have experienced net losses since inception which
have resulted in deferred tax assets. We have recorded a valuation allowance for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance through future taxable profits.
29
<PAGE> 31
FISCAL YEARS ENDED MARCH 31, 1997, 1998 AND 1999
Total Revenues. Total revenues increased from $1.4 million in fiscal 1997,
to $2.7 million in fiscal 1998, and to $3.4 million in fiscal 1999, representing
increases of $1.3 million from fiscal 1997 to fiscal 1998, and $648,000 from
fiscal 1998 to fiscal 1999. License revenues, as a percentage of total revenues,
increased from 26% in fiscal 1997, to 53% in fiscal 1998, and to 58% in fiscal
1999. Service revenues, as a percentage of total revenues, increased from 3% in
fiscal 1997, to 5% in fiscal 1998, and to 8% in fiscal 1999. Other revenues, as
a percentage of total revenues, decreased from 71% in fiscal 1997, to 42% in
fiscal 1998, and to 34% in fiscal 1999.
License revenues increased from $376,000 in fiscal 1997, to $1.4 million in
fiscal 1998, and to $2.0 million in fiscal 1999, representing increases of $1.1
million from fiscal 1997 to fiscal 1998, and $518,000 from fiscal 1998 to fiscal
1999. The increases in license revenues were due primarily to new product
introductions, increased sales and marketing activities, and increased market
acceptance of our products.
Service revenues increased from $43,000 in fiscal 1997, to $130,000 in
fiscal 1998, and to $253,000 in fiscal 1999, representing increases of $87,000
from fiscal 1997 to fiscal 1998, and $123,000 from fiscal 1998 to fiscal 1999.
The increases were due to a rise in the number of customers purchasing
maintenance and support contracts.
Other revenues increased slightly from $1.0 million in fiscal 1997 to $1.1
million in fiscal 1998, and to $1.1 million in fiscal 1999, representing
increases of $108,000 from fiscal 1997 to fiscal 1998, and $7,000 from fiscal
1998 to fiscal 1999.
Total Cost of Revenues. Total cost of revenues increased from $606,000 in
fiscal 1997, to $1.3 million in fiscal 1998, and to $1.7 million in fiscal 1999.
The total cost of revenues, as a percentage of total revenues, was 42% in fiscal
1997, 49% in fiscal 1998, and 51% in fiscal 1999.
Cost of license revenues changed from $454,000 in fiscal 1998 to $397,000
in fiscal 1999. The cost of license revenues, as a percentage of license
revenues, was 32% in fiscal 1998 and 20% in fiscal 1999. We began licensing
third party technologies in fiscal 1998.
Cost of service revenues increased from $22,000 in fiscal 1997, to $62,000
in fiscal 1998, and to $426,000 in fiscal 1999. The cost of service revenues, as
a percentage of service revenues, was 50% in fiscal 1997, 48% in fiscal 1998,
and 168% in fiscal 1999. The increase in cost of service revenues from fiscal
1998 to fiscal 1999 was due to the establishment of an organization to provide
support to our customers 24 hours a day, seven days a week.
Cost of other revenues increased from $584,000 in fiscal 1997, to $809,000
in fiscal 1998, and to $859,000 in fiscal 1999. Cost of other revenues, as a
percentage of other revenues, was 57% in fiscal 1997, 71% in fiscal 1998 and 75%
in fiscal 1999.
Research and Development Expenses. Research and development expenses
increased from $758,000 in fiscal 1997, to $1.8 million in fiscal 1998, and to
$2.3 million in fiscal 1999. Research and development expenses, as a percentage
of total revenues, were 52% in fiscal 1997, 65% in fiscal 1998, and 69% in
fiscal 1999. The increases were primarily due to increased personnel for new
product introductions and enhancements and new versions of existing products.
Our research and development related headcount was 14 at March 31, 1997, 25 at
March 31, 1998, and 26 at March 31, 1999.
30
<PAGE> 32
Sales and Marketing Expenses. Sales and marketing expenses increased from
$1.0 million in fiscal 1997, to $2.8 million in fiscal 1998, and to $4.4 million
in fiscal 1999. Sales and marketing expenses, as a percentage of total revenues,
were 71% in fiscal 1997, 104% in fiscal 1998, and 130% in fiscal 1999. The
increases were primarily due to increased personnel, and increases in marketing
spending for trade shows, promotional events, lead generation and other
marketing related programs. Our sales and marketing headcount was 9 at March 31,
1997, 18 at March 31, 1998, and 26 at March 31, 1999.
General and Administrative Expenses. General and administrative expenses
increased from $694,000 in fiscal 1997, to $935,000 in fiscal 1998, and to $1.3
million in fiscal 1999. General and administrative expenses, as a percentage of
total revenues, were 48% for fiscal 1997, 35% for fiscal 1998, and 38% for
fiscal 1999. The increases in absolute dollars were primarily the result of
increased personnel. Our general and administrative headcount was 3 at March 31,
1997, 4 at March 31, 1998, and 8 at March 31, 1999.
Interest and Other Income, Net. Interest and other income, net was $34,000
in fiscal 1997, $19,000 in fiscal 1998 and $122,000 in fiscal 1999, reflecting
an increase in average cash balances in all fiscal years, offset in part in
fiscal 1998 by increased interest expense from higher average debt balances.
31
<PAGE> 33
QUARTERLY RESULTS OF OPERATIONS
The following table presents our operating results for each of the seven
quarters in the period ended December 31, 1999. The information for each of
these quarters is unaudited and has been prepared on the same basis as the
audited consolidated financial statements appearing elsewhere in this
prospectus. In the opinion of management, all necessary adjustments, consisting
only of normal recurring adjustments, have been included to present fairly the
unaudited quarterly results. You should read this section in conjunction with
our audited consolidated financial statements and notes thereto, appearing
elsewhere in this prospectus. Our quarterly results have in the past been, and
may in the future be, subject to significant fluctuations. As a result, we
believe that results of operations for interim periods should not be relied upon
as any indication of the results to be expected in any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
License revenues............. $ 386 $ 417 $ 500 $ 653 $ 1,009 $ 951 $ 1,184
Service revenues............. 37 56 62 98 88 199 291
Other revenues............... 277 428 160 276 61 31 73
------- ------- ------- ------- ------- ------- -------
Total revenues............. 700 901 722 1,027 1,158 1,181 1,548
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
License revenues............. 75 101 111 110 177 188 321
Service revenues............. 86 107 99 134 161 327 708
Other revenues............... 254 251 152 202 42 56 74
------- ------- ------- ------- ------- ------- -------
Total cost of revenues..... 415 459 362 446 380 571 1,103
------- ------- ------- ------- ------- ------- -------
Gross profit................... 285 442 360 581 778 610 445
Operating expenses:
Research and development..... 517 542 641 625 750 790 1,114
Sales and marketing.......... 1,042 949 1,067 1,304 1,814 1,375 1,905
General and administrative... 232 289 299 453 437 535 594
Stock-based compensation..... -- -- -- -- 30 31 144
------- ------- ------- ------- ------- ------- -------
Total operating expenses... 1,791 1,780 2,007 2,382 3,031 2,731 3,757
Loss from operations........... (1,506) (1,338) (1,647) (1,801) (2,253) (2,121) (3,312)
Interest and other income,
net.......................... 60 37 16 9 32 13 178
------- ------- ------- ------- ------- ------- -------
Loss before income taxes....... (1,446) (1,301) (1,631) (1,792) (2,221) (2,108) (3,134)
Provision for income taxes..... -- -- -- -- -- -- (36)
------- ------- ------- ------- ------- ------- -------
Net loss....................... (1,446) (1,301) (1,631) (1,792) (2,221) (2,108) (3,170)
Series E convertible preferred
stock dividend............... -- -- -- -- -- -- (2,902)
------- ------- ------- ------- ------- ------- -------
Net loss applicable to common
stockholders................. $(1,446) $(1,301) $(1,631) $(1,792) $(2,221) $(2,108) $(6,072)
======= ======= ======= ======= ======= ======= =======
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF TOTAL REVENUES:
Revenues:
License revenues............. 55% 46% 70% 63% 87% 80% 76%
Service revenues............. 5 6 8 10 8 17 19
Other revenues............... 40 48 22 27 5 3 5
---- ---- ---- ---- ---- ---- ----
Total revenues............. 100 100 100 100 100 100 100
---- ---- ---- ---- ---- ---- ----
Cost of revenues:
License revenues............. 11 11 15 11 15 16 21
Service revenues............. 12 12 14 13 14 28 46
Other revenues............... 36 28 21 20 4 5 5
---- ---- ---- ---- ---- ---- ----
Total cost of revenues..... 59 51 50 44 33 49 72
---- ---- ---- ---- ---- ---- ----
Gross profit................... 41 49 50 56 67 51 28
Operating expenses:
Research and development..... 74 60 89 61 65 67 72
Sales and marketing.......... 149 105 148 127 157 116 123
General and administrative... 33 32 41 44 38 45 38
Stock-based compensation..... -- -- -- -- 3 3 9
---- ---- ---- ---- ---- ---- ----
Total operating expenses... 256 197 278 232 263 231 242
Loss from operations........... (215) (148) (228) (176) (196) (180) (214)
Interest and other income,
net.......................... 8 4 2 1 3 1 11
---- ---- ---- ---- ---- ---- ----
Loss before income taxes....... (207) (144) (226) (175) (193) (179) (203)
Provision for income taxes..... -- -- -- -- -- -- (2)
---- ---- ---- ---- ---- ---- ----
Net loss....................... (207) (144) (226) (175) (193) (179) (205)
Series E convertible preferred
stock dividend............... -- -- -- -- -- -- (187)
---- ---- ---- ---- ---- ---- ----
Net loss applicable to common
stockholders................. (207)% (144)% (226)% (175)% (193)% (179)% (392)%
==== ==== ==== ==== ==== ==== ====
</TABLE>
Total revenues have increased in each consecutive quarter presented,
exclusive of the quarter ended December 31, 1998, when other revenue declined by
$268,000, over the prior quarter due to the timing of government contract work.
License revenues increased in each consecutive quarter presented, exclusive of
the quarter ended September 30, 1999, when license revenues decreased 6% from
the prior quarter ended June 30, 1999. License revenues in the quarter ended
June 30, 1999 included a large license fee for our visual information retrieval,
or VIR, software from one customer. This large license fee made license revenues
for the quarter ended June 30, 1999 disproportionately large as compared to
other quarters presented. Service revenues increased in each consecutive quarter
presented, exclusive of the quarter ended June 30, 1999, when service revenues
decreased by 10% from the prior quarter, as the cumulative number of licenses we
have sold increased and as we launched Virage Interactive services.
Total cost of revenues declined 21% in the quarter ended December 31, 1998
from the prior quarter, and 15% in the quarter ended June 30, 1999 from the
prior quarter. These declines were due to the timing of government contract
work. Our costs can fluctuate each quarter based upon the level of related
revenues. In addition, fluctuations can occur due to our investments in new
services and expanded service capacity.
Operating expenses declined slightly in the quarter ended September 30,
1998, and 10% in the quarter ended September 30, 1999 primarily as a result of
decreases in sales and marketing expenses. Our marketing expenses include the
costs of marketing programs, trade shows and other marketing initiatives which
can fluctuate significantly from quarter
33
<PAGE> 35
to quarter. For example, sales and marketing expenses generally increase in the
first quarter of our fiscal year as a result of our participation in a
significant trade show in that quarter.
Our quarterly operating results have varied significantly in the past and
we expect that they will vary significantly from quarter to quarter in the
future. These variations are caused by a number of factors, including demand for
and acceptance of our products and services, the timing of orders and deployment
of our products and services, the impact of our revenue recognition policies,
and changes in technology. As a result of these and other factors, we believe
that quarter-to-quarter comparisons of our total revenues and operating results
are not necessarily meaningful, and that these comparisons may not be accurate
indicators of future performance. Our staffing and operating expenses are based
in part on anticipated growth in total revenues. If we are unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
any significant shortfall in our total revenues would likely have an immediate
negative effect on our operating results. Moreover, if securities analysts
follow our stock, our operating results in one or more future quarters may fail
to meet their expectations. If this occurs, we would expect to experience an
immediate and significant decline in the trading price of our stock.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in April 1994, we have primarily financed our
operations through the sale of convertible preferred stock, resulting in net
cash proceeds of $37.0 million. To a lesser extent, we have financed our
operations through equipment financing and lending arrangements.
As of December 31, 1999, we had cash and cash equivalents of $16.4 million,
an increase of $12.0 million in cash and cash equivalents held as of March 31,
1999. Our working capital, defined as current assets less current liabilities,
at December 31, 1999 was $15.8 million, an increase of $11.9 million in working
capital from March 31, 1999. The increase in the working capital is attributable
to the increase in cash from the sales of our equity securities and the increase
in accounts receivable.
We have a $1.5 million senior line of credit facility with a bank that
bears interest at the bank's prime lending rate less 0.25% and expires in
November 2000. At December 31, 1999, no balance was outstanding under this line
of credit and we had available $730,000 at December 31, 1999 based on eligible
receivables. This line of credit is secured by accounts receivable and other
assets. We have two equipment term loans with a bank totaling $321,000 at
December 31, 1999 that bear interest at the bank's prime lending rate plus 0.5%
and are payable in monthly installments through November 1, 2001.
Our operating activities resulted in net cash outflows of $1.6 million in
fiscal 1997, $3.4 million in fiscal 1998, $6.0 million in fiscal 1999, and $6.2
million in the nine months ended December 31, 1999. The cash used in these
periods was primarily attributable to net losses of $1.6 million in fiscal 1997,
$4.1 million in fiscal 1998, $6.2 million in fiscal 1999, and $7.5 million in
the nine months ended December 31, 1999.
Investing activities resulted in cash outflows of $410,000 in fiscal 1997,
$559,000 in fiscal 1998, $554,000 in fiscal 1999, and $1.2 million in the nine
months ended December 31, 1999. These expenditures were primarily for computer
hardware and software and furniture and fixtures. We expect that capital
expenditures will continue to increase to the extent we increase our headcount
and expand our operations.
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Financing activities provided cash of $3.6 million in fiscal 1997, $7.4
million in fiscal 1998, $5.1 million in fiscal 1999, and $19.4 million in the
nine months ended December 31, 1999. These amounts were primarily proceeds from
the sale of preferred stock.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents and available credit facilities, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. However, we may need to raise
additional funds in future periods through public or private financings, or
other sources, to fund our operations and potential acquisitions, if any, until
we achieve profitability, if ever. We may not be able to obtain adequate or
favorable financing at that time. Failure to raise capital when needed could
harm our business. If we raise additional funds through the issuance of equity
securities, the percentage of ownership of our stockholders would be reduced.
Furthermore, these equity securities might have rights, preferences or
privileges senior to our common stock.
YEAR 2000 READINESS DISCLOSURE
To date, we have not experienced any disruption in our products or services
as a result of, nor has any third-party vendor on which we depend been affected
by, the commencement of the year 2000. Although we do not anticipate that our
products and services will be affected by the year 2000, if we, or our
third-party providers, fail to remedy any year 2000 issues, the result could be
lost revenues, increased operating expenses, the loss of customers and other
business interruptions, any of which could harm our business. The failure to
adequately address year 2000 compliance issues in the delivery of products and
services to our customers could result in claims against us of breach of
contract and related litigation, any of which could be costly and time consuming
to defend.
In light of our experiences to date, we have not developed any specific
contingency plans for year 2000 issues. Our worst case scenario for year 2000
problems would be our inability to provide our products and services to our
customers and a resultant decline in our total revenues.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
We develop products in the United States. We license our products from the
United States and from our subsidiary in the United Kingdom. Substantially all
of our sales from the United States operation are denominated in U.S. dollars.
Our subsidiary based in the United Kingdom incurs most of its expenses in pounds
sterling and most of its sales are denominated in U.S. dollars. As a result, our
financial results could be affected adversely by various factors, including
foreign currency exchange rates or weak economic conditions in foreign markets.
Our interest income is sensitive to changes in the general level of United
States interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of our short-term investments, we have
concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required. At March 31, 1999 and December
31, 1999, our cash and cash equivalents consisted primarily of demand deposits,
money market funds and commercial paper.
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RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP 98-1, Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 is effective
for our fiscal year ending March 31, 2000. SOP 98-1 provides guidance on
accounting for computer software developed or obtained for internal use
including the requirement to capitalize and amortize specified costs. The
adoption of this standard did not have a material impact on our results of
operations, financial position or cash flows.
In April 1998, the AICPA issued Statement of Position No. 98-5, or SOP
98-5, Reporting on the Costs of Start-up Activities. SOP 98-5 requires that all
start-up costs related to new operations must be expensed as incurred. In
addition, all start-up costs that were capitalized in the past must be written
off when SOP 98-5 is adopted. We implemented SOP 98-5 on January 1, 1999. The
adoption of SOP 98-5 did not have a material impact on our financial position or
results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standard,
or SFAS 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS 133 will be effective for our fiscal
year ending March 31, 2001. We do not expect that the adoption of SFAS 133 will
have a material impact on our results of operations, financial position or cash
flows in the foreseeable future.
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BUSINESS
OVERVIEW
Virage is a leading provider of software products and applications services
that allow media and entertainment companies, enterprises and consumers to
deploy, manage and distribute their video content over the Internet and
intranets. We have a proprietary video indexing technology that transforms
analog and digital video content into a structured video database that is
designed for use on Internet sites. Owners of video content can leverage our
technology either by licensing our products or by employing our application
services to outsource their needs. We currently have over 100 customers
including media and entertainment corporations such as ABC News, CNN and The
Walt Disney Co., corporations such as Boeing, CNET and Yahoo!, educational
institutions such as Harvard Business School and government entities such as the
FBI and the Library of Congress.
INDUSTRY BACKGROUND
THE CONVERGENCE OF VIDEO AND THE INTERNET
Very few communication technologies have had as much of an impact on our
society as video and the Internet. Both of these technologies have touched the
lives of hundreds of millions of people and generated billions of dollars in
advertising and commerce revenues. Due to high technical barriers, these two
technologies existed independently of each other until recently. Significant
infrastructure investments and technology improvements are now driving these two
technologies toward convergence.
Video is one of the most ubiquitous and effective communication mediums
across media and entertainment, enterprise and consumer markets today.
Television and film production have generated millions of hours of video content
over the last twenty years. This content and the audience communities
surrounding it attract significant advertising and commerce dollars. According
to Veronis Suhler and Associates, the total amount spent on television
advertising in the United States in 1998 was approximately $49 billion. In
addition, according to the Direct Marketing Association, approximately $106
billion of goods and services were purchased through direct response television
programming and advertising in 1998. Enterprises, including corporations,
government entities and universities, produce video for a variety of
applications, such as sales and marketing, training, education, decision support
and employee and customer communications. For example, Lockheed Martin
Corporation maintains over 300,000 hours of video in its corporate archive.
Additionally, consumers use video to document and record the important events of
their lives.
The Internet has grown rapidly in recent years and, much like video, has
emerged as a mass-market communications medium, enabling millions of users to
obtain information, interact with each other and buy and sell goods and
services. This growth is being driven by an increasing number of users, fast and
inexpensive Internet access, advances in computer technology and improvements in
network infrastructure. The Internet has evolved into an interactive and
searchable medium, offering a highly engaging experience and allowing users
broad access to a wide variety of content. Organizations are learning to take
advantage of these aspects of the Internet to improve communications with their
customers and increase revenue opportunities through electronic commerce.
Until recently, video and the Internet had developed independently.
Technical limitations of broadcast, cable and satellite video distribution
resulted in one-way non-
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interactive delivery of information. Similarly, bandwidth constraints prevented
the effective transmission of video over the Internet, resulting in a static
environment of text-based web pages. Video and the Internet are now converging,
enabled by significant infrastructure investment and technical trends including
digital video compression and playback, broadband Internet access and content
caching and delivery technologies. For example, according to the Yankee Group,
broadband cable modem service will be available to half of U.S. households by
the end of 2000. Many companies are leveraging this emerging technical
infrastructure to extend or refocus their businesses around the convergence of
video and the Internet. Of the top 10 news, information and entertainment
Internet sites as determined by Media Metrix in December 1999, eight were owned
by or partnered with a major media company. As a more recent example of this
convergence, America Online and Time Warner have announced their intention to
merge.
CHALLENGES ASSOCIATED WITH VIDEO ON THE INTERNET
Even with significant improvements in network infrastructure and high-speed
consumer access, significant challenges remain that inhibit the mass adoption of
video on the Internet. Users have high expectations for interactivity, quality
and ease of use. Additionally, content providers require technologies that allow
them to control their distribution channels, leverage their production process
by enabling reuse of the digital video, and facilitate rapid time to market.
A primary use of the Internet is to search for information. Today, many
Internet sites are dedicated solely to search and directory functions for
people, places, products and other types of content. These sites have been
developed primarily to process text-based content and are not well equipped to
deal with the rapidly-growing amount of multimedia content on the Internet. More
specifically, very few Internet sites enable users to search for video at all.
And until recently, it has been impossible to search for and then play a
specific segment within a video. As the amount of and demand for video content
grows, finding relevant information will increasingly become a frustrating and
time-consuming experience.
In its native format, video does not lend itself to user interaction and
today is largely a one-way experience where the viewer is relegated to a passive
role. Video is not well suited to established Internet usage patterns that are
characterized by short, personalized exchanges of information and content.
Unlike text, video is an unstructured data type that is difficult to index,
manage and search. Video content is typically designed to be viewed from start
to finish and has no table of contents or index to allow users to find a
particular segment quickly and easily.
The lack of a structured video index prevents video content providers from
developing advanced capabilities such as personalization, interactivity,
sharing, community building, targeted advertising and commerce. All of these
capabilities rely on the ability to relate a particular video segment to other
information contained in a database and to target that segment to particular
users.
Current techniques for deploying video on the Internet are narrowly focused
on the digitization process and do not provide the indexing and management
capabilities necessary to deploy large video collections across multiple
Internet sites. Existing technologies therefore result in a diminished
navigation and viewing experience for site visitors and make it difficult for
content providers to effectively control and efficiently redistribute their
video content. A new solution is required that helps content owners deploy,
manage and
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distribute video content over the Internet and intranets while enhancing the
user's viewing experience.
THE VIRAGE SOLUTION
Virage is a leading provider of products and application services that
allow media and entertainment companies, enterprises and consumers to deploy,
manage and distribute their video content over the Internet and intranets. At
the same time, our solution enables Internet users of video content to find the
content they want, and then to interact with it in a way that is familiar and
comfortable to them. Additionally, we increase the value of video to content
owners by enabling them to use their video in targeted applications such as
advertising and electronic commerce.
We allow content owners to adapt their video content to the Internet and
intranets quickly and cost-effectively. Our products and application services
are based on a video indexing technology that transforms analog and digital
video content into a structured video database. Our technology breaks video into
discrete segments in real time by indexing visual scene changes, spoken words,
names and faces of recognized speakers, topics discussed within each segment and
other important information. Our software automatically creates a time
demarcated visual and textual summary of the video using proprietary image and
language processing techniques. This index is time synchronized with streaming
video files that are encoded simultaneously with the indexing process. These
capabilities enable both content owners and Internet users to rapidly search,
locate and use video content. This technology forms the core of our licensed
software products, and also enables our application services for customers who
wish to outsource their requirements.
The key benefits of our solutions include:
- IMPROVED ACCESS TO VIDEO CONTENT. Our video index allows Internet users
to search for and view any relevant part of a video at any time. Whether
users are looking for a particular speaker, topic or phrase, the video
search engine allows them to locate the desired part of the video quickly
and easily. In this manner, we transform video into a format that can be
viewed and experienced in a way that is familiar and comfortable to
Internet users. Our video database also helps Internet site owners
automatically publish video segments throughout their Internet site,
based on subject, keyword or speaker.
- ENHANCED USER INTERACTION AND COMMUNITY BUILDING. Our solutions transform
video into indexed segments that Internet users can interact with and
share opinions and recommendations about. Our technology allows users to
email relevant video segments to other users, create personal portfolios
of favorite segments and assemble and share personal playlists or
highlight reels with others. Our technology delivers these capabilities
without creating multiple copies of the underlying video content or
transferring large video files around the Internet. Collectively, these
features enable community building around video collections.
- GREATER PERSONALIZATION. The indexing and searching of video content
enables customers to target a video segment to particular users. Our
clients can deliver highly personalized viewing experiences to site
visitors by matching user profiles with the information contained in
their video database.
- INCREASED COMMERCE OPPORTUNITIES. Our technology creates the
infrastructure for video-enabled electronic commerce by enabling our
customers to create commerce
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opportunities around specific video segments. Each user interaction with
a particular video segment is a natural opportunity for advertising and
commerce related to that particular content. Commerce and advertising in
the form of banner advertisements or interstitial advertisements can be
associated with a person or object within the video or topic discussed.
By combining personalization with targeted video advertising, our
solutions provide customers with direct marketing opportunities.
- EXPANDED SYNDICATION ABILITIES. Our technology makes it cost-effective
for our customers to distribute, or syndicate, their indexed video
content to other Internet sites. Once video content has been indexed and
stored in a database for one Internet site, additional syndicated
Internet sites can be added with minimal incremental cost or effort. This
syndication of content provides significant incremental revenue
opportunities for video content owners.
BUSINESS STRATEGY
Our goal is to strengthen our position as a leading provider of products
and application services that allow owners of content to deploy, manage and
distribute their video content over the Internet and intranets. To achieve this
objective, our business strategy includes the following key components:
BECOME THE DE FACTO STANDARD FOR DEPLOYING, MANAGING AND DISTRIBUTING VIDEO
CONTENT OVER THE INTERNET AND INTRANETS
We intend to establish Virage as the de facto standard for the deployment,
management and distribution of video content over the Internet and intranets. To
achieve this goal, we focus our direct and indirect selling and marketing
activities on industry leaders in the media and entertainment, enterprise and
consumer video markets. Many major media companies, broadcast networks and
Fortune 1000 corporations already use Virage. These industry leaders offer
multiple independent opportunities for large-scale deployments of our products
and application services. For example, we have licensed our products to CNN for
use in its internal news organization and have leveraged this relationship into
sales of our application services to CNN Interactive. We expect to pursue
additional opportunities with other organizations at CNN, such as CNN Headline
News, CNNfn, CNN Sports, CNN Airport News, CNN Espanol, and CNN's extensive
corporate video archive. To achieve our objective of becoming the de facto
standard, we will continue to leverage our experience and reputation across CNN
and other organizations like CNN. We will also leverage our relationships with
such industry leaders to sell to additional customers within their industries.
In December 1999, to help establish our position as the de facto standard in the
consumer video market, we introduced a version of our VideoLogger product,
called MyLogger. MyLogger is a freely downloadable product that allows
consumers, including independent content producers, to create browseable and
interactive web pages from their own streaming video files.
GENERATE MULTIPLE REVENUE STREAMS THROUGH NEW PRODUCTS AND SERVICES
We intend to generate additional revenues by introducing new products and
services. We have added and we plan to continue to add to our licensed software
product offering. For example, in 1999, we added several new products including
the AudioLogger, Oracle and Informix database plug-ins, Oracle Java SDK and
Video Search Tools.
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In May 1999, we launched Virage Interactive, an application services
offering which complements our licensed software product offerings. This service
offering allows our customers to outsource the deployment, management and
distribution of their video content over the Internet and intranets. Our
application services currently include video Internet site design, video
encoding and indexing, editorial services and video index hosting. In addition
to set up fees, we generate recurring revenue from these services whenever a
customer adds more hours of video to an existing project, or with each
additional video query on a customer's site. We intend to offer new application
services, including services to help drive more traffic to our customers'
Internet sites, as well as services to allow community-building,
personalization, targeted advertising and electronic commerce related to the
video on our customers' Internet sites.
Our application services offering enables our customers to cost-effectively
syndicate their indexed video content to other Internet sites. For example, over
the last six months, we have syndicated a video database covering the U.S.
presidential campaign, originally created from C-SPAN video footage, to over 15
Internet sites such as CNN Interactive, iVillage, NBCi, Yahoo! and others. This
syndication of content provides significant incremental revenue opportunities
for both Virage and our customers with relatively little additional work.
EMPOWER CONTENT PROVIDERS WITHOUT COMPETING AGAINST THEM
Our licensed products and application services enable our customers to
retain control over their video content and brands. We allow our customers to
maintain a direct relationship with their user audience by distributing their
video content directly from their own Internet sites, as well as to extend the
reach of their content through syndication. We do not aggregate our customers'
video content on our own Internet site, and we do not depend on advertising and
commerce revenue streams from our own Internet site to drive our business. We
intend to maintain this business model, which supports content providers, as
well as to enhance this model by providing products and application services
that will drive more traffic to our customers' Internet sites.
ENHANCE AND LEVERAGE OUR TECHNICAL LEADERSHIP POSITION
We combine the use of our proprietary technologies with proven third-party
technologies to create technically advanced products and application services.
Our internal technologies include our video cataloging technologies, our
extensible track architecture and media analysis plug-in architecture, as well
as our keyframing engine and our visual information retrieval engine. We have
filed 14 U.S. patent applications and one additional provisional U.S. patent
application for these technologies. Of those patent applications, five have
resulted in issued patents, one additional patent has been allowed and the other
applications are under review. We will continue to aggressively develop and
protect our intellectual property.
We have designed our architecture and application programming interfaces to
enable both rapid integration and easy interchangeability of proven third-party
technologies into our products. We will continue to evaluate and integrate
multiple third-party technologies into our products, selecting and substituting
these technologies based on both technical superiority and favorable business
economics. We have also designed our architecture and application programming
interfaces to allow rapid integration of our products with the products of our
value-added resellers and system integrators. As a result, our products are
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currently integrated with products from over 20 other vendors. We will continue
to develop products that integrate easily with the products of other vendors in
our markets.
EXPAND OUR INTERNATIONAL PRESENCE
Potential customers for our products and services are located throughout
the world. We intend to develop local sales, technical support and application
services infrastructure that can support these customers. In November 1998, we
established a European subsidiary, Virage Europe, in London, England. Since
establishing this subsidiary, we have made sales of our products and services to
several European customers including the British Broadcasting Corp., or the BBC,
Carlton Communications, Network Espana, Reuters, Swiss Radio-TV and Telecinco.
We intend to expand our European sales and marketing activities and service
operations, as well as to establish distribution of our products in Asia,
Australia and South America. We also intend to localize our products and
services in several European and Asian languages. In December 1999, we
introduced our first European localized product, a Spanish-language version of
AudioLogger.
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CUSTOMERS
We sell our products and services to customers worldwide. The following is
a list of our customers as of December 31, 1999 who have been the source of at
least $10,000 of our revenues since the beginning of fiscal 1999:
<TABLE>
<S> <C>
MEDIA/ENTERTAINMENT CORPORATE
ABC News Bell Atlantic
British Broadcasting Corp. (BBC) Boeing
Cable News Network (CNN) DaimlerChrysler
Carlton Communications Footage Now
CBS General Electric (GE)
Chalk.com Network General Motors (GM)
CNN Interactive GTE Laboratories
FOX Sports Heinle & Heinle
Getty Images The Image Bank
Lifetime Entertainment Lockheed Martin Corp.
Network Espana Morgan Stanley Dean Witter
Public Broadcasting System (PBS) New York Stock Exchange
Reuters Nippon Telegraph & Telephone (NTT)
Swiss Radio-TV PICs Retail Network
Telecinco Thomson
Turner Broadcasting Vidipax
TV1 Young & Rubicam
The Walt Disney Co. TECHNOLOGY/INTERNET
GOVERNMENT AltaVista
Centers for Disease Control (CDC) CNET Networks (CNET)
Defense Advanced Research Projects Compaq Computer
Agency IBM
Department of the Army IDG Conferences
Department of the Navy The Industry Standard
Federal Bureau of Investigation (FBI) Infoseek
Joint Combat Camera Center (JCCC) iXL
Library of Congress ON24
National Aeronautics and Space PowerBrief
Administration (NASA) SGI
National Imagery and Mapping Agency Singingfish.com
(NIMA) Streamedia Communications
EDUCATION Zuma Digital
Arizona State University
California State University at Los
Angeles
Harvard Business School (HBS)
Michigan State University
University of North Carolina
University of Pennsylvania
University of Quebec
</TABLE>
Several of our government customers are excluded from this list due to
confidentiality agreements.
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In addition, the following companies have signed a syndication affiliate
agreement with Virage as of December 31, 1999, as described in the C-SPAN
Syndication case study below:
<TABLE>
<S> <C>
ABC News Internet Ventures The New York Times Online
The Associated Press Politics.com
CNN Interactive Salon.com
FasTV SpeakOut.com
GovWorks.com StreamSearch.com
iVillage USAToday.com
Lifetime Entertainment Services Washingtonpost.Newsweek Interactive
NBCi Yahoo!
Netivation.com
</TABLE>
CUSTOMER CASE STUDIES
CNET NETWORKS (CNET)
CNET Networks, or CNET, is a leading provider of technology news and
information on the Internet and a producer of television shows about technology.
CNET uses our application services to integrate its television programming with
its Internet content. Visitors to CNET's Internet site can find both articles
and video segments on related topics repurposed from CNET's aired television
programming. Video preview images, with headlines and descriptions, are
displayed among CNET's search results, enabling users to access specific
segments of a program quickly. Our application service offering allows CNET to
outsource the deployment, management and distribution of its video content while
maintaining its own brand identity and look-and-feel.
C-SPAN SYNDICATION
C-SPAN is a leading provider of televised programming devoted to U.S.
government proceedings. Virage and C-SPAN have jointly created a video search
engine dedicated to the year 2000 presidential elections, enabling Internet
users to search for video coverage by candidate, party, campaign issue or speech
venue. The Campaign 2000 Video Search Engine gives voters on-demand access to a
comprehensive online collection of campaign speeches, primary and general
election debates, press conferences, party fundraisers and other candidate
appearances on C-SPAN. Through our syndication program, this video database is
available on multiple Internet sites, helping C-SPAN fulfill its mission of
delivering unedited, balanced views of government and public policy forums, and
providing viewers with direct access to video content of elected officials,
decision-makers and journalists.
The Customers section contains a list of customers as of December 31, 1999
to whom we have syndicated the Campaign 2000 Video Search Engine.
CABLE NEWS NETWORK (CNN)
Cable News Network, or CNN, is a leading television network recognized
worldwide for its timely news production and broadcast quality. CNN uses our
products to improve the process by which it produces the news. Prior to
licensing our software, CNN journalists and editors used tapes to handle
approximately 150 hours of incoming news a day. Using our software, CNN indexes
and digitizes in real time all of its 32 incoming
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news feeds and all of the material edited for airing on CNN, CNN Headline News
and CNN International. Within seconds, more than 300 journalists can
simultaneously view any video feed and make edit decisions at their desktops.
CNN confirms that production costs have been cut significantly through the
consolidation of editing resources. Further savings have been realized through
the reallocation of production personnel from menial tape management tasks to
direct news production activities. Time-to-air, writing quality and story
accuracy have improved as a result of CNN's writers and producers having direct
access to all current and available news footage. CNN also uses our products and
services to help produce the CNN Interactive Internet site.
GENERAL MOTORS
General Motors, or GM, is the world's largest automotive company. GM uses
our products to improve their product development process. Before using our
software, market research analysts spent significant time reviewing consumer
focus group videos and compiling supporting segments in favor of design
recommendations. Now, GM analysts, designers and engineers can view and search
focus group videos at their desktops, improving the design decision process and
reducing overhead. GM expects that the use of video as a management
decision-making tool will substantially increase, now that it is easy to access
and use.
HARVARD BUSINESS SCHOOL
Harvard Business School, or HBS, is a leading graduate school of business
administration. HBS uses our products to enhance the educational process and to
disseminate information to students, alumni and faculty. HBS relies heavily on
video as an educational and research tool. Before using our software to convert
its vast video collection into a streamable and searchable video library,
valuable information went unseen and unused. Now students, teachers, researchers
and librarians can access video information, such as presentations by prominent
guest speakers and faculty members, through the Internet or the school's
intranet. HBS is also using our products to add video to its external Internet
site for use by alumni and the general public.
LICENSED SOFTWARE AND APPLICATION SERVICES
Our software products and application services allow video content owners
to adapt their video content to the Internet and intranets quickly and
cost-effectively. Depending on their particular needs and resources, these video
content owners may elect to either license our software products or use our
application services. A typical installation of our licensed products may
include multiple copies of our VideoLogger, each potentially with an
AudioLogger, and either one database plug-in per VideoLogger or an
appropriately-sized Video Search Tools license. Where content owners use our
application services, we integrate video and video search into their Internet
site, transparently host their video search index and report traffic data
statistics. Our application services facilitate the delivery of video content
collections to multiple Internet sites with a customized look, feel and
functionality on each site. In addition, our application services enable rapid
and flexible syndication of video content across a network of affiliate sites.
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LICENSED SOFTWARE
VIDEOLOGGER 3.1. The VideoLogger 3.1 is a Windows NT-based application that
analyzes an analog or digital video input signal and creates a structured index
that can then be used to search the video content and locate a specific video
segment for playback. The VideoLogger analyzes the video in real time and
generates several kinds of index data from the video signal. This data may
include still-image snapshots of the video, called keyframes, which are captured
each time the picture changes significantly, as well as closed-captioned text
information, which is normally provided by television networks for the hearing
impaired. The VideoLogger also allows users to mark the beginning and end of
specific video segments, and to manually enter data about these segments as well
as the entire video. When the video analysis process is complete, the customer
has both a visual overview of the video and a data file of searchable keywords
linked to the associated points in the video that enable rapid browsing of its
contents. The VideoLogger can control the simultaneous encoding of one or more
digital video files in a variety of file formats, including RealVideo, Windows
Media Player, Quicktime and MPEG. The VideoLogger has application programming
interfaces that allow customers to integrate it with a variety of other
products.
AUDIOLOGGER 2.0. The AudioLogger 2.0 works in conjunction with the
VideoLogger. It analyzes the audio portion of a video signal and generates three
additional tracks of information, which are integrated into the index produced
by the VideoLogger. These tracks include data from speech recognition, speaker
identification and audio classification. The AudioLogger uses a combination of
our proprietary technology and third-party speech recognition, speaker
identification and audio classification technologies, which all operate in real
time. The AudioLogger currently has an extensive speaker-independent U.S.
English and Castilian Spanish vocabulary. Additional languages can be integrated
in a modular fashion. The user can also add additional custom vocabulary words
through a user interface. The speaker identification engine can identify a
speaker in the video from a library of speakers whose voice patterns and names
have been entered in the AudioLogger. The audio classification engine classifies
the audio content of a video signal as speech or music and also helps to improve
the accuracy of the speech recognition engine when analyzing mixed speech and
non-speech audio signals.
VIDEO SEARCH TOOLS 1.6. Video Search Tools 1.6 is an Internet-based video
search application. Through a browser, users enter search terms and receive the
matching video segments that correspond to these search terms. Users can then
select the relevant video segment to be streamed to their desktops. Video Search
Tools is designed to be rapidly customized and deployed by our customers.
DATABASE PLUG-INS. We offer several database plug-in products that allow
system integrators to build video management systems with the VideoLogger and
relational databases. Customers such as broadcasters and government agencies
also use these products in large-scale system deployments. Our current database
plug-ins for Oracle and Informix enable communication between our products and a
database server for indexed storage. Using these plug-ins, system integrators
can build custom video browsing applications, or can integrate our products into
various media asset management systems.
ORACLE JAVA SDK 1.0. The Oracle Java SDK 1.0 is a toolkit that provides
reusable Java application components that allow a software developer to access a
Virage index when stored in an Oracle database. This product simplifies the
building of Oracle applications that search and browse video databases.
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VIDEOLOGGER SDK AND VIRAGE SOFTWARE DEVELOPER PROGRAM. The VideoLogger SDK
and Virage Software Developer Program enable third party access to our
underlying architecture. This access allows third parties to integrate the
VideoLogger into other products and technologies, thereby extending the
functionality of the VideoLogger. The VideoLogger SDK provides plug-in program
interfaces for multiple aspects of VideoLogger operation, including database
integration, file export, index access and conversion, remote control and video
encoding integration and control.
MYLOGGER 1.0. MyLogger 1.0 is a consumer version of our VideoLogger
product, and contains a subset of the VideoLogger features. MyLogger is a
Windows-based application for indexing digital video files and publishing
Internet-ready video indices. MyLogger analyzes a digital video signal in real
time, generates keyframes, and allows users to mark the beginning and end of
specific video segments and manually enter data about these segments. The
MyLogger keyframes and associated information are linked to specific points in
the original video that can be used to rapidly browse its contents. The MyLogger
video index can be published as an Internet page using customizable templates.
APPLICATION SERVICES AND SYNDICATION
Our hosted application services, called Virage Interactive, enable
customers to deploy, manage and distribute video on the Internet without
substantial investment in hardware, software or staffing. By integrating
Virage's core video indexing technology with other digital video services such
as encoding and hosting, we have created application services that enable rapid
deployment of Internet video databases. Virage Interactive's hosted application
services provide customers with multiple methods for integrating video assets
throughout their web site. In addition, Virage Interactive enables customers to
syndicate their video content to other web sites, allowing each site to be
served from the same content database, while retaining that site's unique look
and feel.
The main components of Virage Interactive services are:
- SETUP. For each new account, we collaborate with the customer to develop
a set of templates in hypertext mark up language, commonly referred to as
HTML, that defines the look and feel of the video content on that
particular customer's site. These templates define how the video content
will appear on the site including layout, graphics, colors, and fonts
associated with the video search results and video player pages.
Customers can choose a variety of features to create a function and look
that is appropriate for their site.
- VIDEO PROCESSING. In this step, we automatically process the customer's
video using our VideoLogger and AudioLogger software to create a visual
and textual index and database of the content. We can process video from
a variety of sources, including tapes, live television or satellite
feeds, or previously encoded digital files. This process simultaneously
encodes the video into the formats and transmission rates that the
customer requests. Our software supports many video formats, including
RealNetworks, Windows Media, Quicktime and MPEG1. Additionally, our
customers may elect to employ our content editors to add custom
information to the video index database.
- APPLICATION HOSTING. After each video segment is processed, the index
file is uploaded to our datacenter and the encoded video files are
uploaded to the customer's selected video hosting servers. At this point,
the video content is
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available on the customer's web site. When a search is initiated on the
customer's site, the search request is processed on our application
servers, returning a list of matching results, each of which may include
a small preview image, a transcript of the video segment and other
information as appropriate. We provide search results under our
customers' own domain names in order to create a seamless experience for
site visitors. We provide daily, weekly and monthly traffic reporting to
our customers including the most popular search terms and segments,
traffic volume by time of day, referring web sites, and the domains of
users accessing the content. Our application services can interoperate
with many video hosting vendors. We also offer video hosting to customers
through third parties who specialize in content distribution.
- CONTENT PUBLISHING AND ADMINISTRATION. We provide a browser-based content
publishing and administration application to each Virage Interactive
customer. Through this password-protected interface, customers can view
and edit their video database and HTML templates. For example, customers
can change the information or preview image associated with a particular
video segment, choose to show or hide particular segments on the public
web site, or delete segments from the database altogether. Customers can
also modify the HTML template files that define the look and feel of
their site. Content from the database can be published to the site in the
following ways:
- video search engine: an embedded search engine allows site visitors to
search across the entire video database by typing in keywords.
- auto-published clips: the customer's web producers can design web
pages to automatically include the most recent video clips associated
with a particular topic.
- ad-hoc clip access: site producers can search for and extract a
particular video clip in order to integrate that clip into a
particular web page.
- CONTENT SYNDICATION. Virage Interactive enables our customers to
cost-effectively syndicate their indexed video content to other Internet
sites without reprocessing or modifying the video database in any way.
Our architecture allows a variety of HTML templates to be applied to the
same video database so that each syndication site can retain a separate
look and feel. For video content owners who wish to license their content
broadly on the Internet, Virage Interactive services provide the
necessary content processing and management applications to enable
syndication and repurposing of video collections.
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TECHNOLOGY
The VideoLogger architecture is the basis of our indexing and search
technologies. This architecture uses the concept of tracks to represent
different types of information about the video, which we refer to as indexed
data or metadata, as shown in the figure below.
[Diagram titled VideoLogger Track-based Architecture depicts multiple metadata
tracks such as face id, speaker id, user annotation, speech to text, time code,
keyframes and video on the y axis versus time on the x axis.]
This track-based model provides an open architecture that permits easy
integration of additional metadata types. Each type of metadata, such as
keyframes, face identification, annotations and speech, is contained in its own
time-stamped track. Our video analysis engine has a plug-in architecture for
each type of metadata that allows us both to develop our own media analysis
algorithms as well as to select and integrate technology from third parties.
Customers often require that our indexing technologies perform in real time
to match the real-time transmission of video broadcasts and live satellite
feeds. Our architecture addresses this real-time requirement by allowing
metadata tracks to be processed in parallel on separate CPUs.
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Once the metadata has been captured during the indexing process, it must
then be stored in a format that can be easily searched and browsed by users. Our
architecture includes a set of open application programming interfaces, commonly
referred to as APIs, which allow the metadata to be easily exported into various
databases, media asset management and Internet-search tools. For instance,
metadata can be stored in standard databases such as Oracle and Informix, stored
into popular media asset management systems, or exported to custom file formats
such as HTML. Exported metadata can also be searched using our Video Search
Tools application.
We emphasize reusable, plug-in components and open architecture in our
development process. All of our software is written in C++ or Java and employs
object-oriented design practices. In addition, each Virage product is designed
with open APIs, which allow easy integration with third-party applications. The
figure below illustrates the many open interfaces surrounding the VideoLogger,
which allow for feature extensions and systems integration opportunities.
[Diagram titled VideoLogger Programming Interface shows Virage VideoLogger in
the center of a square diagram surrounded by various application programming
interfaces. On the top, the diagram shows video encoding interfaces such as
MPEG, RealVideo, MediaPlayer and Custom. On the right, the diagram shows file
export interfaces such as VDF, HTML and ALE, and database interfaces such as
Informix and Oracle. On the bottom, the diagram shows media analysis interfaces
such as face recognition, optical character recognition and audio analysis, and
remote control application programming interfaces. On the left, the diagram
shows digital media ingest interfaces such as RealVideo, QuickTime, MediaPlayer
and Custom.]
Access to each of the interfaces shown in the above figure is provided
through our software developers kit, or SDK. The SDK is a collection of these
APIs that allow developers to work in areas such as database integration, video
encoding, remote control
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and media analysis. The SDK also allows our products to be integrated with other
technologies.
RESEARCH AND DEVELOPMENT
We believe that our future success will depend in part on our ability to
continually develop new and enhanced products and services. Accordingly, we are
committed to the investment of significant resources in research and product
development activities. During fiscal 1998 and 1999 and the nine months ended
December 31, 1999, our research and development expenses were $1.8 million, $2.3
million and $2.7 million, respectively.
SALES AND MARKETING
SALES AND DISTRIBUTION STRATEGY
We sell our products and application services through a direct sales force
and through indirect distribution channels. We currently target customers in
several markets including media and entertainment, enterprises such as
corporations, government entities and universities, and consumer markets. Our
sales strategy is to pursue multiple opportunities for large-scale deployments
within each customer account.
Through our direct sales force in Chicago, London, Los Angeles, New York,
San Francisco, Tampa/St. Petersburg and Washington D.C., we focus on larger
customers in North America and Europe. Our field representatives sell our
products and services to customers who have been prequalified by our telesales
personnel. In addition, our direct sales force manages local relationships with
key resellers.
Our indirect distribution channels include domestic and international
distributors, system integrators and value-added resellers. As of December 31,
1999, we had entered into agreements with more than 15 non-exclusive
distributors and value-added resellers worldwide, including Artesia
Technologies, AVS Graphics, The Bulldog Group, DSMCi, eMotion, Informix, iXL,
Lockheed Martin Corporation, Magnifi, Professional Services for Web Business, or
PS Web, SAIC, StorNet Government Systems, ViewCast.com and WebWare.
MARKETING ACTIVITIES
Since our inception, we have invested a substantial percentage of our
revenues in a broad range of marketing activities to generate demand, gain
corporate brand identity and educate the market about our products and services.
These activities have focused primarily on direct marketing, direct mail and
email, public relations, co-marketing and branding with our major customer
accounts and strategic partners, targeted trade shows, conferences and speaking
engagements, and the provision of product information through print collateral
and our Internet site. In addition, we have created a developer relations
organization to encourage independent software developers to develop products
and solutions that are compatible with our products, APIs and technologies.
Today, our marketing strategy is focused primarily on the North American and
European markets but we intend to increase our marketing activities in Asia,
Australia and South America.
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COMPETITION
The video and digital media infrastructure marketplace is new, rapidly
evolving and intensely competitive. As more companies begin to deploy searchable
and interactive video on the Internet, we expect competition to intensify.
We currently compete directly with other providers in the video and digital
media infrastructure marketplace including Excalibur Technologies and MediaSite.
We may also compete indirectly with larger system integrators who embed or
integrate these directly competing technologies into their product offerings. It
is possible that we may work with these same larger companies on one customer
bid and compete with them on another. In the future, we may compete with other
video services vendors and searchable video portals. In addition, we may compete
with our current and potential customers who may develop software or perform
application services internally.
We believe that the principal competitive factors in our market are:
- audio and video cataloging functionality;
- ease of installation and use;
- real-time processing capability;
- reliability;
- pricing;
- 24-by-7 customer support;
- adoption by other customers; and
- number and strength of relationships with other digital media
infrastructure providers.
We believe we compete favorably with our competitors based on these
factors. However, some of our competitors may have access to proprietary
technology from outside sources. This access to proprietary technology might
allow our competitors to bring new technologies to market faster than we can.
Furthermore, because our existing and potential competitors may have longer
operating histories, greater name recognition, larger customer bases and
substantially greater financial, technical, sales and marketing resources, they
may have access to more customers and a larger installed customer base than we
do. These competitors may be able to undertake more extensive marketing
campaigns and adopt more aggressive pricing policies than we can.
INTELLECTUAL PROPERTY
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of patent, trademark and copyright laws, as well as confidentiality
and license agreements with our employees and others.
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Patents. We actively seek patent protection for our intellectual property.
We have filed 14 U.S. patent applications and one additional provisional U.S.
patent application in the following areas:
- visual information retrieval;
- indexing methods for image search;
- keyframe selection;
- visual dictionary; and
- video cataloger system.
Five patents have been issued and a sixth patent has been allowed by the Patent
and Trademark Office. Our remaining eight patent applications are currently
pending.
In 1997, we entered into a five-year patent cross-licensing agreement with
IBM. Under the terms of this agreement, we license IBM's multimedia software
patent portfolio in return for an annual fee and a license to IBM of our patent
portfolio.
Trademarks. We have seven trademarks, three of which are registered.
We seek to avoid disclosure of our trade secrets by limiting access to our
proprietary technology and restricting access to our source code. Despite these
precautions, it may be possible for unauthorized third parties to copy
particular portions of our technology or reverse engineer or obtain and use
information that we regard as proprietary. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as do the laws of
the United States. Our means of protecting our proprietary rights in the United
States or abroad may not be adequate and competing companies may independently
develop similar technology.
EMPLOYEES
As of December 31, 1999, we had 118 employees, of which 26 were employed in
operations, 43 were employed in engineering, 37 were employed in sales and
marketing, and 12 were employed in general and administrative positions. None of
our employees is subject to a collective bargaining agreement, and we have never
experienced a work stoppage. We believe our relations with our employees are
good.
PROPERTIES
Our principal executive and administrative offices are located at 177 Bovet
Road, Suite 520, in San Mateo, California 94402 where we lease approximately
20,670 square feet, which lease expires on May 31, 2002. In addition, we lease
administrative and sales offices near London, England and in New York, under
leases expiring on March 31, 2000 and March 31, 2005, respectively. We believe
that such existing facilities are adequate for our current needs or that
suitable additional or alternative space will be available in the future on
commercially reasonable terms.
LEGAL PROCEEDINGS
From time to time, we could become involved in litigation relating to
claims arising out of our ordinary course of business. We are not presently
involved in any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our directors and executive officers and their ages as of January 15, 2000
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul G. Lego(1)........................ 41 President, Chief Executive Officer and
Chairman of the Board of Directors
Alfred J. Castino...................... 47 Chief Financial Officer
Weldon D. Bloom........................ 50 Vice President, Sales
David J. Girouard...................... 33 Vice President and General Manager,
Virage Interactive
Bradley J. Horowitz.................... 34 Chief Technology Officer
Andrew P. Langhoff..................... 38 Vice President, Business Development
Carlos O. Montalvo..................... 43 Vice President, Marketing
Frank H. Pao........................... 31 Vice President, Business Affairs and
General Counsel
Mark K. Rattley........................ 39 Vice President and General Manager,
European Operations
Gilbert C. Wai......................... 47 Vice President, Engineering
Philip W. Halperin(1).................. 36 Director
Ramesh Jain, PhD....................... 50 Director
Standish H. O'Grady(2)................. 39 Director
Lawrence K. Orr(2)..................... 43 Director
C.K. Prahalad, D.B.A. ................. 58 Director
William H. Younger, Jr.(1)(2).......... 50 Director
</TABLE>
- -------------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Paul G. Lego, president and chief executive officer, joined Virage in
January 1996. Mr. Lego also recently became chairman of our board of directors
in December 1999. From January 1995 to January 1996, Mr. Lego was an associate
at Sutter Hill Ventures, a venture capital firm. From June 1988 to December
1994, Mr. Lego was the chief operating officer at Digidesign, a manufacturer of
digital audio recording and editing systems which was acquired by Avid
Technology in January 1995. Mr. Lego has also held various marketing,
manufacturing and engineering positions with Pyramid Technology Corporation, the
General Electric Company and Digital Equipment Corporation. Mr. Lego holds a
B.S. in electrical engineering from Cornell University and an M.B.A. from
Harvard Business School.
Alfred J. Castino, chief financial officer, joined Virage in January 2000.
From September 1999 to January 2000, Mr. Castino was the chief financial officer
of RightPoint, a marketing software firm that was recently acquired by
E.piphany. From September 1997 to August 1999, Mr. Castino was employed at
PeopleSoft as vice president of finance and chief accounting officer, as senior
vice president of finance and administration, and chief financial officer. From
April 1996 to September 1997, Mr. Castino was vice president and corporate
controller at Chiron Corporation, a biotechnology company. From August 1989 to
March 1996, Mr. Castino held finance positions at Sun Microsystems, a computer
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hardware company, including finance director of United States operations,
director of finance and planning for European operations, and assistant
corporate controller. Mr. Castino's prior experience also includes seven years
at Hewlett-Packard Company in various financial management positions. Mr.
Castino is a certified public accountant. Mr. Castino holds a B.A. in economics
from Holy Cross College and an M.B.A. from Stanford University.
Weldon D. Bloom, vice president, sales, joined Virage in October 1998. From
April 1996 to September 1998, Mr. Bloom was vice president of sales at Netcom
Online Communications, a leading Internet service provider that was acquired by
ICG Communications in October 1997. From April 1994 to April 1996, Mr. Bloom was
vice president of North American sales at Radius, a manufacturer of graphics
acceleration and video editing tools for the color publishing and digital video
markets. Mr. Bloom also has an additional 20 years of sales and sales management
experience at Apple Computer, Eastman Kodak Company and EO. Mr. Bloom holds a
B.S. in marketing from Western Illinois University.
David J. Girouard, vice president and general manager, Virage Interactive,
joined Virage in May 1997. Prior to becoming our vice president and general
manager, Virage Interactive, Mr. Girouard served as our director of product
marketing from November 1997 to May 1999. From December 1994 to April 1997, Mr.
Girouard was a product manager in the worldwide product marketing group at Apple
Computer. Mr. Girouard holds a B.A. in engineering sciences and a B.E. from
Dartmouth College. He also holds an M.B.A. from the University of Michigan.
Bradley J. Horowitz, chief technology officer, co-founded Virage in 1994.
From 1989 to April 1993, Mr. Horowitz was a consultant for various companies,
including Polaroid, TASC and Comtech Labs, in the area of digital image and
video understanding. Mr. Horowitz received a B.S. in computer science from the
University of Michigan and a M.S. in media science from the Media Lab at the
Massachusetts Institute of Technology.
Andrew P. Langhoff, vice president, business development, joined Virage in
January 2000. Prior to joining Virage, Mr. Langhoff held a number of positions
within the online operations of the Walt Disney Company, most recently as vice
president of broadband development for Go.com. From March 1998 to October 1999,
Mr. Langhoff was vice president, business development for the Buena Vista
Internet Group of Walt Disney Company where he was responsible for the strategic
partnerships of ABCNEWS.com, ABC.com, ESPN.com and other Disney websites. From
March 1997 to March 1998, Mr. Langhoff was vice president, business development
for ABCNEWS Internet Ventures. From February 1996 to March 1997, Mr. Langhoff
was vice president, business development for the ABC Multimedia Group. From 1992
to 1996, Mr. Langhoff was a general attorney at Capital Cities/ABC. Mr. Langhoff
received a B.A. from Tufts University and a J.D. from the University of Virginia
School of Law.
Carlos O. Montalvo, vice president, marketing, joined Virage in May 1998.
From March 1997 to April 1998, Mr. Montalvo served as vice president of
marketing at Cinebase, a provider of media asset management software. From March
1987 to March 1997, Mr. Montalvo held various product and regional marketing
positions and served as vice president of Apple Computer's interactive media
group. Mr. Montalvo studied political science and bioengineering at the
University of California at San Diego.
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Frank H. Pao, vice president, business affairs and general counsel, joined
Virage in April 1997. From September 1994 to March 1997, Mr. Pao specialized in
intellectual property and licensing transactions at the law firm of Gray Cary
Ware & Freidenrich. He has also held various engineering positions at Advanced
Cardiovascular Systems and Lawrence Berkeley Laboratories. Mr. Pao holds a B.S.
in bioengineering from the University of California at Berkeley and a J.D. from
Boalt Hall School of Law at the University of California at Berkeley.
Mark K. Rattley, vice president and general manager, European operations,
will join Virage as a full-time employee in March 2000. From November 1998 to
the present, he has held the position of vice president of Protege Software, a
consulting firm, where he is responsible for developing our European operations.
Previously, he spent six years as a director and general manager of Sun
Microsystems UK where he was responsible for the enterprise and Internet
software business in Europe. Prior to Sun Microsystems, Mr. Rattley held senior
sales, product marketing, general management and director positions at Informix,
Software Publishing Corporation, Rapid Recall and Technitron Systems. Mr.
Rattley graduated in 1982 with a Higher National Certificate in advanced
electronic engineering and a business administration diploma, studied at Reading
College of Technology and Thames Valley University, England.
Gilbert C. Wai, vice president, engineering, joined Virage in July 1997.
From October 1994 to June 1997, Mr. Wai was senior vice president of product
development at Legato Systems, a publicly-held enterprise storage management
software company. From September 1987 to September 1994, Mr. Wai held various
marketing and engineering executive positions at Informix Software, a
publicly-held database software company. Mr. Wai holds a B.S. in electrical
engineering and computer science from the University of California at Berkeley.
Philip W. Halperin has served as a director of Virage since September 1999.
Mr. Halperin has been a general partner of Weston Presidio Capital, a venture
capital firm, since October 1993. Mr. Halperin currently serves as a director of
several private companies. Mr. Halperin holds an A.B. in political science from
Stanford University and an M.B.A. from Harvard Business School.
Ramesh Jain, Ph.D. has served as a director of Virage since 1994 and was
chairman of the board of directors since he co-founded Virage in 1994 to
December 1999. Currently, he is the president and chief executive officer of
PRAJA, an Internet company that he co-founded in 1996. Dr. Jain was professor of
engineering and computer science at the University of California at San Diego
from January 1993 to June 1999 and at the University of Michigan at Ann Arbor
from 1982 to 1993. In January 1991, Dr. Jain founded Imageware, a software
company which provides software for surface modeling, reverse engineering, rapid
prototyping, and inspection.
Standish H. O'Grady has served as a director of Virage since April 1998.
Mr. O'Grady has been managing director of H&Q Venture Associates, L.L.C., a
venture capital firm, since its formation in July 1998. Mr. O'Grady previously
served in various positions with Hambrecht & Quist Group's venture capital
department since 1986, including managing director from 1994 to 1998. In
addition, he has been an investment manager for a series of Adobe Ventures
partnerships since their inception in 1994. Mr. O'Grady currently serves as a
director of Tumbleweed Communications, as well as a number of private companies.
He holds a B.S.E. in chemical engineering from Princeton
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University and an M.B.A. from the Amos Tuck School of Business Administration at
Dartmouth College.
Lawrence K. Orr has served as a director of Virage since April 1995. Mr.
Orr is a general partner of Trinity Ventures in Menlo Park, California, where he
has been a private equity technology investor specializing in software and
communications since 1989. Prior to Trinity, Mr. Orr worked at Bain and Company
and Hewlett-Packard, where he was a marketing manager in the Information
Networks Group, responsible for product management and field sales and support
programs for Hewlett-Packard's data communications product lines. Mr. Orr holds
an A.B. degree in mathematics from Harvard University and an M.B.A. from the
Stanford Graduate School of Business. He currently is a director of Extreme
Networks, as well as several private companies.
C.K. Prahalad, D.B.A. has served as a director of Virage since April 1995.
Dr. Prahalad is currently the Harvey C. Fruehauf Professor of Business
Administration at the University of Michigan where he has been a professor since
1986. Dr. Prahalad has also been a visiting research fellow at Harvard Business
School, a visiting professor at INSEAD and a professor at the Indian Institute
of Management, Ahmedabad. Dr. Prahalad currently is a board member of NCR
Corporation and consults for several public companies. Dr. Prahalad has a B.S.
in physics from Loyola College, University of Madras and a D.B.A. from Harvard
Business School.
William H. Younger, Jr. has served as a director of Virage since April
1995. Mr. Younger is currently a managing director of the general partner of
Sutter Hill Ventures, a venture capital management firm, which he joined in
1981. Mr. Younger currently serves as a director of Vitria Technology, as well
as several private companies. Mr. Younger holds a B.S.E.E. from the University
of Michigan and an M.B.A. from Stanford University.
BOARD COMMITTEES
Our board of directors has recently formed an audit committee and a
compensation committee.
Audit committee. The audit committee reviews the results and scope of the
annual audit and meets with our independent auditors to review our internal
accounting policies and procedures.
Compensation committee. The compensation committee reviews and makes
recommendations to our board of directors on our general and specific
compensation policies and practices and administers our 1995 stock option plan,
1997 stock option plan and 2000 employee stock purchase plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee has at any time since our
formation been one of our officers or employees. None of our executive officers
currently serves, or in the past has served, as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on our board of directors or compensation committee. Before the
creation of our compensation committee, all compensation decisions were made by
our full board of directors.
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EMPLOYMENT, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
We routinely deliver written offer letters containing provisions on salary,
bonuses, benefits and stock option grants to prospective members of management
and other employees. In addition, we have entered into agreements containing
employment and change-in-control provisions as described below.
The stock option agreements between Virage and Paul G. Lego, our president
and chief executive officer, in which Mr. Lego was granted options to purchase
1,205,000 shares of common stock, of which options for 823,666 shares have been
exercised, provide for full acceleration of vesting of all unvested options upon
a change-in-control event in which Mr. Lego is terminated or constructively
dismissed. The stock option agreement between Virage and Mr. Lego, in which Mr.
Lego was granted options to purchase 1,000,000 shares of common stock, provides
for 50% acceleration of vesting of all unvested options upon a change-in-control
event.
The stock option agreement between Virage and Alfred J. Castino, our chief
financial officer, provides for 50% acceleration of vesting of all unvested
options upon a change-in-control event and three months acceleration of vesting
of unvested options if he is terminated without cause. In addition, Mr. Castino
receives three months base salary if he is terminated without cause.
The stock option agreement between Virage and Andrew P. Langhoff, our vice
president, business development, provides for 50% acceleration of vesting of all
unvested options upon a change-in-control event in which Mr. Langhoff is
terminated or constructively dismissed and six months acceleration of vesting of
unvested options if he is terminated without cause. In addition, Mr. Langhoff
receives six months base salary if he is terminated without cause.
The stock option agreement between Virage and Mark K. Rattley, our vice
president and general manager, European operations, provides for 50%
acceleration of vesting of all unvested options upon a change-in-control event
in which Mr. Rattley is terminated or constructively dismissed and six months
acceleration of vesting of unvested options if he is terminated or
constructively dismissed without cause. In addition, Mr. Rattley receives six
months of his target earnings and benefits if he is terminated without cause.
The stock option agreements between Virage and each of Weldon D. Bloom,
Carlos O. Montalvo and Gilbert C. Wai provide for 50% acceleration of vesting of
all unvested options upon a change-in-control event in which the executive
officer is terminated or constructively dismissed. In addition, each of these
executive officers receive three months base salary if the executive is
terminated without cause.
The stock option agreements between Virage and each of Frank H. Pao and
David J. Girouard provide for 50% acceleration of vesting of all unvested
options upon a change-in-control event in which the executive officer is
terminated or constructively dismissed.
EXECUTIVE COMPENSATION
Our directors do not receive cash compensation for their services as
directors or members of committees of the board of directors. We do reimburse
directors for their reasonable expenses incurred in attending meetings of the
board of directors.
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The following table presents information regarding compensation paid or
earned by our chief executive officer and other executive officers whose total
salary and bonus for the fiscal year ended March 31, 1999 exceeded $100,000. The
total amount of personal benefits paid to the executive officers during the
fiscal year was less than the lesser of $50,000 or 10% of the executive
officer's total reported salary and bonus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM AND OTHER
COMPENSATION AWARDS
-------------------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
NAME AND ------------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
------------------ ---- -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Paul G. Lego.................... 1999 $195,000 -- 200,000 --
President and Chief Executive
Officer
Bradley J. Horowitz............. 1999 $135,000 $25,000 200,000 --
Chief Technology Officer
Carlos O. Montalvo.............. 1999 $151,970 $17,000 416,250 --
Vice President, Marketing
Frank H. Pao.................... 1999 $124,830 $15,000 150,000 --
Vice President, Business Affairs
and General Counsel
Gilbert C. Wai.................. 1999 $168,000 $15,000 100,000 --
Vice President, Engineering
FORMER EXECUTIVE OFFICER:
Paul Roberge.................... 1999 $ 52,500 -- -- $ 68,190(1)
Vice President, Sales
</TABLE>
- -------------------------
(1) Represents amount paid to Mr. Roberge upon his departure in June 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information regarding grants of stock options
to each of the executive officers named in the Summary Compensation Table above
during the fiscal year ended March 31, 1999. All of these options were granted
under our 1997 stock option plan. Generally, the options vest at the rate of one
eighth the total number of shares on the six-month anniversary from the date of
grant and thereafter ratably on a monthly basis for 42 months.
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The following table is based on the grant of options to purchase a total of
2,493,875 shares of our common stock during fiscal year 1999. All options were
granted at the fair market value of our common stock, as determined by the board
of directors on the date of grant. Potential realizable values are net of
exercise price, but before taxes associated with exercise. Amounts represent
hypothetical gains that could be achieved for the options if exercised at the
end of the option term. The assumed 5% and 10% rates of stock price appreciation
are required by the rules of the Securities and Exchange Commission and do not
represent our estimate or projection of the future common stock price. Unless
the market price of the common stock appreciates over the option term, no value
will be realized from the option grants made to executive officers. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of our common stock. The assigned 5% and 10% rates of stock
appreciation are based on an assumed offering price of $ per share.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ---------- ------------ --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Paul G. Lego.......... 200,000(1) 8.0% 0.16 4/23/08 $ $
Bradley J. Horowitz... 100,000(1) 4.0% 0.16 4/23/08
100,000 4.0% 0.50 2/24/09
Carlos O. Montalvo.... 416,250 16.7% 0.16 5/21/08
Frank H. Pao.......... 100,000(1) 4.0% 0.16 4/23/08
50,000(1) 2.0% 0.50 2/24/09
Gilbert C. Wai........ 100,000(1) 4.0% 0.16 4/23/08
FORMER EXECUTIVE
OFFICER:
Paul Roberge.......... -- -- -- -- -- --
</TABLE>
- -------------------------
(1) These options vest ratably on a monthly basis for 48 months beginning one
month after the date of grant.
OPTION EXERCISES AND FISCAL YEAR-END HOLDINGS
The following table presents the number of shares acquired and the value
realized upon exercise of stock options during fiscal 1999 and the number of
shares of common stock subject to exercisable and unexercisable options held as
of March 31, 1999 by each of the executive officers named in the Summary
Compensation Table above. Also presented are values of in-the-money options,
which represent the positive difference
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<PAGE> 62
between the exercise price of each outstanding stock option and a fair market
value on March 31, 1999 of $0.50 per share.
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND VALUES AT MARCH 31, 1999
<TABLE>
<CAPTION>
NUMBER NUMBER OF SECURITIES
OF SHARES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON VALUE AT 3/31/99 AT 3/31/99
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul G. Lego.......... 201,500 $25,188 246,500 341,000 $ 87,763 $144,925
Bradley J. Horowitz... -- -- 258,333 41,667 $ 55,583 $ 15,417
Carlos O. Montalvo.... -- -- 416,250 -- $141,525 --
Frank H. Pao.......... 21,000 $ 1,470 133,250 37,000 $ 28,365 $ 13,690
18,750 390 -- -- -- --
Gilbert C. Wai........ 100,000 $ 4,000 -- -- -- --
FORMER EXECUTIVE
OFFICER:
Paul Roberge.......... 11,919 $ 358 -- -- -- --
42,844 3,642 -- -- -- --
</TABLE>
STOCK OPTION PLANS
1995 STOCK OPTION PLAN
Our 1995 stock option plan was adopted by our board of directors and
approved by our stockholders in March 1995. Prior to the adoption of the 1997
stock option plan, a total of 4,110,720 shares of common stock were reserved for
issuance under the 1995 stock option plan. In December 1997, upon the adoption
of the 1997 stock option plan, our board of directors terminated the 1995 stock
option plan. While no additional options will be granted under this plan,
options to purchase 992,676 shares of common stock are outstanding as of
December 31, 1999 and remain subject to the provisions of the 1995 stock option
plan as of December 31, 1999. The plan is administered by the compensation
committee of the board of directors.
The 1995 stock option plan allowed the grant of incentive stock options,
within the meaning of section 422 of the Internal Revenue Code, to employees,
including officers and employee directors. In addition, it allowed grants of
nonstatutory options to employees, non-employee directors, and consultants. The
exercise price of nonstatutory stock options granted under the 1995 stock option
plan could not be less than 85% of the fair market value of a share of common
stock on the date of grant. In the case of incentive stock options, the exercise
price could not be less than the fair market value of a share of common stock on
the date of grant. With respect to any optionee who owned stock representing
more than 10% of the voting power of all classes of our outstanding capital
stock, the exercise price of any stock option had to be equal to at least 110%
of the fair market value of a share of the common stock on the date of grant,
and the term of the option could not exceed five years. The terms of all other
options could not exceed ten years. The aggregate fair market value, determined
as of the date of option grant, of the common stock for which an incentive stock
option could become exercisable for the first time could not exceed $100,000 in
any calendar year.
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<PAGE> 63
The 1995 stock option plan provides that in the event of certain transfer
of control transactions involving the company, outstanding options will
terminate to the extent that they are neither exercised nor assumed or
substituted for by the acquiring corporation.
As of December 31, 1999, 1,856,846 shares of common stock had been issued
upon exercise of options under this plan and options to purchase 992,676 shares
of common stock with a weighted average exercise price of $0.0844 were
outstanding.
1997 STOCK OPTION PLAN
Our 1997 stock option plan was adopted by our board of directors in
December 1997 and approved by our stockholders in April 1998 and has been
amended from time to time.
The compensation committee of our board of directors currently administers
the 1997 stock option plan. The plan allows grants of incentive stock options,
within the meaning of section 422 of the Internal Revenue Code, to employees,
including officers and employee directors. In addition, it allows grants of
nonstatutory options to employees, non-employee directors and consultants.
Incentive stock options may not be granted after December 2007, although the
plan may be terminated sooner by the board of directors.
We are authorized to issue up to a maximum of 12,402,360 shares of common
stock under this plan, which consists of the sum of (i) 9,847,321 shares, which
are new shares allocated to the 1997 stock option plan, and (ii) 2,555,039
shares that were subject to options outstanding on December 4, 1997 granted
pursuant to the 1995 stock option plan. However, the number of shares available
for grant under the 1997 stock option plan is reduced by the number of shares
which remain subject to such options or which are issued and outstanding as a
result of the exercise of such options. This number of shares will be increased
on January 1, 2001 and each subsequent January 1 during the term of the plan by
five percent of the number of shares of common stock issued and outstanding on
the immediately preceding December 31. However, the maximum number of shares of
common stock that may be issued under the plan pursuant to the exercise of
incentive stock options shall not exceed [ ] shares.
The exercise price of nonstatutory stock options granted under the 1997
stock option plan must not be less than 85% of the fair market value of a share
of common stock on the date of grant. In the case of incentive stock options,
the exercise price must not be less than the fair market value of a share of
common stock on the date of grant. With respect to any optionee who owns stock
representing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of any incentive stock option must be equal to
at least 110% of the fair market value of a share of the common stock on the
date of grant, and the term of the option may not exceed five years. The terms
of all other options may not exceed ten years. The aggregate fair market value,
determined as of the date of option grant, of the common stock for which an
incentive stock option may become exercisable for the first time may not exceed
$100,000 in any calendar year.
The compensation committee has discretion to determine vesting schedules
and exercise requirements, if any, of all options granted under the plan. In the
event of our merger with another corporation or another change in control event,
the acquiring corporation may assume outstanding options or substitute new
options of equivalent value. Any options not assumed by the acquiring
corporation or exercised prior to a change in control will terminate upon the
change in control.
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<PAGE> 64
As of December 31, 1999, 1,001,539 shares of common stock had been issued
upon exercise of options outstanding, options to purchase 5,167,093 shares of
common stock with a weighted average exercise price of $1.5490 were outstanding,
and 6,233,728 shares remained available for future grants.
2000 EMPLOYEE STOCK PURCHASE PLAN
A total of shares of common stock have been reserved for
issuance under our 2000 employee stock purchase plan, none of which have been
issued. This number of shares will be increased cumulatively by
shares on and each January 1 thereafter through
January . This plan is intended to qualify under section 423 of
the Internal Revenue Code and our compensation committee will be administer the
plan. Employees, including officers and employee directors, are eligible to
participate in the plan if they are employed by us for more than
hours per week and more than months per calendar year. The plan
will be implemented during sequential -month offering periods, the
first of which will commence on the effective date of this offering and will
terminate on , . After the effective date of this
offering, offering periods under the plan will generally begin on
and of each year.
The 2000 employee stock purchase plan permits eligible employees to
purchase shares of our common stock through payroll deductions, which may not
exceed % of the employee's base salary. Stock may be purchased
under the plan at a price equal to 85% of the fair market value of our common
stock on either the first or the last day of the offering period, whichever is
lower. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of a
participant's employment with us. Participants may not purchase shares of common
stock having a value, measured at the beginning of the offering period, greater
than $ in any calendar year or more than a number of shares in any
offering period determined by dividing $ , or $ with respect
to a six-month offering period, by the fair market value of a share of our
common stock determined at the beginning of the offering period.
401(k) PLAN
In 1995, we adopted an employee savings and retirement plan intended to be
tax-qualified under sections 401(a) and 401(k) of the Internal Revenue Code.
Employees who are at least 18 years old are generally eligible to participate
and may enter the plan as of the first day of any calendar quarter. Participants
may make pre-tax contributions to the plan of 2% to 20% of their eligible
compensation, subject to a statutorily prescribed annual limit, which is $10,500
in calendar year 2000. Each participant's contributions and investment earnings
on these contributions are fully vested at all times. Our 401(k) plan permits,
but does not require, matching contributions on behalf of participants. To date,
we have not made such contributions. Contributions to the 401(k) plan, and the
income earned on these contributions, are generally not taxable to the
participants until withdrawn. Contributions are generally deductible by us when
made. The 401(k) plan assets are held in trust. The trustee of the 401(k) plan
invests the assets of the plan in various investment options as directed by the
participants.
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<PAGE> 65
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation, which the
Delaware General Corporation Law permits, which provide that our directors shall
not be personally liable to us or our stockholders for monetary damages
resulting from a violation of the directors' duty to act with care and in the
best interests of the stockholders, except for liability:
- for acts or omissions that are not in good faith, are deliberately
improper or are known to be illegal;
- under Section 174 of the Delaware General Corporation Law relating to
improper dividends or distributions; or
- for any transaction from which the director obtained an improper personal
benefit.
This limitation of liability does not affect the availability of equitable
remedies, including injunctive relief or rescission.
Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the extent permitted by the Delaware General Corporation Law. Section
145 of the Delaware General Corporation Law empowers us to enter into
indemnification agreements with our officers, directors, employees and agents.
Before the completion of this offering, we intend to enter into separate
indemnification agreements with each of our current directors and executive
officers which may, in some cases, be broader than the specific indemnification
provisions allowed by the Delaware General Corporation Law. The indemnification
agreements will require us to indemnify the executive officers and directors
against liabilities that may arise by reason of status or service as directors
or executive officers and to advance expenses they spend as a result of any
proceeding against them for which they could be indemnified to the fullest
extent permitted by the Delaware General Corporation Law.
We intend to obtain liability insurance for our directors and officers and
intend to obtain a rider to extend that coverage for public securities matters.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of Virage where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling Virage,
we have been informed that in the opinion of the Securities and Exchange
Commission this indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
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<PAGE> 66
RELATED PARTY TRANSACTIONS
Since April 1, 1996, there has not been, nor is there currently planned,
any transaction or series of similar transactions to which Virage was or is a
party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of Virage's capital stock or any
member of their immediate family had or will have a direct or indirect material
interest other than agreements which are described under the caption
"Management" and the transactions described below.
SALES OF STOCK TO INSIDERS
The following directors, executive officers, holders of more than 5% of a
class of voting securities and members of these persons' immediate families
purchased from us shares of our series B preferred stock, series C preferred
stock, series D preferred stock, series E preferred stock or common stock.
Immediately before the closing of this offering, all outstanding shares of
series B preferred stock, series C preferred stock, series D preferred stock and
series E preferred stock will automatically convert into shares of common stock
on a one-for-one basis.
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED PREFERRED COMMON
STOCKHOLDER STOCK STOCK STOCK STOCK STOCK
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Paul G. Lego(1).............. 11,997 43,711 34,884 200,000 823,666
David J. Girouard............ -- -- -- -- 10,000
Bradley J. Horowitz.......... -- -- -- -- 181,192
Carlos O. Montalvo........... -- 38,150 -- -- --
Frank H. Pao................. 4,000 -- -- 2,000 86,332
Gilbert C. Wai(2)............ 35,000 -- -- -- 529,116
Philip W. Halperin(3)........ -- -- -- 2,896,341 --
Ramesh Jain, PhD............. 10,000 -- 20,349 -- 1,080,270
Standish H. O'Grady(4)....... -- 2,238,807 113,264 153,419 --
Lawrence K. Orr(5)........... 615,385 702,820 151,008 205,154 --
C.K. Prahalad, D.B.A......... 144,424 37,313 23,256 -- 473,368
William Younger, Jr.......... 54,394 62,548 13,440 17,968 --
Trinity Ventures(5).......... 615,385 702,820 151,008 205,154 --
Sutter Hill Ventures(6)...... 583,367 683,771 146,915 199,001 --
Weston Presidio Capital(3)... -- -- -- 2,896,341 --
Adobe Ventures/Hambrecht &
Quist(4)................... -- 2,238,807 113,264 153,419 --
AltaVista Company............ -- -- 2,023,435 131,983 --
Media Technology
Ventures(7)................ 1,121,924 399,422 85,820 116,246 --
Reuters Holdings Switzerland
SA......................... -- -- -- 1,524,390 --
</TABLE>
- -------------------------
(1) Includes:
(a) 11,997 shares of series B preferred stock, 43,711 shares of series C
preferred stock, 34,884 shares of series D preferred stock, 140,245
shares of series E preferred stock and 823,666 shares of common stock
held by Paul G. Lego;
(b) 47,562 shares of series E preferred stock held by the Lego Family
Partnership, of which Mr. Lego's brother, Michael Lego, is the managing
partner. Mr. Lego
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disclaims beneficial ownership of these securities, except to the extent of his
pecuniary interest in the partnership;
(c) 6,097 shares of series E preferred stock held by David and Elizabeth
Sippin. Ms. Sippin is the sister of Mr. Lego's wife. Mr. Lego disclaims
beneficial ownership of these securities; and
(d) 6,097 shares of series E preferred stock held by Christopher and
Deborah Sawch. Ms. Sawch is the sister of Mr. Lego's wife. Mr. Lego
disclaims beneficial ownership of these securities.
(2) Includes:
(a) 529,116 shares of common stock held by Gilbert Wai; and
(b) 35,000 shares of series B preferred stock held by Wai Family Revocable
Trust, of which Mr. Wai is trustee.
(3) Includes:
(a) 2,759,003 shares of series E preferred stock held by Weston Presidio
Capital III, LLC; and
(b) 137,338 shares of series E preferred stock held by Weston Presidio
Capital Entrepreneur Fund, L.P.
The general partner of both Weston Presidio Capital III, LLC and
Weston Presidio Capital Entrepreneur Fund, L.P. is Weston Presidio
Capital Management III, LLC. In this capacity, Weston Presidio Capital
Management III LLC, through an executive committee, exercises sole
voting and investment power with respect to all shares held of record
by the named investment partnerships; individually, no stockholder,
director or officer of Weston Presidio Capital Management III, LLC has
or shares such voting or investment power. Mr. Halperin disclaims
beneficial ownership of all shares except for his own pecuniary
interest.
(4) Includes:
(a) 1,679,105 shares of series C preferred stock, 84,948 shares of series D
preferred stock and 151,331 shares of series E preferred stock held by
Adobe Ventures II, L.P.;
(b) 559,702 shares of series C preferred stock and 28,316 shares of series
D preferred stock held by H&Q Virage Investors, L.P.; and
(c) 2,088 shares of series E preferred stock held by Hambrecht & Quist
Employee Fund, L.P. II.
The general partner of Adobe Ventures II, L.P. is H&Q Adobe Ventures
Management II, LLC, the general partner of Hambrecht & Quist Employee
Fund, L.P. is H&Q Venture Management LLC, and the general partner of
H&Q Virage Investors, L.P. is H&Q Virage Investment Management, LLC.
The general partner, through an executive committee, exercises sole
voting and investment power with respect to all shares held of record
by the named investment partnerships; individually, no stockholder,
director or officer of
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<PAGE> 68
the investment fund has or shares such voting or investment power. Mr.
O'Grady disclaims beneficial ownership of all shares except for his
own pecuniary interest.
(5) Includes:
(a) 581,064 shares of series B preferred stock, 663,623 shares of series C
preferred stock, 144,968 shares of series D preferred stock and 196,363
shares of series E preferred stock held by Trinity Ventures IV, L.P.;
and
(b) 34,321 shares of series B preferred stock, 39,197 shares of series C
preferred stock, 6,040 shares of series D preferred stock and 8,791
shares of series E preferred stock held by Trinity IV Side-By-Side
Fund, L.P.
The general partner of both Trinity Ventures IV, L.P. and Trinity IV
Side-By-Side Fund, L.P. is Trinity TVL Partners, L.P. In this
capacity, Trinity TVL Partners, L.P., through an executive committee,
exercises sole voting and investment power with respect to all shares
held of record by the named investment partnerships; individually, no
stockholder, director or officer of Trinity TVL Partners, L.P. has or
shares such voting or investment power. Mr. Orr disclaims beneficial
ownership of all shares except for his own pecuniary interest.
(6) Includes:
(a) 299,368 shares of series B preferred stock, 339,546 shares of series C
preferred stock, 72,954 shares of series D preferred stock and 100,444
shares of series E preferred stock held by Sutter Hill Ventures; and
(b) 283,999 shares of series B preferred stock, 344,225 shares of series C
preferred stock, 73,961 shares of series D preferred stock and 98,557
shares of series E preferred stock held by parties affiliated with
Sutter Hill Ventures. Sutter Hill Ventures disclaims voting power and
beneficial ownership of the shares held by its affiliated parties.
(7) Includes:
(a) 1,003,362 shares of series B preferred stock, 353,746 shares of series
C preferred stock, 76,006 shares of series D preferred stock, 102,953
shares of series E preferred stock and 157,500 shares of common stock
held by Media Technology Ventures, L.P.; and
(b) 118,562 shares of series B preferred stock, 45,676 shares of series C
preferred stock, 9,814 shares of series D preferred stock, 13,293
shares of series E preferred stock and 17,500 shares of common stock
held by Media Technology Ventures Entrepreneurs Fund, L.P.
The following is a summary of sales of our preferred and common stock that
are presented in the table above:
Series B financing. On January 6, 1997 and July 24, 1997, we sold a total
of 3,047,077 shares of series B preferred stock at a price of $1.30 per share.
Series C financing. On March 30, 1998 and April 27, 1998, we sold a total
of 4,477,612 shares of series C preferred stock at a price of $1.34 per share.
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<PAGE> 69
Series D financing. On January 21, 1999 and March 1, 1999, we sold a total
of 2,906,977 shares of series D preferred stock at a price of $1.72 per share.
Series E financing. On September 21, 1999 and December 17, 1999, we sold a
total of 6,067,401 shares of series E preferred stock at a price of $3.28 per
share.
Sales of Common Stock.
On October 21, 1996, Mr. Paul Lego exercised options to acquire 214,500
shares of common stock at an exercise price of $0.075 per share.
On November 21, 1997, Mr. Paul Lego exercised an option to acquire 201,500
shares of common stock at an exercise price of $0.075 per share.
On December 31, 1997, Mr. Gilbert Wai exercised an option to acquire
279,116 shares of common stock at an exercise price of $0.13 per share.
On June 30, 1998, Mr. Paul Roberge exercised options to acquire 11,919
shares of common stock at an exercise price of $0.13 per share and an option to
purchase 42,844 shares of common stock at an exercise price of $0.075 per share.
On December 3, 1998, Dr. Ramesh Jain exercised an option to acquire 374,290
shares of common stock at an exercise price of $0.0825 per share.
On December 16, 1998, Mr. Paul Lego exercised an option to acquire 201,500
shares of common stock at an exercise price of $0.075 per share. Mr. Gilbert Wai
exercised an option to acquire 100,000 shares of common stock at an exercise
price of $0.16 per share.
On February 17, 1999, Mr. Frank Pao exercised an option to acquire 21,000
shares of common stock at an exercise price of $0.13 per share and an option to
acquire 18,750 shares of common stock at an exercise price of $0.16 per share.
On September 1, 1999, Mr. Paul Lego exercised an option to acquire 66,666
shares of common stock at an exercise price of $0.16 per share. Mr. Frank Pao
exercised an option to acquire 14,583 shares of common stock at an exercise
price of $0.16 per share and an option to acquire 6,999 shares of common stock
at an exercise price of $0.13 per share.
On September 3, 1999, Mr. Gilbert Wai exercised an option to acquire
150,000 shares of common stock at an exercise price of $1.60 per share.
On September 6, 1999, Mr. Paul Lego exercised an option to acquire 139,500
shares of common stock at an exercise price of $0.075 per share.
On November 30, 1999, Mr. Frank Pao exercised an option to acquire 25,000
shares of common stock at an exercise price of $0.16 per share.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with each of our
directors and officers. These agreements will require us to indemnify these
individuals to the fullest extent permitted by the Delaware General Corporation
Law.
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<PAGE> 70
PRINCIPAL STOCKHOLDERS
The following table presents information concerning the beneficial
ownership of the shares of our common stock as of December 31, 1999, and pro
forma as adjusted to reflect the sale of shares of common stock in this offering
assuming (a) 26,426,137 shares of common stock outstanding as of December 31,
1999 and shares outstanding immediately following the completion
of this offering, (b) conversion of all of Virage's outstanding shares of
convertible preferred stock into common stock, and (c) no exercise of the
underwriters' over-allotment option by:
- each person we know to be the beneficial owner of 5% or more of the
outstanding shares of common stock;
- each of our executive officers listed on the Summary Compensation Table
above under "Management";
- each of our directors; and
- all executive officers and directors of Virage as a group.
Beneficial ownership is determined under the rules of the Securities and
Exchange Commission and generally includes voting or investment power over
securities. Except in cases where community property laws apply or as indicated
in the footnotes to this table, we believe that each stockholder identified in
the table possesses sole voting and investment power over all shares of common
stock shown as beneficially owned by the stockholder. Shares of common stock
subject to options that are currently exercisable or exercisable within 60 days
of December 31, 1999 are considered outstanding and beneficially owned by the
person holding the options for the purpose of computing the percentage ownership
of that person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
Generally, shares of common stock subject to options granted by us and
shares of common stock which were purchased by exercising options granted by us
are subject to a right of repurchase in favor of Virage which lapses as to one
eighth of the shares after six months of vesting and thereafter ratably on a
monthly basis for 48 months. Unless indicated below, the address of each
individual listed below is 177 Bovet Road, Suite 520, San Mateo, CA 94402.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF OUTSTANDING
SHARES -------------------------
BENEFICIALLY PRIOR TO THE AFTER THE
NAME AND ADDRESS OWNED OFFERING OFFERING
---------------- ------------ ------------ ---------
<S> <C> <C> <C>
OTHER 5% STOCKHOLDERS
Entities affiliated with Trinity
Ventures(1)................................. 3,341,034 12.7% %
3000 Sand Hill Road, Bldg. 1, Ste. 240
Menlo Park, CA 94025
Entities affiliated with Sutter Hill
Ventures(2)................................. 3,177,710 12.0
755 Page Mill Road, Ste. A-200
Palo Alto, CA 94304
Entities affiliated with Weston Presidio
Capital(3).................................. 2,896,341 11.0
343 Sansome Street, Suite 1210
San Francisco, CA 94104
</TABLE>
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<PAGE> 71
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF OUTSTANDING
SHARES -------------------------
BENEFICIALLY PRIOR TO THE AFTER THE
NAME AND ADDRESS OWNED OFFERING OFFERING
---------------- ------------ ------------ ---------
<S> <C> <C> <C>
Entities affiliated with Adobe
Ventures/Hambrecht & Quist(4)............... 2,505,489 9.5
One Bush Street
San Francisco, CA 94104
AltaVista Company............................. 2,155,418 8.2
529 Bryant Street
Palo Alto, CA 94301
Entities affiliated with Media Technology
Ventures(5)................................. 1,898,412 7.2
746 West Adams Blvd.
Los Angeles, CA 90089
Reuters Holdings Switzerland SA............... 1,524,390 5.8
153 route de Thonon
1245 Collonge-Bellerive
Switzerland
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Paul G. Lego(6)............................... 3,174,425 11.5
Weldon D. Bloom(7)............................ 400,000 1.5
David J. Girouard(8).......................... 500,000 1.9
Bradley J. Horowitz(9)........................ 432,859 1.7
Carlos O. Montalvo(10)........................ 454,400 1.7
Frank H. Pao(11).............................. 290,000 1.1
Gilbert C. Wai(12)............................ 564,116 2.1
Philip W. Halperin(3)......................... 2,896,341 11.0
c/o Weston Presidio Capital
343 Sansome Street, Suite 1210
San Francisco, CA 94104
Ramesh Jain, PhD.(13)......................... 1,238,218 4.7
San Diego, California
Standish H. O'Grady(4)........................ 2,505,489 9.5
c/o Adobe Ventures/Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Lawrence K. Orr(1)............................ 3,341,034 12.7
c/o Trinity Ventures
3000 Sand Hill Road, Bldg. 1, Ste. 240
Menlo Park, CA 94025
C.K. Prahalad, D.B.A.......................... 678,361 2.6
William H. Younger, Jr.(14)................... 1,968,176 7.5
c/o Sutter Hill Ventures
755 Page Mill Road, Ste. A-200
Palo Alto, CA 94304
All executive officers and directors as a
group (14 persons)(15)...................... 18,543,419 62.8%
</TABLE>
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<PAGE> 72
- -------------------------
(1) Includes:
(a) 3,159,733 shares held by Trinity Ventures IV, L.P.; and
(b) 181,301 shares held by Trinity IV Side-By-Side Fund, L.P.
The general partner of both Trinity Ventures IV, L.P. and Trinity IV
Side-By-Side Fund, L.P. is Trinity TVL Partners, L.P. In this capacity,
Trinity TVL Partners, L.P., through an executive committee, exercises
sole voting and investment power with respect to all shares held of
record by the named investment partnerships; individually, no
stockholder, director or officer of Trinity TVL Partners, L.P. has or
shares such voting or investment power. Mr. Orr disclaims beneficial
ownership of all shares except for his own pecuniary interest.
(2) Includes:
(a) 1,615,449 shares held by Sutter Hill Ventures;
(b) 1,562,261 shares held by parties affiliated with Sutter Hill Ventures.
Sutter Hill Ventures disclaims voting power and beneficial ownership of
the shares held by its affiliated parties.
(3) Includes:
(a) 2,759,003 shares held by Weston Presidio Capital III, LLC; and
(b) 137,338 shares held by Weston Presidio Capital Entrepreneur Fund, L.P.
The general partner of both Weston Presidio Capital III, LLC and Weston
Presidio Capital Entrepreneur Fund, L.P. is Weston Presidio Capital
Management III, LLC. In this capacity, Weston Presidio Capital
Management, III, LLC, through an executive committee, exercises sole
voting and investment power with respect to all shares held of record
by the named investment partnerships; individually, no stockholder,
director or officer of Weston Presidio Capital Management III, LLC has
or shares such voting or investment power. Mr. Halperin disclaims
beneficial ownership of all shares except for his own pecuniary
interest.
(4) Includes:
(a) 1,915,384 shares held by Adobe Ventures II, L.P.;
(b) 2,088 shares held by Hambrecht & Quist Employee Fund, L.P. II; and
(c) 588,018 shares held by H&Q Virage Investors, L.P.
The general partner of Adobe Ventures II, L.P. is H&Q Adobe Ventures
Management II, LLC, the general partner of Hambrecht & Quist Employee
Fund, L.P. is H&Q Venture Management LLC, and the general partner of
H&Q Virage Investors, L.P. is H&Q Virage Investment Management, LLC.
The general partner, through an executive committee, exercises sole
voting and investment power with respect to all shares held of record
by the named investment partnerships; individually, no stockholder,
director or officer of
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<PAGE> 73
the investment fund has or shares such voting or investment power. Mr.
O'Grady disclaims beneficial ownership of all shares except for his
own pecuniary interest.
(5) Includes 1,693,567 shares held by Media Technology Ventures, L.P. and
204,845 shares held by Media Technology Ventures Entrepreneurs Fund, L.P.
(6) Includes:
(a) 1,903,835 shares held by Paul G. Lego;
(b) immediately exercisable options to purchase 1,210,834 shares of common
stock that are subject to a right of repurchase which lapses over time;
(c) 47,562 shares held by Lego Family Partnership, of which Mr. Lego's
brother, Michael Lego, is the managing partner. Mr. Lego disclaims
beneficial ownership of these securities, except to the extent of his
pecuniary interest in the partnership;
(d) 6,097 shares held by David and Elizabeth Sippin. Ms. Sippin is the
sister of Mr. Lego's wife. Mr. Lego disclaims beneficial ownership of
these securities; and
(e) 6,097 shares held by Christopher and Deborah Sawch. Ms. Sawch is the
sister of Mr. Lego's wife. Mr. Lego disclaims beneficial ownership of
these securities.
(7) Includes an immediately exercisable option to purchase 400,000 shares of
common stock that are subject to a right of repurchase which lapses over
time.
(8) Includes immediately exercisable options to purchase 251,667 shares of
common stock that are subject to a right of repurchase which lapses over
time.
(9) Includes immediately exercisable options to purchase 251,667 shares of
common stock that are subject to a right of repurchase which lapses over
time.
(10) Includes immediately exercisable options to purchase 416,250 shares of
common stock that are subject to a right of repurchase which lapses over
time.
(11) Includes:
(a) 16,666 shares that are subject to a right of repurchase which lapses
over time; and
(b) immediately exercisable options to purchase 197,668 shares of common
stock that are subject to a right of repurchase which lapses over time.
(12) Includes:
(a) 340,043 shares that are subject to a right of repurchase which lapses
over time; and
(b) 35,000 shares held by Wai Family Revocable Trust, of which Mr. Wai is
trustee.
(13) Includes an immediately exercisable option to purchase 127,599 shares of
common stock that are subject to a right of repurchase which lapses over
time.
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<PAGE> 74
(14) Includes:
(a) 229,629 shares held by William H. Younger, Jr., Trustee, the Younger
Living Trust;
(b) 66,666 shares held by retirement trust of William H. Younger, Jr.;
(c) 1,615,449 shares held by Sutter Hill Ventures; and
(d) 56,432 shares held by parties affiliated with Sutter Hill Ventures.
Mr. Younger is a general partner of Sutter Hill Ventures and disclaims
beneficial ownership of the shares held by these entities except to
the extent of his proportionate partnership interest therein.
(15) Includes an aggregate of:
(a) 21,605,447 shares held by all executive officers and directors as a
group;
(b) 356,709 shares that are subject to a right of repurchase which lapses
over time; and
(c) immediately exercisable options to purchase 3,194,018 shares of common
stock that are subject to a right of repurchase which lapses over time.
73
<PAGE> 75
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, Virage's authorized capital stock will
consist of 100,000,000 shares of common stock, $0.001 par value per share, and
2,000,000 shares of preferred stock, $0.001 par value per share. As of December
31, 1999, assuming the conversion of each share of outstanding preferred stock
into one share of common stock, there were 26,426,137 shares of common stock
outstanding held by stockholders and options to purchase
6,159,769 shares of common stock outstanding.
The following is a summary of the material terms of Virage's common stock
and preferred stock.
COMMON STOCK
Dividend Rights. Subject to preferences that may apply to shares of
preferred stock outstanding at the time, the holders of outstanding shares of
common stock are entitled to receive dividends out of assets legally available
at the times and in the amounts as our board of directors may from time to time
determine.
Voting Rights. Each common stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election.
No Preemptive or Similar Rights. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption.
Right to Receive Liquidation Distributions. Upon our liquidation,
dissolution or winding-up, the assets legally available for distribution to our
stockholders are distributable ratably among the holders of our common stock and
any participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred
stock outstanding will be converted into one share of common stock. See note 5
to our consolidated financial statements for a description of the preferred
stock.
Following the offering, we will be authorized, subject to the limits
imposed by the Delaware General Corporation Law, to issue preferred stock in one
or more series, to establish from time to time the number of shares to be
included in each series, to fix the rights, preferences and privileges of the
shares of each wholly unissued series and any of its qualifications,
limitations, restrictions. Our board of directors can also increase or decrease
the number of shares of any series, but not below the number of shares of that
series then outstanding, without any further vote or action by the stockholders.
Our board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of our common stock. The issuance of preferred
stock, while providing flexibility in
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<PAGE> 76
connection with possible acquisitions and other corporate purposes, could have
the effect of delaying, deferring or preventing a change in control of Virage
and may cause the market price of our common stock to decline or impair the
voting and other rights of the holders of our common stock. We have no current
plans to issue any shares of preferred stock.
WARRANTS
As of December 31, 1999, we had issued:
- warrants to purchase 46,666 shares of common stock at a price per share
of $0.375 which expire in September 2005; and
- a warrant to purchase 17,308 shares of preferred stock at a price per
share of $1.30 which expires in May 2002.
REGISTRATION RIGHTS
The holders of 20,632,401 shares of preferred stock have the right to
require us to register their shares with the Securities and Exchange Commission
so that those shares may be publicly resold or to include their shares in any
registration statement that we file. The underwriters of any underwritten
offering will have the right to limit the number of shares to be included in the
filed registration statement.
Demand registration rights
- At any time after the closing of this offering but not within three
months of the effective date of a registration statement on a form other
than Form S-4 or Form S-8, the former holders of at least 50% of the
shares of the preferred stock of Virage or 50% of the series E preferred
stock of Virage have the right to demand that we file a registration
statement on a form other than Form S-3, as long as the aggregate amount
of securities sold under the registration statement is at least 25% of
the shares held by the holders requesting registration or exceeds
$2,000,000.
- If we are eligible to file a registration statement on Form S-3, any
holder having registration rights has the right to demand that we file a
registration statement on Form S-3, as long as the amount of securities
to be sold under the registration statement exceeds $750,000.
Piggyback registration rights
If we register securities for public sale, stockholders with registration
rights will have the right to include their shares in the registration
statement. The underwriters of any underwritten offering will have the right to
limit the number of shares to be included in the registration statement.
Expenses of registration
We will pay all registration expenses, excluding underwriting discounts and
commissions, of all demand and piggyback registrations.
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<PAGE> 77
Expiration of registration rights
The demand registration rights on a form other than Form S-3 and piggyback
registration rights will expire ten years after this offering is completed.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
The provisions of the Delaware General Corporation Law, our certificate of
incorporation and our bylaws described below may have the effect of delaying,
deferring or discouraging another person from acquiring control of us.
We will be subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents Delaware
corporations from engaging, under limited circumstances, in a business
combination, which includes a merger or sale of more than 10% of the
corporation's assets, with any interested stockholder, which is a stockholder
who owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of stockholders, for three years following the date
that the stockholder became an interested stockholder unless:
- the transaction is approved by the board before the date the interested
stockholder attained that status;
- upon the closing of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced; or
- on or after the date the business combination is approved by the board
and authorized at an annual or special meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
A Delaware corporation may opt out of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not opted out of this provision. This provision of the Delaware
General Corporation Law could prohibit or delay merger or other takeover or
change-in-control attempts and may discourage attempts to acquire us.
CERTIFICATE OF INCORPORATION AND BYLAWS
Provisions of our certificate of incorporation and bylaws, which will
become effective upon the closing of this offering, may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of Virage. These provisions
could cause the price of our common stock to decrease. Some of these provisions
allow us to issue preferred stock without any vote or further action by the
stockholders, eliminate the right of stockholders to act by written consent
without a meeting and eliminate cumulative voting in the election of directors.
These provisions may make it more difficult for stockholders to take specific
corporate actions and could have an effect of delaying or preventing a change in
control of Virage. Upon the closing of this offering, our certificate of
incorporation will provide that the board of directors will be divided into
three classes of directors, with each class serving a staggered three-year term.
The classification system of electing directors may discourage a third party
from making a tender offer or otherwise attempting to obtain control of us and
may maintain the
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<PAGE> 78
incumbency of the board of directors, because the classification of the board of
directors generally increases the difficulty of replacing a majority of the
directors.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of directors to the
fullest extent permitted by the Delaware General Corporation Law. In addition,
our certificate of incorporation and bylaws provide that we will indemnify our
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law. Our bylaws will also provide that we will indemnify officers
and directors against losses that they may incur in investigations and legal
proceedings resulting from their services to us, which may include services in
connection with takeover defense measures. We intend to enter into separate
indemnification agreements with our directors and executive officers, which may
be more broad than the specific indemnification provisions contained in the
Delaware General Corporation Law. These provisions and agreements may have the
effect of preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
The address of our transfer agent and registrar is , and its
telephone number at this location is .
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading name "VRGE."
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<PAGE> 79
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has not been a public market for our common
stock. Future sales of substantial amounts of our common stock, including shares
issued upon exercise outstanding options and warrants, in the public markets
after this offering could adversely affect market prices prevailing from time to
time. As described below, no shares currently outstanding will be available for
sale immediately after this offering due to contractual and legal restrictions
on resale. Nevertheless, future sales of substantial amounts of our common stock
in the public market after the restrictions lapse, or the possibility of these
sales, could adversely affect the prevailing market price and our ability to
raise equity capital in the future.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming the conversion of all
outstanding preferred stock and based on common stock outstanding as of December
31, 1999, assuming the cash exercise or conversion of warrants to purchase
188,980 shares of common stock, and assuming no exercise of the underwriters'
over-allotment option or exercise of outstanding options and warrants to
purchase common stock. As of December 31, 1999, there were options to purchase
6,159,769 shares of common stock, and warrants to purchase 63,974 shares of
common stock outstanding. Of these shares, the shares to be sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by affiliates of
Virage, defined as persons who directly or indirectly control or are controlled
by or are under common control with Virage.
The remaining 26,426,137 shares held by our existing stockholders were
issued and sold by Virage in private transactions. These securities may be sold
in the public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act, which are
summarized below. Sales of these restricted securities in the public market, or
the availability of these shares for sale, could adversely affect the trading
price of our common stock. They are eligible for public sale as follows:
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
DATE SHARES THAT MAY BE SOLD COMMENT
---- ----------------------- -------
<S> <C> <C>
Date of this prospectus -- --
181 days after the date A substantial number of these shares
of this prospectus will be subject to volume limitations
and restrictions under Rule 144
because they will have been held for
over one year but less than two years
or they are held by some of our
officers and directors.
These shares will be subject to volume
limitations and restrictions of Rule
144 at the expiration of a one year
holding period, which will occur on
.
September 21, 2000 These shares will be subject to volume
limitations and restrictions of Rule
144 at the expiration of a one year
holding period, which will occur on
September 21, 2000.
December 17, 2000 These shares will be subject to volume
limitations and restrictions of Rule
144 at the expiration of a one year
holding period, which will occur on
December 17, 2000.
</TABLE>
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<PAGE> 80
LOCK-UP AGREEMENTS
All of our officers and directors and substantially all of our security
holders have signed lock-up agreements under which they agreed not to sell,
dispose of, loan, pledge or grant any rights to any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
Credit Suisse First Boston Corporation may choose to release some of these
shares from these restrictions before the expiration of this 180-day period
without notice.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering
assuming no exercise of the underwriters' over-allotment option; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 for the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, shares that have been held by a non-affiliate for at least two years
may be sold in the open market immediately after the lock-up agreements expire.
RULE 701
Any employee, officer of director of, or consultant to, us who purchased
his shares under a written compensatory plan or contract may be entitled to sell
his shares in reliance on Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling those shares. However, all shares issued under
Rule 701 are subject to lock-up agreements and will only become eligible for
sale when the 180-day lock-up agreements expire.
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<PAGE> 81
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 20,632,401 shares of
common stock, or their transferees, may demand that we register their shares
under the Securities Act or, if we file another registration statement under the
Securities Act, may elect to include their shares in such registration. If these
shares are registered, they will be freely tradable without restriction under
the Securities Act.
STOCK OPTIONS
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register approximately shares of common stock
issued under our stock option and employee stock purchase plans. These
registration statements are expected to be filed soon after the date of this
prospectus and will automatically become effective upon filing. Shares
registered under these registration statements will be available for sale in the
open market, unless the shares are subject to vesting restrictions with Virage
or the lock-up restrictions above. Substantially all shares issuable upon the
exercise of options to purchase our shares are subject to lock-up agreements and
will only become eligible for sale when the 180-day lock-up agreements expire.
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<PAGE> 82
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
FleetBoston Robertson Stephens Inc. and SoundView Technology Group, Inc. are
acting as representatives, the following respective numbers of shares of common
stock:
<TABLE>
<CAPTION>
Number
of
Underwriters Shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation......................
FleetBoston Robertson Stephens Inc..........................
SoundView Technology Group, Inc.............................
Total.....................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us... $ $ $ $
Expenses payable by us..... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
issuances pursuant to the
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<PAGE> 83
exercise of employee stock options outstanding on the date hereof or pursuant to
our dividend reinvestment plan.
Our officers and directors [and all of our stockholders] have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of our common stock or securities convertible
into or exchangeable or exercisable for any shares of our common stock, enter
into a transaction which would have the same effect, or enter into any swap,
hedge or other arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors
and several other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
A prospectus in electronic format is being made available on an Internet
website maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on websites
maintained by each of these dealers. Other than the prospectus in electronic
format, the information on Wit Capital's website and any information contained
on any other website maintained by Wit Capital is not part of the prospectus or
the registration statement of which this prospectus forms a part, has not been
approved and/or endorsed by us or any underwriter in its capacity as underwriter
and should not be relied upon by investors.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "VRGE."
In September 1999 and December 1999, we sold shares of our series E
preferred stock in a private placement at a purchase price of $3.28 per share.
In this private placement, FleetBoston Robertson Stephens Inc. and some of its
employees and affiliated entities purchased 146,248 shares. FleetBoston
Robertson Stephens Inc. purchased these shares of series E preferred stock on
the same terms as the other investors in the private placement.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
- the information set forth in this prospectus and otherwise available to
the representatives;
82
<PAGE> 84
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
83
<PAGE> 85
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that:
- such purchaser is entitled under applicable provincial securities laws to
purchase such common stock without the benefit of a prospectus qualified
under such securities laws,
- where required by law, that such purchaser is purchasing as principal and
not as agent, and
- such purchaser has reviewed the text above under "Release Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgement against the issuer or such person in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act British Columbia,
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such
84
<PAGE> 86
purchaser pursuant to this offering. Such report must be in the form attached to
British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which
may be obtained from us. Only one such report must be filed in respect of common
stock acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. As of December 31,
1999, an investment partnership and individual attorneys at Gray Cary owned an
aggregate of 30,488 shares of Virage preferred stock. Various legal matters
relating to the offering will be passed upon for the underwriters by Wilson
Sonsini Goodrich & Rosati, PC, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at March 31, 1998 and 1999, and December 31,
1999 and for each of the three years in the period ended March 31, 1999, and the
nine months ended December 31, 1999, as set forth in their report. We've
included our financial statements and schedule in the prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
85
<PAGE> 87
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act that registers the shares of our common stock to be sold in this
offering. The registration statement, including the attached exhibits and
schedules, contain additional relevant information about us and our capital
stock. The rules and regulations of the SEC allow us to omit various information
included in the registration statement from this document.
In addition, upon completion of this offering, we will become subject to
the reporting and information requirements of the Exchange Act and, as a result,
will file periodic reports, proxy statements and other information with the SEC.
You may read and copy this information at the following public reference rooms
of the SEC:
<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison
Room 1024 Suite 1300 Street
Washington, DC 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the public
reference section of the SEC, 450 Fifth Street, N.W. Room 1024, Washington, DC
20549, at prescribed rates. You may obtain information on the operation of the
public reference rooms by calling the SEC at 1-(800) SEC-0330.
The SEC also maintains an Internet website that contains reports, proxy
statements and other information about issuers, like Virage, who file
electronically with the SEC. The address of that website is http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
audited financial statements, and make available to our stockholders quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
86
<PAGE> 88
VIRAGE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Net Capital Deficiency)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 89
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Virage, Inc.
We have audited the accompanying consolidated balance sheets of Virage,
Inc. as of March 31, 1998 and 1999 and December 31, 1999, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (net capital deficiency), and cash flows for each of the
three years in the period ended March 31, 1999, and the nine months ended
December 31, 1999. These financial statements are the responsibility of Virage
Inc.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Virage, Inc. at
March 31, 1998 and 1999 and December 31, 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1999 and for the nine months ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
January 17, 2000
F-2
<PAGE> 90
VIRAGE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY
-------------------------- DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999
----------- ------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 5,780,320 $ 4,356,541 $ 16,361,574
Accounts receivable, net of allowance for doubtful
accounts of $37,337 at March 31, 1998, $187,256 at
March 31, 1999, and $267,705 at December 31, 1999.... 616,252 959,594 1,791,348
Prepaid expenses and other current assets.............. 89,333 316,921 425,805
Deferred advertising costs............................. -- -- 615,550
----------- ------------ ------------
Total current assets............................... 6,485,905 5,633,056 19,194,277
Property and equipment:
Computer equipment and software........................ 808,428 1,182,863 2,044,340
Furniture.............................................. 154,664 229,101 471,564
Leasehold improvements................................. 161,478 187,439 308,817
----------- ------------ ------------
1,124,570 1,599,403 2,824,721
Accumulated depreciation............................... 452,049 856,143 1,086,110
----------- ------------ ------------
672,521 743,260 1,738,611
Other assets............................................. 130,201 228,424 578,638
----------- ------------ ------------
Total assets....................................... $ 7,288,627 $ 6,604,740 $ 21,511,526
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable....................................... $ 132,831 $ 183,834 $ 369,477
Accrued payroll and related expenses................... 404,204 636,230 409,494
Accrued expenses....................................... 441,740 214,240 1,210,719
Deferred revenue....................................... 147,767 438,800 1,206,232
Current portion of borrowings under bank equipment term
loans................................................ 488,903 238,654 206,914
Current portion of capital lease obligations........... 147,571 42,629 --
----------- ------------ ------------
Total current liabilities.......................... 1,763,016 1,754,387 3,402,836
Long-term portion of borrowings under bank equipment term
loans.................................................. 261,097 240,705 114,583
Long-term portion of capital lease obligations........... 49,568 -- --
Commitments and contingencies
Redeemable convertible preferred stock, $0.001 par value:
Authorized shares -- 22,092,404
Issued and outstanding shares -- 11,291,613 at March
31, 1998, 14,565,000 at March 31, 1999, and
20,632,401 at December 31, 1999, and none pro forma
(liquidation preference of $37,962,276).............. 12,472,354 17,935,913 39,896,613 $ --
Stockholders' equity (net capital deficiency):
Preferred stock, $0.001 par value
Authorized shares -- none, actual; 2,000,000 pro
forma.............................................. -- -- -- --
Common stock, $0.001 par value:
Authorized shares -- 40,000,000 actual; 100,000,000
pro forma
Issued and outstanding shares -- 3,648,902 at March
31, 1998, 4,646,768 at March 31, 1999, and
5,604,756 at December 31, 1999, and 26,237,157 pro
forma.............................................. 3,649 4,646 5,608 26,197
Additional paid-in capital............................. 450,865 824,915 8,964,724 48,840,748
Deferred compensation.................................. -- (274,371) (6,590,866) (6,590,866)
Accumulated deficit.................................... (7,711,922) (13,881,455) (24,281,972) (24,281,972)
----------- ------------ ------------ ------------
Total stockholders' equity (net capital
deficiency)...................................... (7,257,408) (13,326,265) (21,902,506) $ 17,994,107
----------- ------------ ------------ ============
Total liabilities and stockholders' equity
(net capital deficiency)......................... $ 7,288,627 $ 6,604,740 $ 21,511,526
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 91
VIRAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
--------------------------------------- --------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License revenues............................ $ 375,919 $ 1,437,635 $ 1,955,509 $1,303,510 $ 3,143,545
Service revenues............................ 43,541 130,446 253,497 154,629 578,367
Other revenues.............................. 1,025,906 1,133,629 1,141,203 865,063 165,137
----------- ----------- ----------- ----------- ------------
Total revenues............................ 1,445,366 2,701,710 3,350,209 2,323,202 3,887,049
Cost of revenues:
License revenues............................ -- 454,117 396,932 287,267 686,269
Service revenues............................ 21,705 61,928 426,258 292,122 1,196,225
Other revenues.............................. 584,634 809,060 859,156 656,810 171,505
----------- ----------- ----------- ----------- ------------
Total cost of revenues.................... 606,339 1,325,105 1,682,346 1,236,199 2,053,999
----------- ----------- ----------- ----------- ------------
Gross profit.................................. 839,027 1,376,605 1,667,863 1,087,003 1,833,050
Operating expenses:
Research and development.................... 758,564 1,751,533 2,325,194 1,699,874 2,654,158
Sales and marketing......................... 1,020,072 2,809,815 4,361,536 3,057,611 5,094,457
General and administrative.................. 693,598 935,019 1,272,635 819,871 1,565,762
Stock-based compensation.................... -- -- -- -- 204,527
----------- ----------- ----------- ----------- ------------
Total operating expenses.................. 2,472,234 5,496,367 7,959,365 5,577,356 9,518,904
----------- ----------- ----------- ----------- ------------
Loss from operations.......................... (1,633,207) (4,119,762) (6,291,502) (4,490,353) (7,685,854)
Interest and other income..................... 53,231 61,954 134,524 112,557 249,926
Interest expense.............................. (18,858) (42,115) (12,555) (58) (26,975)
----------- ----------- ----------- ----------- ------------
Loss before income taxes...................... (1,598,834) (4,099,923) (6,169,533) (4,377,854) (7,462,903)
Provision for income taxes.................... -- -- -- -- (36,000)
----------- ----------- ----------- ----------- ------------
Net loss...................................... $(1,598,834) $(4,099,923) $(6,169,533) $(4,377,854) $ (7,498,903)
Series E convertible preferred stock
dividend.................................... -- -- -- -- (2,901,614)
----------- ----------- ----------- ----------- ------------
Net loss applicable to common stockholders.... $(1,598,834) $(4,099,923) $(6,169,533) $(4,377,854) $(10,400,517)
=========== =========== =========== =========== ============
Basic and diluted net loss per share
applicable to common stockholders........... $ (0.72) $ (1.42) $ (1.84) $ (1.36) $ (2.43)
=========== =========== =========== =========== ============
Shares used in computation of basic and
diluted net loss per share applicable to
common stockholders......................... 2,232,429 2,886,323 3,358,805 3,217,042 4,273,685
=========== =========== =========== =========== ============
Pro forma basic and diluted net loss per share
applicable to common stockholders........... $ (0.40) $ (0.50)
=========== ============
Shares used to compute pro forma basic and
diluted net loss per share applicable to
common stockholders......................... 15,472,408 20,649,919
=========== ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 92
VIRAGE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
----------------------------------------------
REDEEMABLE CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ----------- --------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996......... 3,333,334 $ 2,448,788 2,784,594 $2,784 $ 368,158 $ --
Issuance of shares of Series A
preferred stock............... 800,000 600,000 -- -- -- --
Issuance of shares of Series B
preferred stock, net of
issuance costs................ 2,153,846 2,773,835 -- -- -- --
Exercise of stock options....... -- -- 227,750 228 16,853 --
Net loss........................ -- -- -- -- -- --
---------- ----------- --------- ------ ---------- -----------
Balance at March 31, 1997......... 6,287,180 5,822,623 3,012,344 3,012 385,011 --
Issuance of shares of Series B
preferred stock, net of
issuance costs................ 893,231 1,150,606 -- -- -- --
Issuance of shares of Series C
preferred stock, net of
issuance costs................ 4,111,202 5,499,125 -- -- -- --
Issuance of common stock........ -- -- 7,700 8 993 --
Exercise of stock options....... -- -- 628,858 629 64,861 --
Net loss........................ -- -- -- -- -- --
---------- ----------- --------- ------ ---------- -----------
Balance at March 31, 1998......... 11,291,613 12,472,354 3,648,902 3,649 450,865 --
Issuance of shares of Series C
preferred stock, net of
issuance costs................ 366,410 478,806 -- -- -- --
Issuance of shares of Series D
preferred stock, net of
issuance costs................ 2,906,977 4,984,753 -- -- -- --
Issuance of common stock........ -- -- 34,271 34 10,256 --
Exercise of stock options....... -- -- 963,595 963 89,423 --
Deferred compensation related to
grant of stock options........ -- -- -- -- 274,371 (274,371)
Net loss........................ -- -- -- -- -- --
---------- ----------- --------- ------ ---------- -----------
Balance at March 31, 1999......... 14,565,000 17,935,913 4,646,768 4,646 824,915 (274,371)
Issuance of Series E preferred
stock, net of issuance
costs......................... 6,067,401 21,960,700 -- -- -- --
Issuance of common stock........ -- -- 89,167 89 184,912 --
Exercise of stock options....... -- -- 869,321 873 356,208 --
Repurchase of common stock...... -- -- (500) -- (38) --
Deferred compensation related to
grant of stock options........ -- -- -- -- 6,839,119 (6,839,119)
Amortization of deferred
compensation.................. -- -- -- -- -- 522,624
Issuance of warrants in
consideration for
advertising................... -- -- -- -- 615,550 --
Issuance of warrants in
consideration for technology
right......................... -- -- -- -- 144,058 --
Net loss applicable to common
stockholders and comprehensive
net loss applicable to common
stockholders.................. -- -- -- -- -- --
---------- ----------- --------- ------ ---------- -----------
Balance at December 31, 1999...... 20,632,401 $39,896,613 5,604,756 $5,608 $8,964,724 $(6,590,866)
========== =========== ========= ====== ========== ===========
<CAPTION>
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
----------------------------
TOTAL
STOCKHOLDERS'
EQUITY (NET
ACCUMULATED CAPITAL
DEFICIT DEFICIENCY)
------------ -------------
<S> <C> <C>
Balance at March 31, 1996......... $ (2,013,165) $ (1,642,223)
Issuance of shares of Series A
preferred stock............... -- --
Issuance of shares of Series B
preferred stock, net of
issuance costs................ -- --
Exercise of stock options....... -- 17,081
Net loss........................ (1,598,834) (1,598,834)
------------ ------------
Balance at March 31, 1997......... (3,611,999) (3,223,976)
Issuance of shares of Series B
preferred stock, net of
issuance costs................ -- --
Issuance of shares of Series C
preferred stock, net of
issuance costs................ -- --
Issuance of common stock........ -- 1,001
Exercise of stock options....... -- 65,490
Net loss........................ (4,099,923) (4,099,923)
------------ ------------
Balance at March 31, 1998......... (7,711,922) (7,257,408)
Issuance of shares of Series C
preferred stock, net of
issuance costs................ -- --
Issuance of shares of Series D
preferred stock, net of
issuance costs................ -- --
Issuance of common stock........ -- 10,290
Exercise of stock options....... -- 90,386
Deferred compensation related to
grant of stock options........ -- --
Net loss........................ (6,169,533) (6,169,533)
------------ ------------
Balance at March 31, 1999......... (13,881,455) (13,326,265)
Issuance of Series E preferred
stock, net of issuance
costs......................... -- --
Issuance of common stock........ -- 185,001
Exercise of stock options....... -- 357,081
Repurchase of common stock...... -- (38)
Deferred compensation related to
grant of stock options........ -- --
Amortization of deferred
compensation.................. -- 522,624
Issuance of warrants in
consideration for
advertising................... -- 615,550
Issuance of warrants in
consideration for technology
right......................... -- 144,058
Net loss applicable to common
stockholders and comprehensive
net loss applicable to common
stockholders.................. (10,400,517) (10,400,517)
------------ ------------
Balance at December 31, 1999...... $(24,281,972) $(21,902,506)
============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 93
VIRAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
--------------------------------------- -------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(1,598,834) $(4,099,923) $(6,169,533) $(4,377,854) $(7,498,903)
Adjustments to reconcile net loss to net cash used in
operating activities:
Common stock issued to consultants for services..... -- -- 10,290 -- --
Depreciation and amortization....................... 129,571 267,984 404,094 306,858 229,967
Amortization of deferred compensation related to
employee stock options............................ -- -- -- -- 204,527
Amortization of deferred compensation related to
consultants' stock options........................ -- -- -- -- 318,097
Amortization of technology right.................... -- -- -- -- 4,646
Write-off of investment in Scimagix................. -- -- -- -- 78,680
Changes in operating assets and liabilities:
Accounts receivable............................... (336,654) (87,270) (343,342) (437,246) (831,754)
Prepaid expenses and other current assets......... 38,606 (76,121) (227,588) (46,161) (108,884)
Other assets...................................... 1,100 (23,080) (19,543) (4,200) (316,887)
Accounts payable and accrued expenses............. 188,213 596,653 55,529 (142,842) 955,386
Deferred revenue.................................. (21,501) 11,596 291,033 239,798 767,432
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities................. (1,599,499) (3,410,161) (5,999,060) (4,461,647) (6,197,693)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................... (409,635) (545,425) (474,833) (325,534) (1,225,318)
Investment in Scimagix................................ -- -- (78,680) (78,680) --
Decrease (increase) in restricted investments......... -- (13,805) -- -- 27,405
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities................. (409,635) (559,230) (553,513) (404,214) (1,197,913)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan financing.......................... -- 750,000 250,000 234,796 --
Proceeds from bank equipment term loans............... 305,028 -- -- -- --
Principal payments on loans........................... -- -- (520,641) (471,492) (157,862)
Principal payments on capital leases.................. (73,671) (103,602) (154,510) (141,716) (42,629)
Proceeds from issuance of common stock, net of
repurchases......................................... 17,081 66,491 90,386 88,604 542,044
Proceeds from issuance of preferred stock............. 3,373,835 6,649,731 5,463,559 478,807 19,059,086
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities............. 3,622,273 7,362,620 5,128,794 188,999 19,400,639
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... 1,613,139 3,393,229 (1,423,779) (4,676,862) 12,005,033
Cash and cash equivalents at beginning of period...... 773,952 2,387,091 5,780,320 5,780,320 4,356,541
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 2,387,091 $ 5,780,320 $ 4,356,541 $ 1,103,458 $16,361,574
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest................................ $ 18,463 $ 42,115 $ 12,554 $ 58 $ 25,977
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Series E convertible preferred stock dividend......... $ -- $ -- $ -- $ -- $ 2,901,614
Deferred advertising costs............................ $ -- $ -- $ -- $ -- $ 615,550
Deferred technology right............................. $ -- $ -- $ -- $ -- $ 144,058
</TABLE>
See accompanying notes.
F-6
<PAGE> 94
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Virage, Inc. ("Virage" or "the Company") is a provider of software products
and application services that allow owners of video content to deploy, manage
and distribute their video assets over the Internet and corporate intranets.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Virage and
its wholly owned subsidiary, Virage Europe, Ltd. All significant intercompany
accounts and transactions have been eliminated in consolidation.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements for
the nine months ended December 31, 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information. In
the opinion of management, the accompanying unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments necessary for fair presentation of Virage's results of
operations for the nine months ended December 31, 1998.
CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid financial
instruments, primarily money market funds and commercial paper with
insignificant interest rate risk that are readily convertible to cash and have
maturities of three months or less from the date of purchase. The fair market
value, based on quoted market prices, of cash equivalents is substantially equal
to their carrying value at March 31, 1998 and 1999, and at December 31, 1999.
Under the Financial Accounting Standards Board's ("FASB") Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," management classifies investments as
available-for-sale at the time of purchase and periodically reevaluates such
designation. Unrecognized gains or losses on available-for-sale securities are
included in stockholders' equity until their disposition. Realized gains and
losses and declines in value judged to be other than temporary on
available-for-sale securities are included in other income. The cost of
securities sold is based on the specific-identification method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Property and equipment are depreciated for financial reporting purposes using
the straight-line
F-7
<PAGE> 95
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
method over the estimated useful lives of three to seven years or, in the case
of property under capital leases, over the lesser of the useful life of the
assets or lease term.
RESTRICTED INVESTMENTS
As of December 31, 1999, Virage holds $73,096 in a bank certificate of
deposit that matures October 1, 2000, $39,000 of which is subject to withdrawal
restrictions as set forth in Virage's office lease that was entered into in
February 1996 (see Note 4). Virage also holds a $12,400 bank certificate of
deposit, payable to the State Board of Equalization. This restricted deposit has
a ninety-day maturity cycle and carries interest at 5.5%.
INCOME TAXES
Virage accounts for income taxes under the FASB's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). Under
this method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates that will be in effect
when the differences are expected to reverse.
REVENUE RECOGNITION
License revenues are recognized upon contract execution, provided all
shipment obligations have been met, fees are fixed or determinable, collection
is probable, and vendor specific objective evidence exists to allocate the total
revenues among all elements of the arrangement.
Service revenues consist primarily of fees for customer support, upgrades
to licensed software products and revenues associated with the Company's Virage
Interactive services offering. These contracts provide unspecified software
upgrades, on a when-and-if available basis, and technical support over a stated
term, which is generally a twelve-month period. Support and upgrade revenues are
recognized ratably over the contract period. Virage Interactive services
revenues consist of set up fees, video processing fees and transaction fees. Set
up fees are recognized ratably over the contract term, which is generally six to
18 months. Virage generates video processing fees for each hour of video that a
customer deploys. Processing fees are recognized as encoding, indexing and
editorial services are performed. Virage generates transaction fees with each
video query on a customer's site. Transaction fees are based on the number of
video queries processed, subject in some cases to monthly minimums and maximums.
Other revenues include government research grants, and fees for engineering
services for customization or enhancement of our licensed products. These
services are generally provided on a fixed-price basis and the related revenues
are typically recognized as services are provided or upon contract completion.
Revenues and services for these arrangements are generally recognized in
accordance with the provisions of the American Institute of
F-8
<PAGE> 96
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
Certified Public Accountants' ("AICPA") Statement of Position 81-1, "Accounting
for Performance of Construction Type and Certain Production Type Contracts."
SOFTWARE DEVELOPMENT COSTS
In accordance with the FASB's Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," the Company capitalizes eligible computer software costs
upon achievement of technological feasibility, subject to net realizable value
considerations. Technological feasibility has been defined as completion of the
beta phase of product development. Through December 31, 1999, such capitalizable
costs were insignificant. Accordingly, all such costs have been charged to
research and development expenses in the accompanying consolidated statements of
operations.
CONCENTRATION OF REVENUES AND CREDIT RISK
Virage performs ongoing credit evaluations of its customers and maintains
reserves for potential credit losses, and such losses have been within
management's expectations. Virage generally requires no collateral from its
customers.
For the nine months ended December 31, 1999, two customers accounted for
16% and 15% of total revenues. For the nine months ended December 31, 1998, two
customers accounted for 17% and 13% of total revenues. During the year ended
March 31, 1999, three customers accounted for 17%, 14%, and 13% of total
revenues. In fiscal 1997, three customers accounted for 37%, 17% and 16% of
total revenues. In fiscal 1998, two customers each accounted for 11% of total
revenues. The two customers which each accounted for more than 10% of total
revenues for the nine months ended December 31, 1999 were different from the two
customers which each accounted for more than 10% of total revenues for the nine
months ended December 31, 1998.
As of December 31, 1999, European customers accounted for approximately 21%
of the balance of accounts receivable. One customer located in Spain accounted
for approximately 11% of the balance of accounts receivable at December 31,
1999. If this customer failed to meet its obligation, Virage would incur a loss
of approximately $202,000.
Direct and indirect sales to federal government agencies collectively
accounted for 43% and 22% of total revenues for the nine months ended December
31, 1998 and 1999, respectively. For the years ended March 31, 1997, 1998, and
1999, federal government agencies accounted for 17%, 12%, and 40%, respectively,
of total revenues.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Internet advertising costs,
which relate to the issuance of warrants to purchase 150,870 shares of Series E
preferred stock, are deferred and will be amortized on a straight-line basis
over the contract period.
F-9
<PAGE> 97
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
Advertising expense in each of the three years ended March 31, 1999 and for
the nine-months ended December 31, 1998 and 1999 was immaterial.
COMPREHENSIVE NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
The Company has adopted the FASB's Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130
establishes standards for the reporting and display of comprehensive income
(loss) and its components in a full set of general purpose financial statements.
To date, Virage has had no other comprehensive income, and consequently, net
loss applicable to common stockholders equals total comprehensive net loss
applicable to common stockholders.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the Company's
consolidated financial statements and accompanying notes. Actual results could
differ materially from those estimates.
NET LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS
Basic and diluted net loss per share applicable to common stockholders is
presented in conformity with Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128"), for all periods presented. Pursuant to
the Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of Virage's initial public
offering must be included in the calculation of basic and diluted net loss per
share applicable to common stockholders as if they had been outstanding for all
periods presented. No shares were issued for nominal consideration through
December 31, 1999.
In accordance with FAS 128, basic and diluted net loss per share applicable
to common stockholders have been computed using the weighted-average number of
shares of common stock outstanding during the period, less shares subject to
repurchase. Pro forma basic and diluted net loss per share applicable to common
stockholders, as presented in the consolidated statements of operations, have
been computed as described above and also give effect, under Securities and
Exchange Commission guidance, to the conversion of the convertible preferred
stock (using the if-converted method) from the original date of issuance.
F-10
<PAGE> 98
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
The following table presents the computation of basic and diluted and pro
forma basic and diluted net loss per share applicable to common stockholders:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
----------------------------------------- ---------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net loss applicable to common
stockholders................... $(1,598,834) $(4,099,923) $(6,169,533) $(4,377,854) $(10,400,517)
=========== =========== =========== =========== ============
Weighted-average shares of common
stock outstanding.............. 2,884,404 3,200,545 4,046,716 3,861,940 5,086,541
Less weighted-average shares of
common stock subject to
repurchase..................... (651,975) (314,222) (687,911) (644,898) (812,856)
----------- ----------- ----------- ----------- ------------
Weighted-average shares used in
computation of basic and
diluted net loss per share
applicable to common
stockholders................... 2,232,429 2,886,323 3,358,805 3,217,042 4,273,685
=========== =========== =========== =========== ============
Basic and diluted net loss per
share applicable to common
stockholders................... $ (0.72) $ (1.42) $ (1.84) $ (1.36) $ (2.43)
=========== =========== =========== =========== ============
Shares used in computation of
basic and diluted net loss per
share applicable to common
stockholders................... 3,358,805 4,273,685
Pro forma adjustment to reflect
weighted-average effect of the
assumed conversion of
convertible preferred stock.... 12,113,603 16,376,234
----------- ------------
Shares used in computing pro
forma basic and diluted net
loss per share applicable to
common stockholders............ 15,472,408 20,649,919
=========== ============
Pro forma basic and diluted net
loss per share applicable to
common stockholders............ $ (0.40) $ (0.50)
=========== ============
</TABLE>
Virage has excluded all outstanding stock options, warrants and shares
subject to repurchase from the calculation of basic and diluted net loss per
share applicable to common stockholders because these securities are
antidilutive for all periods presented. Options and warrants to purchase
2,734,111, 3,214,353, 4,027,383, and 6,412,723 shares of common stock were
outstanding at March 31, 1997, 1998, and 1999, and December 31, 1999,
respectively. Such securities, had they been dilutive, would have been included
in the computation of diluted net loss per share applicable to common
stockholders using the treasury stock method.
Unaudited basic and diluted pro forma net loss per share applicable to
common stockholders, as presented above and in the consolidated statements of
operations, has been computed using the weighted-average number of common shares
outstanding, adjusted to include the pro forma effects of the conversion of the
convertible preferred stock to common stock as if such conversion had occurred
on April 1, 1998 for the year ended March 31, 1999 and on April 1, 1999 for the
nine months ended December 31, 1999, or at the date of original issuance, if
later.
F-11
<PAGE> 99
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
FINANCIAL INSTRUMENTS
Virage's financial instruments consist of cash and cash equivalents,
accounts receivable, restricted investments, accounts payable, bank equipment
term loans and capital lease obligations. The fair values of these instruments
approximate their carrying values due to short-term maturities of these
instruments and the relatively stable interest rate environment.
SEGMENT INFORMATION
The Company has adopted the FASB's Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" which establishes standards for reporting information about
operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker or group in deciding
how to allocate resources and in assessing performance. The Company's segment
information is presented in Note 11.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
If the offering contemplated by this prospectus is consummated, each share
of convertible preferred stock outstanding will automatically be converted into
one share of common stock. Unaudited pro forma stockholders' equity at December
31, 1999, as adjusted for the assumed conversion of convertible preferred stock
based on the shares of convertible preferred stock outstanding at December 31,
1999, is disclosed on the Company's consolidated balance sheet.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued Statement of Position No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"). SOP 98-1 requires entities to capitalize certain costs related to
internal-use software once certain criteria have been met. SOP 98-1 is effective
for years beginning after December 15, 1998. The Company has adopted SOP 98-1
for the fiscal year ending March 31, 2000. The adoption of SOP 98-1 did not have
a material impact on the Company's financial position, results of operations or
cash flows.
In April 1998, the AICPA issued Statement of Position No. 98-5, "Reporting
on the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires that all
start-up costs related to new operations must be expensed as incurred. In
addition, all start-up costs that were capitalized in the past must be written
off when SOP 98-5 is adopted. Virage implemented SOP 98-5 on January 1, 1999.
The adoption of SOP 98-5 did not have a material impact on its financial
position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and
F-12
<PAGE> 100
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
Hedging Activities" (FAS 133). FAS 133 establishes accounting methods for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. Virage will be required to
implement FAS 133 at the beginning of fiscal 2002. Because Virage does not
currently hold any derivative instruments and does not engage in hedging
activities, Virage does not expect that the adoption of FAS 133 will have a
material impact on its financial position, results of operations or cash flows.
2. CASH EQUIVALENTS
All cash equivalents as of March 31, 1998 and 1999, and December 31, 1999
are classified as available-for-sale securities and consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------- DECEMBER 31,
1998 1999 1999
-------- ---------- ------------
<S> <C> <C> <C>
Money market fund................. $191,690 $3,427,511 $ 3,570,707
Bankers acceptance................ 669,755 - -
Commercial paper.................. - - 11,951,129
-------- ---------- -----------
Total........................... $861,445 $3,427,511 $15,521,836
======== ========== ===========
</TABLE>
Unrealized holding gains and losses on available-for-sale securities at March
31, 1998, 1999, and December 31, 1999 and gross realized gains and losses on
sales of available-for-sale securities for the years ended March 31, 1997, 1998,
1999, and for the nine months ended December 31, 1998 and 1999 were
insignificant.
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------- DECEMBER 31,
1998 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Technology right, net of
amortization of $4,646........... $ -- $ -- $139,412
Restricted investments............. 78,805 78,805 51,400
Offering costs..................... -- -- 269,000
Deposits........................... 32,021 59,501 108,612
Investment in Scimagix............. -- 78,680 --
Other.............................. 19,375 11,438 10,214
-------- -------- --------
$130,201 $228,424 $578,638
======== ======== ========
</TABLE>
F-13
<PAGE> 101
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES
LINE OF CREDIT AND EQUIPMENT TERM LOANS
In December 1999, the Company renewed existing credit facilities with a
bank, under which it may borrow up to a maximum of $1,500,000 under a line of
credit, based on 80% of eligible accounts receivable. The line of credit
provides for interest at a rate of prime less 0.25% per annum (8.25% at December
31, 1999) and matures on November 1, 2000. At December 31, 1999, there were no
outstanding borrowings under the line of credit and approximately $730,000 was
available. In addition, the Company has a $250,000 equipment term loan under the
credit facilities with the same bank for the purpose of buying equipment. At
December 31, 1999, the Company had $239,583 of debt outstanding under the
equipment term loan. The equipment term loan provides for interest at prime plus
0.5% per annum (9% at December 31, 1999). Under a separate equipment term loan
with the same bank, the Company had outstanding debt of $81,914 at December 31,
1999, with an interest rate of prime plus 0.5% per annum (9.00% at December 31,
1999).
Under the provisions of the credit facilities, Virage is required to
maintain certain financial and nonfinancial covenants. Virage is also prohibited
from declaring dividends or redeeming stock other than redemptions of stock for
departed employees.
The following is a schedule of maturities for the equipment term loans for
the following calendar years ended December 31:
<TABLE>
<S> <C>
2000......................................... $206,914
2001......................................... 114,583
--------
$321,497
========
</TABLE>
LEASES
In February 1996, Virage entered into a lease agreement for office space in
California for its corporate offices. In connection with this lease, Virage is
required to hold a letter of credit with a commercial bank in the amount of
$39,000 at December 31, 1999.
F-14
<PAGE> 102
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
Future minimum lease payments under noncancelable operating leases at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
Year ended March 31,
2000 (3 months)....................... $ 144,069
2001.................................. 678,047
2002.................................. 740,103
2003.................................. 299,409
2004.................................. 215,923
2005.................................. 222,401
----------
Total minimum payments..................... $2,299,952
==========
</TABLE>
Rental expense was $122,728, $229,933, $354,530, and $409,285 for the years
ended March 31, 1997, 1998, 1999, and the nine months ended December 31, 1999.
Virage has an option to renew its lease for its corporate offices in
California for an additional five-year term commencing June 2002 at prevailing
market prices.
LITIGATION
Virage is subject to various claims which arise in the normal course of
business. In the opinion of management, the ultimate disposition of these claims
will not have a material adverse effect on the financial position, results of
operations or cash flows of Virage.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable convertible preferred stock at March 31, 1998 and 1999, and
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED AND OUTSTANDING
DESIGNATED --------------------------------------
AT MARCH 31,
DECEMBER 31, ----------------------- DECEMBER 31,
1999 1998 1999 1999
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Series A.............. 4,133,334 4,133,334 4,133,334 4,133,334
Series B.............. 3,064,385 3,047,077 3,047,077 3,047,077
Series C.............. 4,477,612 4,111,202 4,477,612 4,477,612
Series D.............. 3,000,000 -- 2,906,977 2,906,977
Series E.............. 7,417,073 -- -- 6,067,401
---------- ---------- ---------- ----------
Total redeemable
convertible
preferred
stock............ 22,092,404 11,291,613 14,565,000 20,632,401
========== ========== ========== ==========
</TABLE>
F-15
<PAGE> 103
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
Series A, B, C, D, and E preferred stock is convertible into common stock
at the option of the holder on a one-for-one basis, subject to certain
adjustments. Each series of preferred stock will automatically convert upon (i)
the closing date of an underwritten public offering of our common stock with
aggregate gross proceeds of more than $20,000,000 and a per share price of not
less than $5.576 or (ii) the election of holders of at least 83% of the
outstanding preferred stock.
Proportional adjustments of the Series A, B, C, D, and E preferred stock
conversion rates will be made for splits, combinations, stock dividends,
recapitalizations, and the like. The conversion rate for a particular series of
the preferred stock will be subject to adjustment in the event that the Company
issues additional equity securities at less than the conversion price for that
series of preferred stock (other than shares of common stock issued or issuable
to employees, consultants, and directors under plans and agreements approved by
the Company's Board of Directors as well as the other exceptions currently set
forth in the Company's Certificate of Incorporation); provided, however, that if
any holder of preferred stock does not purchase its pro rata amount, such holder
will have those shares as to which his pro rata rights were not exercised
converted into a new series of preferred stock that has no antidilution
protection, except that the Series E preferred stock will not be converted into
such new series of preferred stock unless the issuance of additional equity
securities is made at a price per share that is less than the conversion price
of the Series D preferred stock.
The holders of redeemable convertible preferred stock are entitled to one
vote for each share of common stock into which such shares may be converted.
Each share of Series A, B, C, D, and E preferred stock entitles the holder to
receive annual noncumulative cash dividends in preference to holders of common
shares if and when declared by the Company's Board of Directors. Dividends may
be declared at an annual rate of $0.06, $0.104, $0.1072, $0.1376, and $0.2624
per share of Series A, B, C, D, and E preferred stock, respectively. As of
December 31, 1999, no dividends have been declared.
Series A, B, C, D, and E preferred stock can be redeemed at any time on or
after October 9, 2006 upon the affirmative vote of at least 67% of all preferred
stockholders. The stock can be redeemed at prices of $0.75, $1.30, $1.34, $1.72,
and $3.28 per share of Series A, B, C, D, and E preferred stock, respectively,
plus any and all declared but unpaid dividends.
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of redeemable convertible preferred stock shall be entitled to
receive in preference to the holders of common stock the amount of $0.75 per
share of Series A preferred stock, $1.30 per share of Series B preferred stock,
$1.34 per share of Series C preferred stock, $1.72 per share of Series D
preferred stock, and $3.28 per share of Series E preferred stock. If the funds
to be distributed to the holders of the redeemable convertible preferred stock
are not sufficient to permit payment in full of the foregoing liquidation
preference, then all available funds shall be distributed ratably among the
holders of the preferred stock in proportion to the preferential amount each
holder is otherwise entitled to receive. After payment of such sum, the holders
of common stock and of Series A, B, C, and E
F-16
<PAGE> 104
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
shall receive the remaining proceeds on a pro rata (assuming conversion of all
shares of preferred stock) basis; provided, however, that Series E shall not
receive proceeds after they have received total payments of $5.576 per share.
After payment has been made to the holders of the Series A, B, C, D, and E
preferred stock of full preferential amounts, the holders of common stock and
Series A, B, and C preferred stock will be entitled to receive all remaining
assets available for distribution, pro rata based on the number of shares of
common stock held by each (assuming conversion of all shares of preferred
stock).
On September 21, 1999, Virage, Inc. issued 4,698,715 shares of Series E
redeemable convertible preferred stock at a price of $3.28 per share for a total
purchase price of $15,411,785, before issuance costs. The issuance price of
$3.28 was considered to be equal to the fair value at the time of issuance.
On December 17, 1999, Virage issued 1,368,686 additional shares of Series E
redeemable convertible preferred stock at a price of $3.28 per share for a total
purchase price of $4,489,290. The fair value of the shares at the time of
issuance was estimated to be $5.40 per share. The difference between the fair
value of $5.40 per share and issue price of $3.28 per share has been accounted
for as a deemed dividend totalling $2,901,614.
6. STOCKHOLDERS' EQUITY
WARRANTS
In September 1995, in connection with a capital lease agreement, the
Company issued warrants to purchase 33,333 shares of common stock at an exercise
price of $0.375 per share, subject to certain adjustments. The warrants expire
on the earlier of September 2005 or five years after the effective date of an
underwritten public offering of the Company's common stock. Interest expense
related to the fair value of the warrants was insignificant. The fair value of
the warrants was calculated using the Black-Scholes option pricing model
assuming a fair value of common stock of $0.375, risk-free interest rate of
6.5%, volatility factor of 40%, and a life of 10 years.
In October 1996, in connection with a capital lease agreement, Virage
issued warrants to purchase 13,333 shares of common stock at an exercise price
of $0.375 per share, subject to certain adjustments. The warrants expire on the
earlier of 2006 or five years after the effective date of a firm underwritten
public offering of the Company's common stock. Interest expense related to the
fair value of the warrants was insignificant. The fair value of the warrants was
calculated using the Black-Scholes option pricing model assuming a fair value of
common stock of $0.375, risk-free interest rate of 6.5%, volatility factor of
40%, and a life of 10 years.
In May 1997, in connection with a credit facility agreement, Virage issued
warrants to purchase 17,308 shares of Series B preferred stock at an exercise
price of $1.30 per share. The warrants expire in May 2002. Interest expense
related to the fair value of the warrants was insignificant. The fair value of
the warrants was calculated using the Black-Scholes
F-17
<PAGE> 105
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
option pricing model assuming a fair value of Series B preferred stock of $1.30,
risk-free interest rate of 6.5%, volatility factor of 40%, and a life of 5
years.
In October 1999, in connection with a software development and distribution
agreement, Virage issued immediately exercisable, nonforfeitable warrants to
purchase 38,110 shares of Series E preferred stock at an exercise price of $3.28
per share, subject to certain adjustments. The warrants expire on October 15,
2002 or immediately prior to the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement, covering the
offer and sale of common stock of the Company at a price per share of not less
than $5.576 and resulting in the receipt of aggregate gross sales proceeds of at
least $20,000,000. The Company determined the fair value of the warrants
($144,058) using the Black-Scholes valuation model assuming a fair value of the
Series E preferred stock of $5.40, a risk-free interest rate of 5.9%, volatility
factor of 90%, and a life of 3 years. The fair value of the warrants has been
recorded as a technology right and will be amortized to cost of goods sold over
the life of the license agreement, which expires on December 31, 2004.
Amortization expense of $4,646 was recorded through December 31, 1999.
On December 28, 1999, the Company issued a warrant to purchase 150,870
shares of Series E preferred stock in consideration for advertising provided by
an Internet portal company. The warrants are immediately exercisable at an
exercise price of $3.28 per share and terminate on the earlier of December 28,
2003 or immediately prior to the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement, covering the
offer and sale of common stock of the Company at a price per share of not less
than $5.576 and resulting in the receipt of aggregate gross sales proceeds of at
least $20,000,000. The Company determined the fair value of the warrant using
the Black-Scholes valuation model assuming a fair value of the Series E
preferred stock of $5.40, risk-free interest rate of 6.1%, volatility factor of
90%, and a life of 4 years. The fair value of the warrant ($615,550) has been
recorded as deferred advertising costs and will be amortized into sales and
marketing expense on a straight-line basis over 12 months, commencing January
31, 2000, which corresponds with the advertising program.
STOCK OPTION PLAN
In December 1997, the Company's stockholders agreed to terminate the
Virage, Inc. 1995 Stock Option Plan (the 1995 Plan) and to introduce the Virage,
Inc. 1997 Stock Option Plan (the 1997 Plan). All options issued under the 1995
Plan remained outstanding under that plan and did not become outstanding under
the 1997 Plan. The 1997 Plan provides for the granting of incentive stock
options and nonqualified stock options to employees, directors, and consultants.
Under the 1997 Plan, the Board of Directors determines the term of each award
and the award price. In the case of incentive stock options, the exercise price
may be established at an amount not less than the fair market value at the date
of grant, while nonstatutory options may have exercise prices not less than 85%
of the fair market value as of the date of grant. Options granted to any person
owning stock possessing more than 10% of the total combined voting power must
have
F-18
<PAGE> 106
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
exercise prices of at least 110% of the fair market value at the date of grant.
Options generally vest ratably over a four-year period commencing with the grant
date and expire no later than ten years from the date of grant.
Options granted under the 1995 Plan are not exercisable until they are
fully vested. Options granted under the 1997 Plan are immediately exercisable,
but shares so purchased that are not yet vested may be repurchased by Virage
upon termination of employment at the exercise price.
All shares subject to options outstanding under the 1995 Plan that expired
or were terminated, canceled, or repurchased were added to the number of shares
authorized and reserved for issuance under the 1997 Plan.
Virage has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB Opinion No. 25"), and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under the
FASB's Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"), requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB
Opinion No. 25, because the exercise price of Virage's employee stock options is
equal to or greater than the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
F-19
<PAGE> 107
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
A summary of the Company's stock option activity and related information
for the years ended is set forth below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
SHARES WEIGHTED
AVAILABLE NUMBER OF AVERAGE
FOR GRANT SHARES EXERCISE PRICE
---------- --------- --------------
<S> <C> <C> <C>
Balance at March 31, 1996................ 408,458 2,433,401 $0.075
Options authorized..................... 500,000 - -
Options granted........................ (497,419) 497,419 $0.087
Options exercised...................... - (227,750) $0.075
Options canceled....................... 15,625 (15,625) $0.075
---------- ---------
Balance at March 31, 1997................ 426,664 2,687,445 $0.077
Options authorized..................... 4,141,162 - -
Options granted........................ (1,195,324) 1,195,324 $0.136
Options exercised...................... - (628,858) $0.104
Options canceled....................... 103,532 (103,532) $0.094
---------- ---------
Balance at March 31, 1998................ 3,476,034 3,150,379 $0.093
Options authorized..................... 1,000,000 - -
Options granted........................ (2,493,875) 2,493,875 $0.227
Options exercised...................... - (963,595) $0.094
Options canceled....................... 717,250 (717,250) $0.119
---------- ---------
Balance at March 31, 1999................ 2,699,409 3,963,409 $0.174
Options authorized..................... 6,600,000 - -
Options granted........................ (3,261,946) 3,261,946 $2.410
Options exercised...................... - (869,321) $0.406
Options canceled....................... 196,265 (196,265) $0.435
---------- ---------
Balance at December 31, 1999............. 6,233,728 6,159,769 $1.313
========== =========
</TABLE>
There were 464,141 stock options exercised to date that were not fully
vested. These shares are subject to repurchase by Virage.
F-20
<PAGE> 108
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ----------- ----------- -------------- ----------- --------------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$0.0750 - $0.0750 705,735 5.89 $0.0750 469,512 $0.0750
$0.0825 - $0.1300 459,858 6.86 $0.1159 348,671 $0.1149
$0.1600 - $0.1600 1,457,030 8.44 $0.1600 1,457,030 $0.1600
$0.2000 - $0.8500 559,000 9.12 $0.4998 559,000 $0.4998
$1.2500 - $1.2500 325,521 9.38 $1.2500 325,521 $1.2500
$1.5000 - $1.5000 115,000 9.46 $1.5000 115,000 $1.5000
$1.6000 - $1.6000 246,625 9.59 $1.6000 246,625 $1.6000
$1.7000 - $1.7000 97,400 9.69 $1.7000 97,400 $1.7000
$2.0000 - $2.0000 251,400 9.79 $2.0000 251,400 $2.0000
$3.0000 - $3.0000 1,942,200 9.92 $3.0000 1,942,200 $3.0000
--------- ---------
$0.0750 - $3.0000 6,159,769 8.72 $1.3130 5,812,359 $1.3862
========= ==== ======= ========= =======
</TABLE>
Pro forma information regarding net loss is required by FAS 123, which also
requires that the information be determined as if Virage had accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair
value method. The fair value for these options was estimated at the date of
grant using the minimum value method with the following weighted average
assumptions for fiscal 1997, 1998, and 1999, and the nine months ended December
31, 1999: risk-free interest rates of 5.9%, 5.7%, 5.5%, and 5.6%, respectively,
no dividend yield, and an expected life of the options of 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected price volatility.
Because Virage's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in Virage's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The weighted average
fair value of options granted during the years ended March 31, 1997, 1998, and
1999 and the nine months ended December 31, 1999 was $0.016, $0.032, $0.087, and
$1.06.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The pro forma
net loss applicable to common stockholders would have been $1,600,834,
$4,109,923, $6,215,533 and $11,229,517
F-21
<PAGE> 109
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
or $(0.72), $(1.42), $(1.85) and $(2.63) per share for the years ended March 31,
1997, 1998 and 1999 and the nine months ended December 31, 1999, respectively.
DEFERRED COMPENSATION
During the nine months ended December 31, 1999, Virage recorded aggregate
deferred compensation of $6,839,119 representing the difference between the
exercise price of stock options granted and the then deemed fair value of
Virage's common stock. The amortization of deferred compensation is charged to
operations over the vesting period of the options using the straight-line
method, which is typically four years. For the nine months ended December 31,
1999, Virage amortized $522,624 of deferred compensation.
OPTIONS ISSUED TO CONSULTANTS
As of December 31, 1999, Virage had granted options to purchase 457,746
shares of common stock to consultants at exercise prices ranging from $0.50 to
$3.00 per share. The options were granted in exchange for consulting services to
be rendered and vest over periods ranging from immediately to one year. Virage
valued these options at $2,373,145 being their fair value estimated using a
Black-Scholes valuation model assuming fair values of common stock ranging from
$1.01 to $5.40 per share, risk-free interest rates ranging from 4.75% to 6.13%,
volatility factor of 90% and a life of 4 years. The Company recorded a charge to
operations of $318,096 for the nine months ended December 31, 1999 related to
these options.
The options issued to consultants have been marked-to-market using the
estimate of fair value at the end of each accounting period.
7. SHARES RESERVED
At December 31, 1999, common stock reserved for future issuance was as
follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock..................... 4,133,334
Conversion of Series B preferred stock..................... 3,047,077
Conversion of Series C preferred stock..................... 4,477,612
Conversion of Series D preferred stock..................... 2,906,977
Conversion of Series E preferred stock..................... 6,067,401
Series E preferred stock warrants.......................... 188,980
Series B preferred stock warrants.......................... 17,308
Common stock warrants...................................... 46,666
Stock option plan.......................................... 12,393,497
----------
33,278,852
==========
</TABLE>
F-22
<PAGE> 110
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
8. SAVINGS PLAN
Virage maintains a savings plan under Section 401(k) of the Internal
Revenue Code. Under the plan, employees may defer certain amounts of their
pretax salaries but not more than statutory limits. Virage may make
discretionary contributions to the plan as determined by the Board of Directors.
Virage has not contributed to the plan through December 31, 1999.
9. INCOME TAXES
The provision for income taxes of approximately $36,000 for the nine months
ended December 31, 1999 consists of current foreign taxes and state income
taxes. Due to operating losses and the Company's inability to recognize an
income tax benefit from current losses, there is no provision or benefit for
income taxes for each of the three years ended March 31, 1999 or for the nine
months ended December 31, 1998.
The difference between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to income before
taxes is explained below:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
MARCH 31, ENDED
------------------ DECEMBER 31,
1998 1999 1999
------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit at Federal statutory rate (34%).... $(1,394) $(2,047) $(2,623)
Loss for which no tax benefit is currently
recognizable................................. 1,394 2,047 2,623
State income tax............................... - - 6
Foreign tax.................................... - - 30
------- ------- -------
Total provision.............................. $ - $ - $ 36
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------- DECEMBER 31,
1998 1999 1999
------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $2,514 $4,608 $6,356
Tax credit carryforwards....................... 337 372 610
Capitalized R&D................................ 244 337 389
Accruals and reserves not currently
deductible.................................. 125 274 940
------ ------ ------
Total deferred tax assets................... 3,220 5,591 8,295
Valuation allowance.............................. (3,220) (5,591) (8,295)
------ ------ ------
Net deferred tax assets.......................... $ - $ - $ -
====== ====== ======
</TABLE>
F-23
<PAGE> 111
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
FAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes the Company's historical operating performance and the
reported cumulative net losses in all prior years, the Company has provided a
full valuation allowance against its net deferred tax assets.
The valuation allowance increased by $1,600,000, $2,371,000, and $2,704,000
during the years ended March 31, 1998 and 1999 and the nine months ended
December 31, 1999, respectively.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of approximately $17,776,000 and $5,356,000, respectively. As
of December 31, 1999, the Company also had federal and state research and
development tax credit carryforwards of approximately $425,000 and $295,000,
respectively. The net operating loss and tax credit carryforwards will expire at
various dates beginning in 2003, if not utilized.
Utilization of the net operating loss and tax credit carryforwards may be
subject to substantial annual limitations due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
tax credit carryforwards before utilization.
10. RELATED PARTY TRANSACTIONS
Virage purchased 15% of Scimagix for $78,680 in July 1998. The investment
is accounted for using the cost method. The cost of the investment was
written-off during the nine months ended December 31, 1999 as Scimagix is in the
development stage. In addition, Virage granted Scimagix a worldwide, perpetual
license to certain Virage software within certain markets for license fees.
During the fiscal year ended March 31, 1999 and the nine months ended December
31, 1999, Virage recognized $125,000 and $127,500 of such fees as license
revenue based on cash receipts.
11. SEGMENT AND GEOGRAPHIC INFORMATION
Through December 31, 1999, the Company has operated primarily within one
segment -- the sale of software and related software support services. Total
revenues to customers located outside of the United States were approximately
$253,000 and $1,039,000 for the nine months ended December 31, 1998 and 1999,
respectively, and were $358,000 for the year ended March 31, 1999. The Company's
European subsidiary, Virage Europe, Ltd., which was established in November
1998, accounted for $898,361 of the Company's total revenues for the nine months
ended December 31, 1999 (insignificant for the nine months ended December 31,
1998).
F-24
<PAGE> 112
VIRAGE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 1998 IS UNAUDITED)
12. SUBSEQUENT EVENTS
INITIAL PUBLIC OFFERING
In January 2000, the Board of Directors approved the filing of a
Registration Statement with the Securities and Exchange Commission permitting
Virage to sell common stock to the public. Upon completion of the initial public
offering, Virage's Certificate of Incorporation will be amended to reduce the
number of authorized preferred stock from 22,092,404 shares to 2,000,000 shares
and increase authorized common stock to 100,000,000 shares.
The Board of Directors has the authority, without action by the
stockholders, to designate and issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and related restrictions,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of the series.
OPTIONS GRANTED SUBSEQUENT TO DECEMBER 31, 1999
On January 10, 2000, the Company granted 1,335,900 options at an exercise
price of $4.00 per share. The deferred compensation related to these option
grants is approximately $1.9 million, which will be amortized over four years
which represents the vesting period of the stock option grants.
F-25
<PAGE> 113
Description of Graphics
Inside front cover of gatefold open
- -----------------------------------
[Graphic depiction of Virage operations and process flow of Virage Interactive
services.]
Inside front cover of gatefold closed
- -------------------------------------
[Graphic depiction of Virage customer logos.]
Inside back cover
- -----------------
[Screen shots of Virage VideoLogger and selected customer websites.]
<PAGE> 114
[VIRAGE LOGO]
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions payable by the Registrant in connection
with the sale and distribution of the common stock being registered. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market application
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 16,698
NASD filing fee............................................. 6,825
Nasdaq National Market application fee......................
Blue sky qualification fees and expenses....................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Director and officer liability insurance....................
Transfer agent and registrar fees...........................
Miscellaneous expenses......................................
--------
Total.................................................. $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements (Exhibit
10.1) with its directors and officers which would require the Registrant, among
other things, to indemnify them against certain liabilities which may arise by
reason of their status or service (other than liabilities arising from willful
misconduct of a culpable nature). The Registrant also intends to maintain
director and officer liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
II-1
<PAGE> 116
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since January 1, 1997, Virage has issued and sold the following
unregistered securities:
1. From January 1, 1997 through December 31 1997, Virage granted
options to purchase an aggregate of 238,151 shares of common stock under
its 1995 stock option plan, of which 272,742 have been exercised.
2. From December 1, 1997 through December 31, 1999, Virage granted
options to purchase an aggregated of 6,842,994 shares of common stock under
its 1997 stock option plan, of which 1,001,539 have been exercised.
3. In January 1997 and July 1997, Virage sold 3,047,077 shares of
series B preferred stock to certain investors at a purchase price of $1.30
per share for a total purchase price of $3,961,200.10.
4. In December 1997, Virage sold 7,700 shares of common stock to Susan
Shay, a consultant, at a purchase price of $0.13 per share for a total
purchase price of $1,001.
5. In May 1997, Virage issued a warrant, which will expire in May 29,
2002, to purchase 17,308 shares of series B preferred stock at a price per
share of $1.30 for a total purchase price of $22,500.40.
6. In March 1998 and April 1998, Virage sold 4,477,612 shares of its
series C preferred stock to certain investors at a purchase price of $1.34
per share for a total purchase price of $6,000,000.08.
7. In May 1998, Virage sold 23,077 shares of common stock to Paul L.
Gomory, Jr., a consultant, at a purchase price of $0.16 per share for a
total purchase price of $3,692.32.
8. In January 1999 and March 1999, Virage sold 2,906,977 shares of its
series D preferred stock to certain investors at a purchase price of $1.72
per share for a total purchase price of $5,001,720.44
9. In March 1999, Virage sold 8,694 shares of common stock to Stephen
Combs, a consultant, at a purchase price of $0.50 per share for a total
purchase price of $4,347, payable to Virage by past consulting services
rendered.
10. In March 1999, Virage sold 2,500 shares of common stock to
Christina Gomez, a consultant, at a purchase price of $0.50 per share for a
total purchase price of $1,250, payable to Virage by past consulting
services rendered.
11. In September 1999 and December 1999, Virage sold 6,067,401 shares
of its series E preferred stock to certain investors at a purchase price of
$3.28 per share for a total purchase price of $19,901,075.
12. In October 1999, Virage issued a warrant, which will terminate
immediately prior to the closing of this offering, to purchase 38,110
shares of series E preferred stock at a price per share of $3.28 for a
total purchase price of $125,000.80.
II-2
<PAGE> 117
13. In November 1999, Virage sold 82,500 shares of common stock to
Protege Software Limited, a consultant, at a purchase price of $2.00 per
share for a total purchase price of $165,000.
14. In December 1999, Virage sold 6,667 shares of common stock to Lynn
Dwigans, a consultant, at a purchase price of $3.00 per share for a total
purchase price of $20,001, payable to Virage by past consulting services
rendered.
15. In December 1999, Virage issued a warrant, which will terminate
immediately prior to the closing of this offering, to purchase 150,870
shares of series E preferred stock at a price per share of $3.28 for a
total purchase price of $494,853.60.
There were no underwriters employed in connection with any of the
transactions set forth in this Item 15.
For additional information concerning these equity investment transactions,
see the section entitled "Related Party Transactions" in the prospectus.
The issuances described in Items 15(a)(3) through 15(a)(15) were deemed
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as transactions by an issuer not involving a public offering.
Certain issuances described in Item 15(a)(1) and 15(a)(2) were deemed exempt
from registration under the Securities Act in reliance on Section 4(2) or Rule
701 promulgated thereunder as transactions pursuant to compensatory benefit
plans and contracts relating to compensation. The recipients of securities in
each such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about Virage, Inc. or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Fifth Amended and Restated Certificate of Incorporation of
Registrant.
3.2 Amended and Restated Bylaws of Registrant.
*3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering.
4.1 Second Amended and Restated Rights Agreement, dated
September 21, 1999, between Registrant and certain
stockholders.
*4.2 Specimen certificate representing the common stock.
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 Form of Indemnification Agreement between Registrant and
Registrant's directors and officers.
10.2 1995 Stock Option Plan.
10.3 1997 Stock Option Plan.
*10.4 2000 Employee Stock Purchase Plan.
</TABLE>
II-3
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.5 Lease Agreement, dated January 17, 1996, as amended, between
Casiopea Venture Corporation and Registrant.
10.6 Standard Form of Office Lease, dated November 15, 1999, as
amended, between 1995 CAM LP and Registrant.
10.7 License Agreement, dated September 27, 1999, between Office
Dynamics Limited, Protege Property and Registrant.
10.8 Security and Loan Agreement, dated November 2, 1998, as
amended, between Imperial Bank and Registrant.
23.1 Consent of Ernst & Young LLP, independent public auditors.
*23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
Schedule II -- Valuation and Qualifying Account
All other schedules are omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE> 119
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 120
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in San Mateo, State of California, on
February 7, 2000.
VIRAGE, INC.
By: /s/ PAUL G. LEGO
-----------------------------------
Paul G. Lego
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Paul G. Lego and Alfred Castino,
and each of them acting individually, as his true and lawful attorneys-in-fact
and agents, each with full power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post-effective amendments or any abbreviated registration statement
and any amendments thereto filed pursuant to Rule 462(b) increasing the number
of securities for which registration is sought), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, with full power of each to act alone, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully for all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ PAUL G. LEGO President and Chief February 7, 2000
- --------------------------------------------------- Executive Officer
Paul G. Lego (Principal Executive
Officer)
/s/ ALFRED J. CASTINO Chief Financial February 7, 2000
- --------------------------------------------------- Officer (Principal
Alfred J. Castino Financial and
Accounting Officer)
/s/ RAMESH JAIN Director February 7, 2000
- ---------------------------------------------------
Ramesh Jain
</TABLE>
II-6
<PAGE> 121
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ STANDISH H. O'GRADY Director February 7, 2000
- ---------------------------------------------------
Standish H. O'Grady
/s/ C.K. PRAHALAD Director February 7, 2000
- ---------------------------------------------------
C.K. Prahalad
/s/ WILLIAM H. YOUNGER, JR. Director February 7, 2000
- ---------------------------------------------------
William H. Younger, Jr.
/s/ PHILIP W. HALPERIN Director February 7, 2000
- ---------------------------------------------------
Philip W. Halperin
/s/ LAWRENCE K. ORR Director February 7, 2000
- ---------------------------------------------------
Lawrence K. Orr
</TABLE>
II-7
<PAGE> 122
VIRAGE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNT
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED BALANCE
AS OF TO AS OF
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
--------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended March 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts... $ -- $ -- $ -- $ --
Year ended March 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts... $ -- $ 37,337 $ -- $ 37,337
Year ended March 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts... $ 37,337 $149,919 $ -- $187,256
Nine months ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts... $187,256 $ 80,449 $ -- $267,705
</TABLE>
S-1
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Fifth Amended and Restated Certificate of Incorporation of
Registrant.
3.2 Amended and Restated Bylaws of Registrant.
*3.3 Form of Amended and Restated Certificate of Incorporation of
Registrant to be filed after the closing of the offering.
4.1 Second Amended and Restated Rights Agreement, dated
September 21, 1999, between Registrant and certain
stockholders.
*4.2 Specimen certificate representing the common stock.
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP.
10.1 Form of Indemnification Agreement between Registrant and
Registrant's directors and officers.
10.2 1995 Stock Option Plan.
10.3 1997 Stock Option Plan.
*10.4 2000 Employee Stock Purchase Plan.
10.5 Lease Agreement, dated January 17, 1996, as amended, between
Casiopea Venture Corporation and Registrant.
10.6 Standard Form of Office Lease, dated November 15, 1999, as
amended, between 1995 CAM LP and Registrant.
10.7 License Agreement, dated September 27, 1999, between Office
Dynamics Limited, Protege Property and Registrant.
10.8 Security and Loan Agreement, dated November 2, 1998, as
amended, between Imperial Bank and Registrant.
23.1 Consent of Ernst & Young LLP, independent public auditors.
*23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
27.4 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
FIFTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VIRAGE, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law of
the State of Delaware
Virage, Inc. (hereinafter called the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
At a meeting of the Board of Directors of the Corporation a resolution
was duly adopted, pursuant to Sections 242 and 245 of the General Corporation
Law of the State of Delaware, setting forth a Fifth Amended and Restated
Certificate of Incorporation of the Corporation and declaring said Fifth Amended
and Restated Certificate of Incorporation to be advisable. The stockholders of
the Corporation duly approved said proposed Fifth Amended and Restated
Certificate of Incorporation by written consent in accordance with Sections 228,
242 and 245 of the General Corporation Law of the State of Delaware, and written
notice of such consent has been given to all stockholders who have not consented
in writing to said amendment. The resolution setting forth the Fifth Amended and
Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation,
which was originally filed with the Secretary of State of the State of Delaware
on March 29, 1995, be and hereby is amended and restated in its entirety so that
the same shall read as follows:
FIRST: The name of the Corporation is:
Virage, Inc.
SECOND: The address of its registered office in the State of
Delaware is 15 East North Street in the City of Dover, County of Kent. The name
of its registered agent at such address is Incorporating Services, Ltd.
1
<PAGE> 2
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is (i) 40,000,000 shares of Common
Stock, $0.001 par value per share ("Common Stock") and (ii) 22,092,404 shares of
Preferred Stock, $0.001 par value per share ("Preferred Stock") of which
4,133,334 shares of such Preferred Stock are designated Series A Convertible
Preferred Stock, 3,064,385 shares of such Preferred Stock are designated Series
B Convertible Preferred Stock, 4,477,612 shares of such Preferred Stock are
designated Series C Convertible Preferred Stock, 3,000,000 shares of such
Preferred Stock are designated Series D Convertible Preferred Stock and
7,417,073 shares of such Preferred Stock are designated Series E Convertible
Preferred Stock.
For purposes of this Article the following definitions shall apply:
(a) "Junior Stock" shall mean all Common Stock and any other
capital stock of this corporation other than the Preferred Stock.
(b) "Subsidiary" shall mean any corporation at least 50% of whose
outstanding voting shares shall at the time be owned by this corporation or by
one or more of such subsidiaries.
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any
then-outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the
2
<PAGE> 3
Corporation available for distribution to its stockholders, subject to any
preferential rights of any then outstanding Preferred Stock.
B. SERIES A, SERIES B, SERIES C, SERIES D AND SERIES E CONVERTIBLE
PREFERRED STOCK.
Four million one hundred thirty-three thousand three hundred and
thirty-four (4,133,334) shares of the authorized and issued Preferred Stock of
the Corporation are hereby designated "Series A Convertible Preferred Stock"
(the "Series A Preferred"), Three million sixty-four thousand three hundred
eighty-five (3,064,385) shares of the authorized and issued Preferred Stock of
the Corporation are hereby designated "Series B Convertible Preferred Stock"
(the "Series B Preferred"), Four million four hundred seventy-seven thousand six
hundred twelve (4,477,612) shares of the authorized and issued Preferred Stock
of the Corporation are hereby designated "Series C Convertible Preferred Stock"
(the "Series C Preferred"), Three million (3,000,000) shares of the authorized
and issued Preferred Stock of the Corporation are hereby designated "Series D
Convertible Preferred Stock" (the "Series D Preferred") and Seven million four
hundred seventeen thousand seventy-three (7,417,073) shares of the authorized
and unissued Preferred Stock of the Corporation are hereby designated "Series E
Convertible Preferred Stock" (the "Series E Preferred") with the following
rights, preferences, powers, privileges and restrictions, qualifications and
limitations.
1. Dividends.
(a) Dividend Rate. The Series A Preferred will be entitled to a
current dividend preference as described herein at a rate of $0.06 per share per
annum (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). The Series B
Preferred will be entitled to a current dividend preference as described herein
at a rate of $0.104 per share per annum (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares). The Series C Preferred will be entitled to a current dividend
preference as described herein at a rate of $0.1072 per share per annum (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares). The Series D Preferred will be entitled
to a current dividend preference as described herein at a rate of $0.1376 per
share per annum (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). The Series E
Preferred will be entitled to a current dividend preference as described herein
at a rate of $0.2624 per share per annum (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares).
(b) Dividend Priority. The corporation shall make no distribution
to the holders of the Junior Stock except as permitted by this Section.
"Distribution" in this Section means the transfer of cash or property without
consideration, whether by payment of a dividend or otherwise (except a dividend
in shares of the corporation), or the purchase or redemption of shares of the
corporation for cash or property, but does not include repurchase of shares from
a terminated employee or consultant of the corporation within the terms of an
agreement applicable to such an employee or consultant providing for such
repurchase. The corporation shall make no distributions to the holders of the
Junior Stock in any fiscal year unless and until dividends have been declared
and paid on the Series A Preferred, the Series B Preferred, the
3
<PAGE> 4
Series C Preferred, the Series D Preferred and the Series E Preferred at the
rate specified in Section 1(a) for the entire fiscal year. In addition, the
holders of any Series of Preferred Stock other than the Series A Preferred, the
Series B Preferred, the Series C Preferred, the Series D Preferred and the
Series E Preferred shall be entitled to dividends if and only if all holders of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred receive dividends pro rata based on the dividend rate per
share of each such respective series as set forth in Section 1(a). If the
corporation has paid the holders of the Series A Preferred, the Series B
Preferred, the Series C Preferred, the Series D Preferred and the Series E
Preferred the full amounts as described in the preceding sentences and shall
elect to declare additional dividends in any fiscal year out of funds legally
available therefor, any remaining dividends shall be declared and paid on the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred and Common Stock, with each share of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred receiving the same dividend as that paid on the number of shares of
Common Stock (including fractions of a share) into which such share of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred is then convertible.
(c) Dividends on Conversion. Upon conversion of a share of Series
A Preferred, Series B Preferred, Series C Preferred, Series D Preferred or
Series E Preferred into Common Stock, all declared but unpaid dividends on each
share of Preferred Stock so converted, shall be payable by the corporation to
the holder of such share based on the dividend price per share of each such
respective series as set forth above.
2. Liquidation.
(a) Liquidation Preference.
(i) In the event of any liquidation, dissolution or
winding up of the corporation, either voluntary or involuntary, then the holders
of the Preferred Stock shall be entitled to receive, prior and in preference to
any distribution of any assets of the corporation to the holders of Junior Stock
by reason of their ownership thereof, the amount of $.75 for each share of
Series A Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), the amount of $1.30
for each share of Series B Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares), the amount of $1.34 for each share of Series C Preferred (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares), the amount of $1.72 for each share of Series D
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), and the amount of
$3.28 for each share of Series E Preferred (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares), respectively, plus an amount equal to the total of all declared but
unpaid dividends on the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred, respectively. If upon
occurrence of such event, the assets thus distributed among the holders of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred as set forth above shall be insufficient to permit the
payment to such holders of the full preferential amount, then the entire assets
of the corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred, Series B
4
<PAGE> 5
Preferred, Series C Preferred, Series D Preferred and Series E Preferred
according to the respective amounts which would be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full.
(ii) After payment has been made to the holders of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred of the full preferential amount to which they shall be
entitled as aforesaid, the holders of Common Stock, the holders of Series A
Preferred, the holders of Series B Preferred, the holders of Series C Preferred
and the holders of Series E Preferred shall be entitled to receive all remaining
assets of the corporation available for distribution, pro rata based on the
number of shares of Common Stock held by each (assuming conversion of all shares
of Preferred Stock), until the holders of Series E Preferred shall have received
with respect to each share of Series E Preferred total payments under this
Section 2, including payments made pursuant to Section (a)(i) above, in an
amount equal to $5.576 per share (as adjusted for stock splits, stock dividends,
recapitalizations and the like).
(iii) After payment has been made to the holders of the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and Series E Preferred of the full preferential amounts to which they shall be
entitled as aforesaid, the holders of Common Stock, the holders of Series A
Preferred, the holders of Series B Preferred and the holders of Series C
Preferred shall be entitled to receive all remaining assets of the corporation
available for distribution, pro rata based on the number of shares of Common
Stock held by each (assuming conversion of all shares of Preferred Stock).
(b) Liquidation Events. For purposes of this Section 2, a
liquidation, dissolution, or winding up of the corporation shall be deemed to
include, (i) the corporation's sale of all or substantially all its assets, (ii)
the merger or consolidation of the corporation into or with any other
corporation if the holders of the outstanding shares of the corporation prior to
such merger or consolidation do not retain a majority of the voting power of the
surviving corporation or, (iii) the sale or transfer by the shareholders of the
corporation in a single transaction or series of related transactions of
securities representing a majority of the voting power of the corporation. For
purposes of clause (ii) above, the exchange of securities of the surviving
corporation for securities of the corporation shall be deemed to constitute the
distribution of assets of the corporation upon liquidation, dissolution or
winding up. Nothing contained in this subsection (b) shall limit the right of a
holder of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred to convert such shares into Common Stock prior
to the effective date of any such transaction.
(c) Determination of Value. The fair value of the assets to be
distributed or exchanged in such event shall be determined by the Board of
Directors of the corporation, in good faith provided that any securities to be
delivered to the holders of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred, Series E Preferred or Common Stock under Section
2(a) above shall be valued as follows:
(A) Securities that do not constitute "restricted stock,"
as such term is defined in Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended:
5
<PAGE> 6
(i) If traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30-day period ending three (3) days prior to the closing;
(ii) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) days prior to the closing;
(iii) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
corporation and the holders of not less than a majority of the then outstanding
shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred voting together as a single class;
(iv) If fair market value cannot be determined
pursuant to clause (iii) as set forth above, the corporation and the holders of
not less than a majority of the then outstanding shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred, voting together as a single class, shall each appoint one (1)
independent third party and such persons shall in turn select a third person
which group of three persons shall then determine the fair market value thereof.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as set forth above in
clauses (i) or (ii) to reflect the appropriate fair market value thereof, as
mutually determined by the corporation and the holders of a majority of the then
outstanding shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred voting together as a single
class or if applicable, shall be in accordance with clauses (iii) or (iv),
giving appropriate weight to such restriction.
3. Redemption.
(a) Redemption Rights. At any time on or after October 9, 2006,
the holders of at least 67% of the then outstanding shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred voting together as a single class may request in writing the
redemption of all outstanding shares of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred and the
corporation shall redeem such shares pursuant to the schedule set forth below.
In the event such notice of redemption is given, during each calendar quarter
commencing with the first calendar quarter which begins after such request is
made, the corporation shall redeem during each such quarter 1/12th of the shares
of the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, respectively, which were outstanding on the
first day of the first calendar quarter in which the redemptions of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred, respectively, are required. After the holders give the notice
requiring redemption, they shall continue to be entitled to all rights as
holders of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, respectively, until such shares are redeemed
in accordance with the procedures specified below.
6
<PAGE> 7
(b) Availability of Funds. Notwithstanding the provisions of
subsection (a), the corporation will not be required to redeem shares in any
quarter to the extent funds are not legally available. If funds are not legally
available to consummate a redemption under subsection (a), the corporation shall
redeem the maximum number of shares for which funds are legally available and
will continue to do so each calendar quarter thereafter until the total number
of shares of Series A Preferred, Series B Preferred. Series C Preferred, Series
D Preferred and Series E Preferred that it has redeemed is equal to the total
number of shares that it would have redeemed at such time as if it had redeemed
in accordance with the provisions of subsection (a).
(c) Redemption Price and Allocation. The redemption price per
share for the Series A Preferred shall be $0.75 in cash per share (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like
with respect to such shares), plus an amount equal to all declared but unpaid
dividends on the shares being redeemed. The redemption price per share for the
Series B Preferred shall be $1.30 in cash per share (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares), plus an amount equal to all declared but unpaid dividends on the
shares being redeemed. The redemption price per share for the Series C Preferred
shall be $1.34 in cash per share (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares, plus an amount equal to all declared but unpaid dividends on the shares
being redeemed). The redemption price per share for the Series D Preferred shall
be $1.72 in cash per share (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares), plus an
amount equal to all declared but unpaid dividends on the shares being redeemed.
The redemption price per share for the Series E Preferred shall be $3.28 in cash
per share (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares), plus an amount
equal to all declared but unpaid dividends on the shares being redeemed.
Redemption of less than all of the then outstanding shares of Series A Preferred
shall be pro rata among the holders of Series A Preferred (as to the number of
shares held on the date of redemption) so that each holder has redeemed the same
percentage of the total shares of Series A Preferred held by it. Redemption of
less than all of the then outstanding shares of Series B Preferred shall be pro
rata among the holders of Series B Preferred (as to the number of shares held on
the date of redemption) so that each holder has redeemed the same percentage of
the total shares of Series B Preferred held by it. Redemption of less than all
of the then outstanding shares of Series C Preferred shall be pro rata among the
holders of Series C Preferred (as to the number of shares held on the date of
redemption) so that each holder has redeemed the same percentage of the total
shares of Series C Preferred held by it. Redemption of less than all of the then
outstanding shares of Series D Preferred shall be pro rata among the holders of
Series D Preferred (as to the number of shares held on the date of redemption)
so that each holder has redeemed the same percentage of the total shares of
Series D Preferred held by it. Redemption of less than all of the then
outstanding shares of Series E Preferred shall be pro rata among the holders of
Series E Preferred (as to the number of shares held on the date of redemption)
so that each holder has redeemed the same percentage of the total shares of
Series E Preferred held by it.
(d) Redemption Procedures. The corporation shall give notice by
certified mail, postage prepaid, return receipt requested, to the holders of
record of the Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred and/or Series E Preferred being redeemed of any redemption, such
notice to be addressed to each holder at the address shown in the corporation's
records which notice shall specify the date of redemption, the number of shares
of Series A
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<PAGE> 8
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and/or
Series E Preferred of the holder to be redeemed and the date on which conversion
rights terminate. Such notice shall be given no more than sixty (60) but no less
than thirty (30) days prior to the date fixed for redemption. On or after the
date of redemption as specified in such notice, each holder shall surrender his
certificate (or comply with applicable lost certificate provisions) for the
number of shares to be redeemed as stated in the notice (except that such number
of shares shall be reduced by the number of shares which have been converted
pursuant to Section 4 hereof between the date of notice and the date on which
conversion rights terminate) to this corporation at the place specified in such
notice. If less than all of the shares represented by such certificate are
redeemed, a new certificate shall forthwith be issued for the unredeemed shares.
Provided such notice is duly given, and provided that on the redemption date
specified there shall be a source of funds legally available for such redemption
and funds necessary for the redemption shall have been deposited in a bank or
trust company ten business days prior to the redemption date as hereinafter
provided, then all rights with respect to such shares shall, after the specified
redemption date, terminate, whether or not said certificates have been
surrendered, excepting only in the latter instance the right of the holder to
receive the redemption price thereof, without interest, upon such surrender (or
compliance with lost certificate provisions).
(e) Bank Deposit. On or prior to the close of business on the
tenth business day preceding the date of redemption, the corporation shall
deposit the redemption price of all shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred
designated for redemption in said notice and not yet converted with a bank or
trust company having aggregate capital and surplus in excess of $100,000,000 as
a trust fund for the benefit of the respective holders of the shares designated
for redemption and not yet converted with irrevocable instructions and authority
to the bank or trust company to pay, on or promptly after the redemption date,
the redemption price to the respective holders upon surrender of their stock
certificates. Contemporaneously, the corporation shall furnish such holders
evidence of such deposit and instructions. Any monies deposited by the
corporation pursuant hereto for the redemption of shares thereafter converted
into shares of Common Stock pursuant to Section 4 hereof no later than the last
business day preceding the date of redemption, shall be returned to the
corporation forthwith upon such conversion. The balance of any monies deposited
by the corporation pursuant hereto remaining unclaimed at the expiration of one
(1) year following the date of redemption shall thereafter be returned to the
corporation upon its request expressed in a resolution of its Board of
Directors. The holders of the Preferred Stock shall have the right to
specifically enforce the corporation's obligations under this Section 3.
4. Conversion. The holders of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred shall have
conversion rights as follows ("Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the corporation or any transfer
agent for the Series A Preferred, into such number of fully paid and
nonassessable shares of Common Stock, as is determined by dividing $.75 by the
Conversion Price for the Series A Preferred determined as hereinafter provided
in effect at the time of conversion, by dividing $1.30 by the Conversion Price
for the Series B Preferred determined as hereinafter
8
<PAGE> 9
provided in effect of the time of conversion, by dividing $1.34 by the
Conversion Price for the Series C Preferred determined as hereinafter provided
in effect at the time of conversion, by dividing $1.72 by the Conversion Price
for the Series D Preferred determined as hereinafter provided in effect at the
time of conversion, and by dividing $3.28 by the Conversion Price for the Series
E Preferred determined as hereinafter provided in effect at the time of
conversion, respectively. The initial Conversion Price shall be $.75 per share
for Series A Preferred, $1.30 for Series B Preferred, $1.34 for Series C
Preferred, $1.72 for Series D Preferred and $3.28 for Series E Preferred. The
Conversion Price shall be subject to adjustment as hereinafter provided. In the
event of a notice of redemption of any shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred
pursuant to Section 3 hereof, the Conversion Rights shall terminate as to the
shares designated for redemption at the close of business on the last business
day preceding the date of redemption, unless the corporation has failed in any
way to comply with its obligations under Section 3, in which case the notice of
redemption shall be deemed to have been revoked and the corporation shall be
required to give a new notice of redemption.
(b) Mechanics of Conversion. Before any holder of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred shall be entitled to convert the same into shares of Common Stock,
he shall surrender the certificate or certificates therefor (or comply with
applicable lost certificate provisions) at the office of the corporation or of
any transfer agent for the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred and shall give written
notice to the corporation at such office that he elects to convert the same. The
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and, if less than all the shares of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred represented by such certificate are converted, a certificate
representing the shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred not converted. In the event
of any conversion at the election of a holder of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred, such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
(c) Adjustments to Conversion Price for Diluting Issues.
(A) Special Definitions. For purposes of Section 3 and
Section 4(c), the following definitions shall apply:
(i) "Options" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(ii) "Original Issue Date" shall mean the date the
first share of Series E Preferred is issued.
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<PAGE> 10
(iii) "Convertible Securities" shall mean any
securities convertible into or exchangeable for Common Stock, including any
evidences of indebtedness, any capital stock of the corporation or other
securities convertible into or exchangeable for Common Stock, but shall exclude
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred authorized herein;
(iv) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or, pursuant to Section 4(c)(C), deemed to be
issued) by the corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable at any time:
(1) upon conversion of shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred;
(2) in an aggregate amount of up to
1,199,701 shares of Common Stock from and after the Original Issue Date of the
Series E Preferred (and/or Options to purchase such Common Stock outstanding on
or issued from and after the Original Issue Date) to officers, directors,
employees and consultants of the corporation, together with such additional
shares of Common Stock (and/or Options therefor) as may be approved for issuance
to such persons by action of the Board of Directors of the corporation provided
that the Director designated by the holders of Series C Preferred and the
Director designated by the holders of Series E Preferred vote to approve such
issuance; provided that any Option issued under this clause (2) to the extent
that it expires without being exercised will be treated as never having been
issued for purposes of this clause (2) (the number set forth in this clause (2)
to be subject to proportionate adjustment in the case of recapitalizations,
stock splits, stock dividends or combinations of shares);
(3) as a dividend or distribution on the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or Series E Preferred;
(4) shares of Common Stock or Preferred
Stock or options or warrants exercisable for Common Stock or Preferred Stock
issued to banks, savings and loan associations, equipment lessors or other
similar entities in connection with such entities providing debt or equipment
lease financing to the corporation; or
(5) any issuance of securities approved in
writing by the holders of at least 83% of the outstanding shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred, voting together as a single class.
(B) No Adjustment of Conversion Price. Except in the case
of a combination of outstanding shares of Common Stock (for which the Conversion
Price for Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and/or Series E Preferred shall be adjusted pursuant to Section
4(c)(D)), no adjustment in the Conversion Price of a particular class of stock
shall be made in respect of the issuance of Additional Shares of Common Stock
unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued pursuant to the provisions of Section 4(c)(C) by
the corporation is
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less than the Conversion Price in effect for such class of stock immediately
prior to such issuance.
(C) Deemed Issue of Additional Shares of Common Stock. In
the event the corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities, then the maximum
number of shares of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue, provided that if such
Options or Convertible Securities by their terms provide, with the passage of
time or otherwise, for any change in the minimum amount of consideration payable
to the corporation, or change in the maximum number of shares of Common Stock
issuable, upon the exercise, conversion, or exchange thereof other than changes
which may occur as a result of antidilution provisions (for which the Conversion
Price shall be readjusted based on the provisions of this Section when each such
change is effective), the consideration per share (determined pursuant to
Section 4(c)(E) hereof) for Common Stock issuable pursuant to such Options or
Convertible Securities shall be the minimum consideration per share provided for
therein, taking into consideration all subsequent changes in the minimum amount
of consideration payable to the corporation and/or in the maximum number of
shares of Common Stock issuable upon the exercise, conversion, or exchange; and
provided further that Additional Shares of Common Stock shall not be deemed to
have been issued with respect to Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred or Series E Preferred unless the consideration
per share of such Additional Shares of Common Stock would be less than the
Conversion Price in effect immediately prior to such issue.
(i) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(ii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof, and any subsequent adjustments based thereon, shall, upon such
expiration, as the case may be, be recomputed (provided that recomputation shall
not affect any Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred or Series E Preferred converted or tendered for conversion
prior to such exercise or expiration) as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
corporation for the issue of all such Options which were actually exercised,
plus the consideration actually received by the corporation upon such exercise,
or for the issue of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the corporation upon such conversion or exchange, and
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<PAGE> 12
(2) in the case of Options for Convertible
Securities, only the Convertible Securities or Common Stock into which such
Convertible Securities may be converted, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the corporation for the issue of all such Options which were actually exercised,
plus the consideration deemed to have been received by the corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(iii) no readjustment pursuant to clause (ii) above
shall have the effect of increasing a Conversion Price to an amount which
exceeds such Conversion Price in effect immediately prior to the original
adjustment. If Additional Shares of Common Stock were issued between the
original adjustment date and the readjustment date (other than Common Stock
issued upon exercise of the Options or conversion of the Convertible Securities
that are the subject of the readjustment) the Conversion Price on the
readjustment date shall be recomputed (but only if a lower Conversion Price
results therefrom) by treating the readjusted Conversion Price as the Conversion
Price in effect on the original adjustment date and adjusting such Conversion
Price for all issuances of Additional Shares of Common Stock (other than Common
Stock issued upon exercise of the Options or conversion or exchange of the
Convertible Securities that are the subject of the readjustment) occurring
between the original adjustment date and the readjustment date.
(D) Adjustment of Conversion Price.
(i) For Stock Dividends, Subdivisions and
Combinations. In the event the corporation at any time or from time to time
after the Original Issue Date shall declare or pay any dividend on the Common
Stock payable in Common Stock, or effect a subdivision or combination of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), then and in any such event, the
Conversion Price shall be proportionally decreased in the case of a stock
dividend or subdivision and proportionately increased in the case of a
combination of shares, effective in the case of such dividend, immediately after
the close of business on the record date for the determination of holders of
Common Stock entitled to receive such dividend, or in the case of a subdivision
or combination, at the close of business immediately prior to the date upon
which such corporate action becomes effective.
(ii) Upon Issuance of Additional Shares of Common
Stock. In the event the corporation shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 4(c)(C)) without consideration or for a consideration per share less
than the Conversion Price for the affected series in effect on the date of and
immediately prior to such issue, then and in each such event, the Conversion
Price shall be reduced concurrently with such issue of shares to the price
determined as follows: (a) the number of shares of Common Stock outstanding
immediately prior to the issuance that results in the adjustment, (b) shall be
multiplied by the Conversion Price in effect immediately prior to such issuance,
(c) the result of (b) shall be added to the actual consideration received for
the Additional Shares of Common Stock, (d) the resulting total shall be divided
by the sum of (i) the number of shares of Common Stock outstanding immediately
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<PAGE> 13
prior to the issuance that results in the adjustment and (ii) the number of
Additional Shares of Common Stock resulting in the adjustment; (e) if the
quotient thus obtained is less than the Conversion Price theretofore in effect,
such quotient shall be the adjusted Conversion Price until further adjusted as
provided herein; provided that, for purposes of clauses (a) and (d)(i) above,
all shares of Common Stock issuable upon conversion of the outstanding shares of
Series A Preferred, Series B Preferred, Series C Preferred and Series D
Preferred shall be treated as outstanding but the only shares of Common Stock
issuable upon exercise, conversion or exchange of outstanding Convertible
Securities that will be treated as outstanding are those issuable upon exercise
or conversion of Convertible Securities without any consideration other than the
surrender of the Convertible Security.
(E) Determination of Consideration. For purposes of this
Section 4(c), the consideration received by the corporation for the issuance of
any Additional Shares of Common Stock shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of the corporation, including
at least one of the Directors designated by the Series C Preferred or Series E
Preferred, respectively; and
(3) in the event Additional Shares of Common
Stock are issued together with other shares of securities or other assets of the
corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
determined in good faith by the Board of Directors of the corporation, including
at least one of the Directors designated by the Series C Preferred or Series E
Preferred, respectively.
(ii) Other Options and Convertible Securities. For
the purpose of computing the initial adjustment of the Conversion Price pursuant
to Section 4(c)(C) (but not for the readjustment pursuant to subsection (ii) of
that Section or upon any adjustment based on antidilution provisions), the
consideration per share received by the corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(c)(C) shall be
determined by dividing:
(1) the total amount, if any, received or
receivable by the corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instrument relating thereto, without regard
to any provision contained therein designed to protect against dilution) payable
to the corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of
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<PAGE> 14
such Options for Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(2) the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto, without regard to any
provision contained therein designed to protect against dilution) issuable upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities (without taking effect of any change in the conversion ratio caused
by such issuance).
(iii) Adjustments for Other Dividends and
Distributions. In the event the corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in capital stock of
the corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall
receive upon conversion thereof, in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the corporation which
they would have received had their Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred been converted
into Common Stock on the record date of such event and had they thereafter,
during the period from the record date of such event to and including the date
of conversion, retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 4 with respect to the rights of the holders of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred, respectively.
(d) No Impairment. The corporation will not, by amendment of its
Fifth Amended and Restated Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the corporation but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred against
impairment.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 4,
the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
and/or Series E Preferred a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred , furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred.
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<PAGE> 15
(f) Reservation of Stock Issuable Upon Conversion. The
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and/or Series E Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of
all outstanding shares of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred and of any shares of Series
A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and
Series E Preferred issuable upon exercise or conversion of outstanding options,
warrants or convertible securities, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred and of
the shares of Series A Preferred, Series B Preferred, Series C Preferred, Series
D Preferred and Series E Preferred issuable upon exercise of outstanding
Options, the corporation shall promptly use its best efforts to take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(g) Payment of Taxes. The corporation shall pay all issue taxes
and other governmental charges (other than income or other taxes imposed upon
profits realized by the recipient) that may be imposed in respect of the issue
or delivery of shares of Common Stock or other securities or property upon
conversion of shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred; provided, however, that
the corporation shall not be obligated to pay any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock or other securities in any name other than that in which the shares
of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and/or Series E Preferred were registered.
(h) No Reissue. Any shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred that are
converted by the holder shall not be reissued and the certificates representing
such shares shall be appropriately canceled on the books of the corporation and
the authorized number of the shares of the series of Preferred Stock converted
shall be automatically reduced by the number of shares of such series converted.
(i) Reclassification; Recapitalization. In the event of any
reclassification of the Common Stock or recapitalization involving Common Stock
(other than a change in par value or as a result of a stock dividend,
subdivision, or combination of shares or any event which is treated as a
liquidation under Section 2), each holder of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred shall
thereafter be entitled to receive and provisions shall be made therefor, in an
agreement relating to the reclassification or recapitalization, upon conversion
of the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred , the kind and number of shares of Common Stock
or other securities or property (including cash) of the corporation, to which
such holder of Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred or Series E Preferred would have been entitled if he had held
the number of shares of Common Stock of the corporation into which the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred was convertible immediately prior to such reclassification or
recapitalization; and in any such case appropriate adjustment shall be made in
the application of the provisions herein set forth with
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<PAGE> 16
respect to the rights and interests thereafter of the holders of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred, to the end that the provisions set forth herein (including the
specific changes and other adjustments to the Conversion Price), shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares, other securities, or property thereafter receivable upon conversion of
the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred.
(j) Notices of Record Date. In the event that this corporation
shall propose at any time:
(A) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(B) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(C) to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(D) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each event, this corporation shall send to the holders
of the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred.
(i) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (C) and (D) above;
(ii) in the case of the matters referred to in (C)
and (D) above, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event or such earlier
date, if any, on which a record shall be taken of the holders of Common Stock
who shall be entitled to exchange their Common Stock).
(k) Manner of Notice. Any notice required by this Section 4 shall
be deemed given if given by certified mail, postage prepaid, return receipt
requested, addressed to the holders of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred at the address for
each such holder as shown on the books of this corporation and shall not be
deemed received until actually delivered.
(l) Fractional Shares. No fractional share shall be issued upon
the conversion of any share or shares of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred. All shares of
Common Stock (including fractions thereof) issuable upon
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<PAGE> 17
conversion of more than one share of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock, the corporation shall, in lieu of issuing any fractional
share, if funds are legally available therefor, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors of the corporation).
(m) Automatic Conversion. Each share of Series A Preferred,
Series B Preferred. Series C Preferred, Series D Preferred and Series E
Preferred shall automatically be converted into shares of Common Stock at the
then applicable Conversion Price immediately prior to the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of this corporation to the public at a
price per share (prior to the deduction of underwriting commissions and
expenses) of not less than $5.576 (subject to proportionate adjustment in the
case of recapitalizations, stock splits, stock dividends, combinations of shares
and the like) and resulting in the receipt of aggregate gross sales proceeds of
at least $20,000,000. In the event of such offering, the person(s) entitled to
receive the Common Stock issuable upon such conversion of Preferred Stock shall
not be deemed to have converted such Preferred Stock until immediately prior to
the effectiveness of such registration statement, except that any such person
may specify an earlier time for conversion in accordance with Sections 4(a) and
4(b).
(n) Election to Require Conversion. The holders of at least 83%
of the outstanding shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred voting together as a single
class may, by written notice to the corporation, elect to have all outstanding
shares of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and/or Series E Preferred, respectively, converted into Common Stock
as of the date specified in the notice or as of the date of the notice if no
date is specified. Upon the delivery of such notice signed by the requisite
number of holders, all outstanding shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and/or Series E Preferred
shall automatically be converted into shares of Common Stock at the Conversion
Price in effect on the effective date of such conversion.
(o) Special Mandatory Conversion.
(A) If there is a Dilutive Financing (as defined below) as
to the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred, any holder of shares of Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred
who does not purchase at least such holder's Pro Rata Amount (as defined below),
will have the Diluted Portion (as defined below) of the shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred owned by such holder, automatically and without further action on
the part of the corporation or such holder, converted into a New Series (as
defined below) (and the authorized number of shares of the series of Preferred
Stock converted shall be automatically reduced accordingly), subject to and
effective concurrently with the consummation of the Dilutive Financing ("Special
Mandatory
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Conversion"); provided, however, that this Section 4(o) shall not apply to the
Series E Preferred unless the Dilutive Financing is made at a price per share
that is less than the then-applicable Conversion Price of the Series D
Preferred. Upon any conversion pursuant to this Section 4(o), the shares of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred
or Series E Preferred so converted shall be canceled and not subject to
reissuance. As used herein, the following terms shall have the following
meanings:
(i) "Dilutive Financing" means an equity financing
of the corporation which satisfies all of the following: (i) the financing would
result in a reduction of the Conversion Price for the Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred or Series E. Preferred (as
then in effect), (ii) the corporation and the holders of at least 67% of the
outstanding shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred taken together as a single
class have agreed to the dollar amount of securities ("Investment Amount") to be
offered to all holders of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred in such Dilutive Financing,
and (iii) each holder of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred has been given at least 10
days' prior written notice which sets forth the holder's Pro Rata Amount, offers
to such holder an opportunity to purchase such holder's Pro Rata Amount of the
equity securities to be sold by the corporation in such Dilutive Financing (such
offer will not be deemed to have been made by the corporation to a holder if
such holder accepts the offer in whole or in part and the corporation does not
sell the offered securities to such holder for any reason whatsoever other than
as a result of a default by such holder) and includes forms of all agreements
that will be entered into in connection with such sale. Notwithstanding the
first sentence of this subsection (o)(A)(i), in the event of a financing which
would result in a reduction of the Conversion Price for the Series B Preferred
but not the Series A Preferred, such financing will be deemed a "Dilutive
Financing" with respect to the Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred only if the corporation and holders of 67% of
the outstanding shares of Series B Preferred, Series C Preferred, Series D
Preferred and Series E Preferred, voting together as a single class, agree to
the Investment Amount to be offered to all holders of Series B Preferred, Series
C Preferred, Series D Preferred and Series E Preferred in such financing and
(iii) of the previous sentence has been satisfied. In addition, notwithstanding
the first sentence of this subsection (o)(A)(i), in the event of a financing
which would result in a reduction of the Conversion Price for the Series C
Preferred but not the Series B Preferred, such financing will be deemed a
"Dilutive Financing" with respect to the Series C Preferred, Series D Preferred
and Series E Preferred only if the Corporation and holders of 67% of the
outstanding shares of Series C Preferred, Series D Preferred and Series E
Preferred, voting together as a single class, agree to the Investment Amount to
be offered to all holders of Series C Preferred, Series D Preferred and Series E
Preferred in such financing and (iii) of the first sentence in this subsection
(o)(A)(i) has been satisfied. In addition, notwithstanding the first sentence of
this subsection (o)(A)(i), in the event of a financing which would result in a
reduction of the Conversion Price for the Series D Preferred but not the Series
C Preferred, such financing will be deemed a "Dilutive Financing" with respect
to the Series D Preferred and the Series E Preferred only if the Corporation and
holders of 67% of the outstanding shares of Series D Preferred and Series E
Preferred, voting together as a single class, agree to the Investment Amount to
be offered to all holders of Series D Preferred and Series E Preferred in such
financing and (iii) of the first sentence in this subsection (o)(A)(i) has been
satisfied.
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(ii) "Pro Rata Amount" means a holder's share of
the Investment Amount determined by multiplying the Investment Amount by the
number of shares of Common Stock into which such holder's shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred held by such holder are convertible at the time of such offer and
dividing the result by the total number of shares of Common Stock into which the
total number of outstanding shares of Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred or Series E Preferred, are convertible at
the time of such offer, respectively.
(iii) "Diluted Portion" means the number of shares
of Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred or Series E Preferred held by a holder determined by multiplying the
total number of shares of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred held by such holder by the
percentage of such holder's Pro Rata Amount that such holder did not purchase in
the Dilutive Financing. Notwithstanding the foregoing, no shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock, for which the financing is not a Dilutive Financing shall be
included in the calculation of the Dilution Portion.
(B) Although a Special Mandatory Conversion will occur
upon consummation of a Dilutive Financing without any action on the part of the
holder, each holder of Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred or Series E Preferred converted pursuant to this
Section 4(o) agrees to promptly deliver to the corporation during regular
business hours at the office of the corporation, the certificate or certificates
for the shares so converted, duly endorsed or assigned in blank or to the
corporation. The corporation will then promptly issue and deliver to such
holder, at the place designated by such holder, a certificate or certificates
for the full number of shares of the New Series to which such holder is
entitled.
(C) Prior to each Special Mandatory Conversion under this
subsection (o), the corporation shall create a new series of preferred stock
(each such series being a "New Series") having powers, preferences, rights,
qualifications, limitations and restrictions which are identical to the powers,
preferences, rights, qualifications, limitations and restrictions of the shares
of the Series A Preferred, Series B Preferred, Series C Preferred, Series D
Preferred and/or Series E Preferred being converted upon such Special Mandatory
Conversion, except that the initial Conversion Price of such New Series will be
the Conversion Price for the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and/or Series E Preferred in effect immediately
prior to the Dilutive Financing which results in such Special Mandatory
Conversion, and such Conversion Price shall not be subject to future adjustment
under Section 4(c)(D)(ii) above (Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock), but shall be subject to all other
adjustments of the Conversion Price set forth in Section 4. The corporation and
the holders of stock of the corporation that is issued after this provision is
inserted in the Company's Certificate of Incorporation, by the acceptance of
such stock, each agrees to take all action within its control (including, but
not limited to, voting all securities held by it) necessary to amend the
corporation's Fifth Amended and Restated Certificate of Incorporation to create
any New Series when and as required hereunder and to effect any Special
Mandatory Conversions.
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<PAGE> 20
(D) Notwithstanding anything to the contrary herein, if
there is a Dilutive Financing that would result in a reduction of the Conversion
Price of the Series B Preferred but not the Series A Preferred, the Special
Mandatory Conversion shall take place only with respect to the appropriate
Diluted Portion of the shares of Series B Preferred, Series C Preferred, Series
D Preferred and Series E Preferred as set forth above. In addition,
notwithstanding anything to the contrary herein, if there is a Dilutive
Financing that would result in a reduction of the Conversion Price of the Series
C Preferred but not the Series B Preferred, the Special Mandatory Conversion
shall take place only with respect to the appropriate Diluted Portion of the
shares of Series C Preferred, Series D Preferred and Series E Preferred as set
forth above. In addition, notwithstanding anything to the contrary herein, if
there is a Dilutive Financing that would result in a reduction of the Conversion
Price of the Series D Preferred but not the Series C Preferred, the Special
Mandatory Conversion shall take place only with respect to the appropriate
Diluted Portion of the shares of Series D Preferred and Series E Preferred as
set forth above. In addition, notwithstanding anything to the contrary herein,
if there is a Dilutive Financing that would result in a reduction of the
Conversion Price of the Series E Preferred but not the Series D Preferred, the
Special Mandatory Conversion shall not take place.
5. Voting Rights. Except as otherwise required by law, the holders of
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
Series E Preferred and the holders of Common Stock shall be entitled to notice
of any shareholders' meeting and to vote together as one class upon any matter
submitted to the shareholders for a vote on the following basis:
(a) Common Stock Vote. Each share of Common Stock issued and
outstanding shall have one vote.
(b) Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred Vote. Each holder of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred shall have a number of votes equal to the number of shares of Common
Stock into which the Series A Preferred, Series B Preferred, Series C Preferred,
Series D Preferred and Series E Preferred, respectively, held by such holder is
then convertible, as adjusted from time to time under Section 4 hereof.
(c) Quorum. For matters to be voted on by the Preferred Stock and
Common Stock together as one class, a quorum shall consist of a majority of the
votes attributable to the Common Stock and Preferred Stock as set forth in
Sections 5(a)(i) and 5(a)(ii).
6. Covenants.
(a) In addition to any other rights provided by law or agreement
and notwithstanding any other provision in the corporation's Fifth Amended and
Restated Certificate of Incorporation, so long as any Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred or Series E Preferred shall
be outstanding, this corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of at least 83% of the
outstanding shares of the Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred voting together as a single
class on an as-converted basis:
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<PAGE> 21
(i) amend or repeal any provision of, or add any provision
to, this corporation's Fifth Amended and Restated Certificate of Incorporation
(including, but not limited to, the designation of any series of Preferred Stock
by a Certificate of Designation) or Bylaws if such action would change the
powers, preferences, and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred, or increase the number of shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred
authorized hereby;
(ii) authorize, designate (including, but not limited to,
the designation of any series of Preferred Stock by a Certificate of
Designation) or issue shares of any class or series of stock having any
preference or priority as to voting powers, dividends, conversion or assets
superior to or on a parity with any such preference or priority of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred, issue any shares of Series A Preferred, Series B Preferred, Series
C Preferred, Series D Preferred or Series E Preferred or authorize, designate
(including, but not limited to, the designation of any series of Preferred Stock
by a Certificate of Designation) or issue shares of stock of any class or any
bonds, debentures, notes or other obligations convertible into or exchangeable
for, or having options or other rights to purchase, any shares of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred or other stock of this corporation having any preference or priority
as to voting powers, dividends, conversion or assets superior to or on a parity
with any such preference or priority of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred;
(iii) reclassify any class or series of stock into, or
exchange any class or series of stock for, shares having any preference or
priority as to voting powers, dividends or assets superior to or on a parity
with any such preference or priority of any series of Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred or Series E Preferred;
(iv) reclassify or cancel shares of the Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred;
(v) redeem, repurchase, pay dividends or make other
distributions with respect to Junior Stock (except for acquisitions of Common
Stock by the Corporation pursuant to agreements which permit the Corporation to
repurchase such shares upon termination of services to the Corporation or in
exercise of the Corporation's right of first refusal upon a proposed transfer);
(vi) increase or decrease the authorized number of members
of the Corporation's Board of Directors;
(vii) increase the number of authorized shares of
Preferred Stock; or
(viii) amend or repeal any provision of this Section 6.
(b) In addition to any other rights provided by law or agreement
and notwithstanding any other provision in the corporation's Fifth Amended and
Restated Certificate of Incorporation, so long as any Series A Preferred, Series
B Preferred, Series C Preferred, Series
21
<PAGE> 22
D Preferred or Series E Preferred shall be outstanding, this corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of at least 67% of the outstanding shares of the Series A Preferred,
Series B Preferred, Series C Preferred, Series D Preferred and Series E
Preferred voting together as a single class on an as-converted basis:
(i) merge into, or consolidate with, any corporation or
other entity or sell or lease (as lessor) more than five percent of the
corporation's total consolidated assets in any twelve-month period (other than
mortgages, deeds of trust, pledges or other hypothecations of real or personal
property approved by the corporation's board of directors and other than sales
or other dispositions of inventory in the normal course of business), or
liquidate, dissolve or recapitalize or reorganize in any form of transaction.
(c) Notwithstanding the provisions of Section 6(a), so long as
any Series A Preferred remains outstanding, this corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of at
least a majority of the outstanding shares of the Series A Preferred:
(i) increase or decrease (other than by redemption or
conversion) the authorized number of shares of Series A Preferred; or
(ii) take any action that would alter or change the
rights, preferences or privileges of the Series A Preferred.
(d) Notwithstanding the provisions of Section 6(a), so long as
any Series B Preferred remains outstanding, this corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of at
least a majority of the outstanding shares of the Series B Preferred:
(i) increase or decrease (other than by redemption or
conversion) the authorized number of shares of Series B Preferred; or
(ii) take any action that would alter or change the
rights, preferences or privileges of the Series B Preferred.
(e) Notwithstanding the provisions of Section 6(a), so long as
any Series C Preferred remains outstanding, this corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of at
least a majority of the outstanding shares of the Series C Preferred:
(i) increase or decrease (other than by redemption or
conversion) the authorized number of shares of Series C Preferred; or
(ii) take any action that would alter or change the
rights, preferences or privileges of the Series C Preferred.
(f) Notwithstanding the provisions of Section 6(a), so long as
any Series D Preferred remains outstanding, this corporation shall not, without
first obtaining the affirmative
22
<PAGE> 23
vote or written consent of the holders of at least a majority of the outstanding
shares of the Series D Preferred:
(i) increase or decrease (other than by redemption or
conversion) the authorized number of shares of Series D Preferred; or
(ii) take any action that would alter or change the
rights, preferences or privileges of the Series D Preferred.
(g) Notwithstanding the provisions of Section 6(a), so long as
any Series E Preferred remains outstanding, this corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of at
least a majority of the outstanding shares of the Series E Preferred:
(i) increase or decrease (other than by redemption or
conversion) the authorized number of shares of Series E Preferred; or
(ii) take any action that would alter or change the
rights, preferences or privileges of the Series E Preferred.
Notwithstanding the provisions of Sections 6(a) and 6(b) (but subject to the
provisions of Sections 6(c) through 6(g)), any performance required by the
corporation under the corporation's Fifth Amended and Restated Certificate of
Incorporation may be waived with the affirmative vote or written consent of the
holders of at least 83% of the outstanding shares of Series A Preferred, Series
B Preferred, Series C Preferred, Series D Preferred and Series E Preferred
voting together as a class on an as-converted basis.
7. Election of Board of Directors. The number of members of the
Corporation's Board of Directors shall be seven (7). The holders of Series C
Preferred Stock, voting as a separate class, shall be entitled to elect one (1)
member of the Corporation's Board of Directors at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors,
and to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director. The holders of Series E
Preferred Stock, voting as a separate class, shall be entitled to elect one (1)
member of the Corporation's Board of Directors at each meeting or pursuant to
each consent of the Corporation's stockholders for the election of directors,
and to remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director. The holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Common Stock, voting together as a
class, shall be entitled to elect all remaining members of the Corporation's
Board of Directors at each meeting or pursuant to each consent of the
Corporation's stockholders for the election of directors, and to remove from
office such directors and to fill any vacancy caused by the resignation death or
removal of such directors.
FIFTH: The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by this Fifth
Amended and Restated Certificate of Incorporation or the Bylaws of the
Corporation, the directors are hereby empowered to exercise all such powers
23
<PAGE> 24
and do all such sets and things as may be exercised or done by the Corporation.
Election of directors need not be by written ballot, unless the Bylaws so
provide.
SIXTH: The Board of Directors is authorized to make, adopt,
amend, alter or repeal the Bylaws of the Corporation. The Stockholders shall
also have power to make, adopt, amend, alter or repeal the Bylaws of the
Corporation.
SEVENTH: To the fullest extent permitted by the Delaware General
Corporation Law, a director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Any repeal or modification of the foregoing provisions of
this Article SEVENTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
[THE REST OF THIS PAGE LEFT INTENTIONALLY BLANK]
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<PAGE> 25
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Fifth Amended and Restated Certificate of Incorporation
to be signed by its President and attested by its Secretary this 17th day of
September, 1999.
VIRAGE, INC.
By: /s/ Paul Lego
----------------------------------
Paul Lego, President
ATTEST:
/s/ Frank Pao
- ------------------------------------
Frank Pao, Secretary
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
VIRAGE, INC.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I STOCKHOLDERS ................................................ 1
1.1. Annual Meeting .............................................. 1
1.2. Special Meetings ............................................ 1
1.3. Notice of Meetings .......................................... 1
1.4. Quorum ...................................................... 1
1.5. Organization ................................................ 2
1.6. Conduct of Business ......................................... 2
1.7. Notice of Stockholder Business .............................. 2
1.8. Proxies and Voting .......................................... 3
1.9. Stock List .................................................. 3
1.10. Stockholder Action by Written Consent ....................... 3
ARTICLE II BOARD OF DIRECTORS .......................................... 4
2.1. Number and Term of Office ................................... 4
2.2. Vacancies and Newly Created Directorships ................... 4
2.3. Removal ..................................................... 4
2.4. Regular Meetings ............................................ 4
2.5. Special Meetings ............................................ 5
2.6. Quorum ...................................................... 5
2.7. Participation in Meetings by Conference Telephone ........... 5
2.8. Conduct of Business ......................................... 5
2.9. Powers ...................................................... 5
2.10. Action Without Meeting ...................................... 6
2.11. Compensation of Directors ................................... 6
2.12. Nomination of Director Candidates ........................... 6
ARTICLE III COMMITTEES .................................................. 6
3.1. Committees of the Board of Directors......................... 6
3.2. Conduct of Business ......................................... 7
ARTICLE IV OFFICERS .................................................... 7
4.1. Generally ................................................... 7
4.2. Chairman of the Board ....................................... 7
4.3. President ................................................... 7
4.4. Vice President .............................................. 8
4.5. Chief Financial Officer ..................................... 8
4.6. Secretary ................................................... 8
4.7. Delegation of Authority ..................................... 8
4.8. Removal ..................................................... 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
4.9. Action With Respect to Securities of Other Corporations ..... 9
ARTICLE V STOCK ....................................................... 9
5.1. Certificates of Stock ....................................... 9
5.2. Transfers of Stock .......................................... 9
5.3. Record Date ................................................. 9
5.4. Lost, Stolen or Destroyed Certificates ...................... 9
5.5. Regulations ................................................. 9
ARTICLE VI NOTICES ..................................................... 10
6.1. Notices ..................................................... 10
6.2. Waivers ..................................................... 10
ARTICLE VII MISCELLANEOUS ............................................... 10
7.1. Facsimile Signatures ........................................ 10
7.2. Corporate Seal .............................................. 10
7.3. Reliance Upon Books, Reports and Records .................... 10
7.4. Fiscal Year ................................................. 11
7.5. Time Periods ................................................ 11
ARTICLE VIII ........................................................ 12
8.1. Right to Indemnification .................................... 12
8.2. Right of Claimant to Bring Suit ............................. 13
8.3. Non-Exclusivity of Rights ................................... 13
8.4. Indemnification Contracts ................................... 13
8.5. Insurance ................................................... 13
8.6. Effect of Amendment ......................................... 13
ARTICLE IX AMENDMENTS .................................................. 14
</TABLE>
<PAGE> 4
BYLAWS
OF
VIRAGE, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meeting. An annual meeting of the stockholders of
Virage, Inc., (the "Corporation"), for the election of directors and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 1.2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes prescribed in the notice of the meeting, may be called
by (1) any two directors of the Board of Directors, (2) the Chairman of the
Board, (3) the President or (4) the holders of shares entitled to cast not less
than ten percent (10%) of the votes at the meeting, and shall be held at such
place, on such date, and at such time as they shall fix. Business transacted at
special meetings shall be confined to the purpose or purposes stated in the
notice.
Section 1.3. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 1.4. Quorum. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger
1
<PAGE> 5
number may be required by law or by the Certificate of Incorporation or Bylaws
of this Corporation.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
Section 1.5. Organization. Such person as the Board of Directors may have
designated or, in the absence of such a person, the chief executive officer of
the Corporation or, in his absence, such person as may be chosen by the holders
of a majority of the shares entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders and act as chairman
of the meeting. In the absence of the Secretary of the Corporation, the
secretary of the meeting shall be such person as the chairman appoints.
Section 1.6. Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order.
Section 1.7. Notice of Stockholder Business. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board of
Directors, (c) properly brought before an annual meeting by a stockholder, or
(d) properly brought before a special meeting by a stockholder, but if, and only
if, the notice of a special meeting provides for business to be brought before
the meeting by stockholders. For business to be properly brought before a
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. Notice by the stockholder to be
timely must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
or special meeting (a) a brief description of the business desired to be brought
before the annual or special meeting and the reasons for conducting such
business at the annual or special meeting, (b) the name and address, as they
appear on the Corporation's books, of the stockholder proposing such business,
(c) the class and number of shares of the Corporation which are beneficially
owned by the stockholder, and (d) any material interest of the stockholder in
such business. Notwithstanding anything in the Bylaws to the contrary, no
business shall be conducted at an annual or special
2
<PAGE> 6
meeting except in accordance with the procedures set forth in this Section 1.7.
The chairman of an annual or special meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.7,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Section 1.8. Proxies and Voting. At any meeting of the stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law.
All voting, except where otherwise required by law, may be by a voice vote;
provided, however, that upon demand therefor by a stockholder entitled to vote
or by his or her proxy, a stock vote shall be taken. Every stock vote shall be
taken by ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established for the meeting. Every vote taken by ballots shall be counted by an
inspector or inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or these Bylaws, all other matters shall be
determined by a majority of the votes cast.
Section 1.9. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 1.10. Stockholder Action by Written Consent. Any action which may
be taken at any annual or special meeting of stockholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
actions so taken, is signed by the holders of outstanding shares having not less
than the minimum number of votes which would be necessary to
3
<PAGE> 7
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. All such consents shall be filed with the
secretary of the Corporation and shall be maintained in the corporate records.
Prompt notice of the taking of a corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Number and Term of Office. The number of directors shall be
seven (7), but may be fixed from time to time exclusively by the stockholders at
the annual meeting or at a special meeting of the stockholders properly called
for that purpose, by the vote of the holders of a majority of the shares
entitled to vote at such annual or special meeting. Each director shall hold
office until his successor is elected and qualified or until his earlier death,
resignation, retirement, disqualification or removal.
Section 2.2. Vacancies and Newly Created Directorships. Newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, or other cause may be filled only by the
stockholders at the annual meeting or at a special meeting of the stockholders
properly called for that purpose, by the vote of the holders of a majority of
the shares entitled to vote at such annual or special meeting, and directors so
chosen shall hold office for a term expiring at the next annual meeting of
stockholders. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 2.3. Removal. Subject to any limitations stated in the Certificate
of Incorporation, any director, or the entire Board of Directors, may be removed
from office at any time, with or without cause, but only by the affirmative vote
of the holders of at least a majority of the voting power of all of the then
outstanding shares of stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. Vacancies in the Board
of Directors resulting from such removal may be filled by the stockholders at a
special meeting of the stockholders properly called for that purpose, by the
vote of the holders of a majority of the shares entitled to vote at such special
meeting. Directors so chosen shall hold office until the next annual meeting of
stockholders.
Section 2.4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors; provided, that for the months of April, May, June, July,
August and September of 1995, the Board of Directors shall meet at least once in
each of those calendar months, the places, dates and times of such meetings
shall be established by the Board of Directors and publicized among all
directors. A notice of each regular meeting shall not be required.
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Section 2.5. Special Meetings. Special meetings of the Board of Directors
may be called any two (2) directors then in office, by the chairman of the board
or by the chief executive officer and shall be held at such place, on such date,
and at such time as they or he shall fix. Notice of the place, date, and time of
each such special meeting shall be given each director not less than five (5)
days before the meeting unless such notice is waived. Unless otherwise indicated
in the notice thereof, any and all business may be transacted at a special
meeting.
Section 2.6. Quorum. At any meeting of the Board of Directors, a majority
of the total number of authorized directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 2.7. Participation in Meetings by Conference Telephone. Members of
the Board of Directors, or of any committee of the Board of Directors, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 2.8. Conduct of Business. At any meeting of the Board of Directors,
business shall be transacted in such order and manner as the Board may from time
to time determine, and all matters shall be determined by the vote of a majority
of the directors present, except as otherwise provided herein or required by
law. Action may be taken by the Board of Directors without a meeting if all
members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors.
Section 2.9. Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law and
the Certificate of Incorporation;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
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(4) To remove any officer of the Corporation with or without cause,
and from time to time to pass on the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs.
Section 2.10. Action Without Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting, if all members of the board shall individually or collectively consent
in writing to such action. Such written consent or consents shall be filed with
the minutes of the proceedings of the board. Such action by written consent
shall have the same force and effect as a unanimous vote of such directors.
Section 2.11. Compensation of Directors. Directors who are not also
employees of the Corporation may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 2.12. Nomination of Director Candidates. Nominations for the
election of directors may be made by the Board of Directors or a proxy committee
appointed by the Board of Directors or by any stockholder entitled to vote in
the election of directors.
ARTICLE III
COMMITTEES
Section 3.1. Committees of the Board of Directors. The Board of Directors,
by a vote of a majority of the whole Board, may from time to time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a director or directors to
serve as the member or members, designating, if it desires, other directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. No
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committee so designated may exercise the power and authority of the Board of
Directors to declare a dividend, to authorize the issuance of stock or to adopt
an agreement of merger or consolidation. In the absence or disqualification of
any member of any committee and any alternate member in his place, the member or
members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 3.2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third of the authorized members shall constitute a quorum unless the
committee shall consist of three or less members, in which event two members
shall constitute a quorum; and all matters shall be determined by a majority
vote of the members present. Action may be taken by any committee without a
meeting if all members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of such committee.
ARTICLE IV
OFFICERS
Section 4.1. Generally. The officers of the Corporation shall consist of a
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, one
or more Vice Presidents, and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. Any number of offices may be held by the same person.
Section 4.2. Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or as provided by
these Bylaws.
Section 4.3. President. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the general manager and chief executive
officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
officers of the Corporation. He shall preside at all meetings of the
stockholders. He shall be ex officio a member of all the standing committees,
including the executive committee, if any, and shall have the general powers and
duties of management usually vested in the office of president of
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a Corporation, and shall have such other powers and duties as may be prescribed
by the Board of Directors or by these Bylaws.
Section 4.4. Vice President. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Director, shall
perform the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The Vice
Presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board of Directors
or these Bylaws.
Section 4.5. Chief Financial Officer. The Chief Financial Officer shall
keep and maintain or cause to be kept and maintained, adequate and correct books
and records of account in written form or any other form capable of being
converted into written form.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse all funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by these Bylaws.
Section 4.6. Secretary. The Secretary shall keep, or cause to be kept, a
book of minutes in written form of the proceedings of the Board of Directors,
committees of the Board, and stockholders. Such minutes shall include all
waivers of notice, consents to the holding of meetings, or approvals of the
minutes of meetings executed pursuant to these Bylaws or the Delaware General
Corporation Law. The Secretary shall keep, or cause to be kept at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of shares held by each.
The Secretary shall give or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or these Bylaws.
Section 4.7. Delegation of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officers or
agents, notwithstanding any provision hereof.
Section 4.8. Removal. Any officer of the Corporation may be removed at any
time, with or without cause, by the Board of Directors.
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Section 4.9. Action With Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V
STOCK
Section 5.1. Certificates of Stock. Each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the President or a
Vice President, and by the Secretary or an Assistant Secretary, or the Chief
Financial Officer, certifying the number of shares owned by him or her. Any of
or all the signatures on the certificate may be facsimile.
Section 5.2. Transfers of Stock. Transfers of stock shall be made only upon
the transfer books of the Corporation kept at an office of the Corporation or by
transfer agents designated to transfer shares of the stock of the Corporation.
Except where a certificate is issued in accordance with Section 5.4 of these
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 5.3. Record Date. The Board of Directors may fix a record date,
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
Section 5.4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5.5. Regulations. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board of Directors may establish.
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ARTICLE VI
NOTICES
Section 6.1. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid
telegram, mailgram, telecopy or commercial courier service. Any such notice
shall be addressed to such stockholder, director, officer, employee or agent at
his or her last known address as the same appears on the books of the
Corporation. The time when such notice shall be deemed to be given shall be the
time such notice is received by such stockholder, director, officer, employee or
agent, or by any person accepting such notice on behalf of such person, if hand
delivered, or the time such notice is dispatched, if delivered through the mails
or by telegram, telecopy, courier or mailgram.
Section 6.2. Waivers. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver. Attendance of a person at a meeting shall constitute a waiver
of notice for such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
if not specifically prohibited by the Board of Directors or a committee thereof.
Section 7.2. Corporate Seal. The Board of Directors may provide a suitable
seal, containing the name of the Corporation, which seal shall be in the charge
of the Secretary. If and when so directed by the Board of Directors or a
committee thereof, duplicates of the seal may be kept and used by the Chief
Financial Officer or by an Assistant Secretary or other officer designated by
the Board of Directors.
Section 7.3. Reliance Upon Books, Reports and Records. Each director, each
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his duties, be fully protected
in relying in good faith upon the books of account or other records of the
Corporation, including reports made to the Corporation by any of its officers,
by an independent certified public accountant, or by an appraiser.
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Section 7.4. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
Section 7.5. Time Periods. In applying any provision of these Bylaws which
require that an act be done or not done a specified number of days prior to an
event or that an act be done during a period of a specified number of days prior
to an event, calendar days shall be used, the day of the doing of the act shall
be excluded, and the day of the event shall be included.
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ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said Law
permitted the Corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties, amounts paid or to be paid in settlement and amounts
expended in seeking indemnification granted to such person under applicable law,
this Bylaw or any agreement with the Corporation) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in Section 8.2, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation Law
then so requires, the payment of such expenses incurred by a director or officer
of the Corporation in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
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Section 8.2. Right of Claimant to Bring Suit. If a claim under Section 8.1
is not paid in full by the Corporation within ninety (90) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if such suit is not frivolous or brought in bad faith, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, has been tendered
to this Corporation) that the claimant has not met the standards of conduct
which make it permissible under the Delaware General Corporation Law for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that a claimant has not
met such applicable standard of conduct.
Section 8.3. Non-Exclusivity of Rights. The rights conferred on any person
by Sections 8.1 and 8.2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4. Indemnification Contracts. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 8.5. Insurance. The Corporation may maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under Delaware
General Corporation Law.
Section 8.6. Effect of Amendment. Any amendment, repeal or modification of
any provision of this Article VIII by the stockholders or the directors of the
Corporation shall not adversely affect any right or protection of a director or
officer of the Corporation existing at the time of such amendment, repeal or
modification.
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ARTICLE IX
AMENDMENTS
Except as provided herein, the Board of Directors is expressly empowered to
adopt, amend or repeal Bylaws of the Corporation, subject to the right of the
stockholders to adopt, amend, alter or repeal the Bylaws of the Corporation. Any
adoption, amendment or repeal of Bylaws of the Corporation by the Board of
Directors shall require the approval of a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any resolution providing for adoption,
amendment or repeal is presented to the Board). The stockholders shall also have
power to adopt, amend or repeal the Bylaws of the Corporation. Any amendment of
Sections 2.1, 2.2 and 2.3 of Article II of the Bylaws requires the approval of a
majority of the total number of shares entitled to vote thereon. Any amendment
of Section 2.5 of Article II of the Bylaws requires a resolution approved by a
majority of the directors then in office and not opposed by more than one
director then in office.
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EXHIBIT 4.1
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Second Amended and Restated Registration Rights Agreement is made
as of September 21, 1999, by and among Virage, Inc., a Delaware corporation
("Company"), each of the persons listed on the Schedule of Purchasers attached
hereto ("Purchasers") and each of the persons listed on the Schedule of Existing
Shareholders attached hereto ("Existing Shareholders").
RECITALS:
A. The Company, various of the Purchasers and various of the Existing
Shareholders have previously entered into the Amended and Restated Registration
Rights Agreement dated January 27, 1999.
B. The Company, the Purchasers and the Existing Shareholders desire to
amend and restate the Amended and Restated Registration Rights Agreement dated
January 27, 1999 in its entirety as set forth herein.
C. Concurrently with the execution of this Agreement, the Purchasers are
purchasing shares of Series E Preferred Stock ("Series E Preferred") of the
Company and the Company is entering into this Second Amended and Restated
Registration Rights Agreement in consideration of such purchase.
1. Definitions. As used in this Agreement, the following terms shall
have the following respective meanings:
(a) "Investor" shall mean any holder of Underlying Common Stock,
but only if such holder is a Purchaser or a transferee of registration rights
from an Investor as permitted under Section 11. An Investor shall include a
registered owner of all or any portion of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred to the
extent of the shares of Common Stock remaining issuable upon conversion thereof.
(b) "Underlying Common Stock" shall mean (i) the shares of Common
Stock issued upon conversion of the Series A, Series B, Series C, Series D and
Series E Preferred and (ii) the shares of Common Stock remaining issuable upon
conversion of the outstanding Series A Preferred, Series B Preferred, Series C
Preferred, Series D Preferred and Series E Preferred, together with all shares
of Common Stock and other securities issued or issuable in respect of the Common
Stock referred to in clauses (i) and (ii) by reason of stock splits, stock
dividends, combinations, mergers, exchanges or other reclassifications or
recapitalizations, provided that the term "Underlying Common Stock" shall
exclude all shares of Common Stock sold by an Investor in an offering registered
under the Securities Act or Rule 144 thereunder.
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(c) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder.
(d) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute, and the rules and regulations
of the Securities and Exchange Commission thereunder.
(e) "Holder" shall mean the Investors and the Existing
Shareholders.
(f) "Registrable Stock" shall mean the Underlying Common Stock
and Common Stock held by, or issuable upon, exercise, conversion or exchange of
options, warrants or convertible or exchangeable securities held by, the
Existing Shareholders, provided that the term "Registrable Stock" shall exclude
all shares of Common Stock sold by an Existing Shareholder in an offering
registered under the Securities Act or Rule 144 thereunder.
(g) "Purchaser" shall mean a purchaser of the Series E Preferred
and their permitted transferees.
(h) "Series A Preferred" shall mean Preferred Stock, no par
value, of the Company and designated as Series A Preferred Stock.
(i) "Series B Preferred" shall mean Preferred Stock, no par
value, of the Company and designated as Series B Preferred Stock.
(j) "Series C Preferred" shall mean Preferred Stock, no par
value, of the Company and designated as Series C Preferred Stock.
(k) "Series D Preferred" shall mean Preferred Stock, no par
value, of the Company and designated as Series D Preferred Stock.
(l) "Series E Preferred" shall mean Preferred Stock, no par
value, of the Company and designated as Series E Preferred Stock.
2. Demand Registration
(a) Exercise of Right. If at any time after the earlier of the
Company's initial registered public offering or the second anniversary of the
closing of the initial sale and issuance of the Series E Preferred (the "Series
E Closing") and prior to the tenth anniversary of the Series E Closing (but not
within three months of the effective date of a Registration Statement other than
on Form S-4 or S-8 or an equivalent successor form), the Company receives a
request from Investors of at least 50% of the Underlying Common Stock or at
least 50% of the Series E Preferred ("Initiating Investors") for the
registration of at least 25% of the Underlying Common Stock held by the
Initiating Investors (or any lesser percentage if the anticipated aggregate
offering price, net of underwriting discounts and commissions, is more than
$2,000,000), the Company will prepare and file with the Securities and Exchange
Commission a Registration Statement with respect to a public offering of the
Underlying Common Stock which the Investors making such request desire to
include in a public offering. In the event that a request for
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registration is made by less than all of the Investors, the Company will notify
within ten (10) days after receipt thereof all other Investors of such request
and any other Investor must notify the Company within thirty (30) days after
such notice from the Company if it wishes to join in the request. The Company
shall cause a Registration Statement to be filed as soon as practicable but in
no event later than ninety (90) days after receipt of the initial request for
registration, provided that the Company may defer the filing of a Registration
Statement for up to ninety (90) days after the request for registration is made
if the Board of Directors of the Company determines in good faith that it would
be seriously detrimental to the Company to file the Registration Statement
without such deferral; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period. The Company shall use its
best efforts to cause such Registration Statement to become effective as
promptly as practicable and to remain effective for at least one hundred eighty
(180) days.
(b) Underwriting. If the Initiating Investors intend to
distribute the Underlying Common Stock covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to subsection (a) and the Company shall include such information in its
written notice to the other Investors. The right of any Investor to registration
pursuant to this Section shall be conditioned upon such Investor's participation
in such underwriting and the inclusion of such Investor's Underlying Common
Stock in the underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Investors, the managing underwriter and such
Investor) to the extent provided herein. The Company shall (together with all
Investors proposing to distribute their Underlying Common Stock) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Initiating Investors.
(c) Marketing Limitations. Notwithstanding any other provision of
this Section if the managing underwriter advises the Initiating Investors in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Initiating Investors shall so advise all Investors
holding Underlying Common Stock and the number of shares of Underlying Common
Stock that may be included in the registration and underwriting shall be
allocated among all Investors desiring to participate in such registration in
proportion, as nearly as practicable, to the respective shares of Underlying
Common Stock held by such Investors at the time of filing the Registration
Statement and no securities held by any person other than an Investor shall be
included therein. No Underlying Common Stock or other securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. Except with the consent of the Investors who own
at least the 67% of the Underlying Common Stock to be included in the
registration, the Company shall not include securities for its own account or
for the account of any person (other than the shares of Common Stock held by the
Investors that are included in the registration in accordance with the provision
of this Section 2) in any registration undertaken pursuant to this subsection
and neither the Company nor any person or Investor whose shares were not
included in the registration shall sell any such securities in a public offering
until at least one hundred eighty (180) days following the effective date of the
registration or, for such other period as may be determined by Investors of at
least 67% of the Underlying Common Stock.
(d) Withdrawal. Any Investor may, at any time prior to the
effectiveness of a Registration Statement, withdraw its Underlying Common Stock
therefrom. The Company shall
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<PAGE> 4
be obligated to register Underlying Common Stock pursuant to this Section 2 on
only two occasions; provided that if prior to the effectiveness of a
Registration Statement, the number of Investors participating or the number of
shares of Underlying Common Stock included would not be sufficient to initiate a
registration pursuant to this Section 2, the Company may withdraw its
Registration Statement and, unless such insufficiency resulted from shares of
Underlying Common Stock being withdrawn as a result of a material adverse event
or circumstance relating to the Company which was not known to the Initiating
Investors at the time of their request for registration, the Company will be
deemed to have satisfied one of its obligations to register Underlying Common
Stock under this Section 2.
3. Piggyback Registration.
(a) Right to Join in Registration. If at any time prior to the
expiration of ten (10) years following the date of the Series E Closing the
Company proposes to file a Registration Statement under the Securities Act
seeking registration of any securities of the Company for sale for cash to the
public either for its own account or for the account of any holder of securities
of the Company, the Company shall notify, in writing, each Holder of its
intention to file such Registration Statement and in addition to, and
independent of, the rights afforded by Section 2, will afford each Holder the
opportunity to request inclusion in such Registration Statement of all or any
part of its Registrable Stock. If any Holder desires to join in such
Registration Statement, it shall, within thirty (30) days after the date of
mailing such notice by the Company, notify the Company, in writing, of the
number of shares of Registrable Stock it desires to include in any such
Registration Statement. If a Holder requests inclusion of any Registrable Stock
in such Registration Statement and if such public offering is to be
underwritten, the Company will cause the underwriters of the offering to
purchase and sell such Registrable Stock. The right of any Holder to
registration pursuant to this Section shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Stock in the underwriting unless otherwise agreed to by the Company.
(b) Marketing Limitation. If the managing underwriter determines
that marketing factors require a limitation of the number of shares to be
underwritten, the Company shall so advise the Holders and the other persons
distributing their securities through such underwriting, and (i) Common Stock
held (or issuable upon conversion or exercise of securities held) by any person
who does not have contractual rights of registration shall first be excluded,
(ii) if such exclusion is not sufficient, Common Stock held (or issuable upon
conversion or exercise of securities held) by the Existing Shareholders and any
person, other than Holders, who are not excluded under clause (i) above shall be
excluded, and (iii) if such exclusion is not sufficient, shares of Underlying
Common Stock held by the Investors shall be excluded to the extent required to
permit the number of shares of Underlying Common Stock that may be included in
the registration and underwriting to be allocated among all such Investors and
other persons in proportion, as nearly as practicable, to the number of shares
of Underlying Common Stock held by all such Investors at the time of filing the
Registration Statement, provided that (i) no such inclusion of Registrable Stock
or Common Stock by the underwriter may reduce the securities being offered by
the Company for its own account in the first such underwriting and may not
reduce such securities being offered by the Company for its own account by more
than twenty percent (20%) in any subsequent underwriting, and (ii) except as
provided above with respect to Existing Shareholders, no securities held by an
employee (or former employee) of the
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<PAGE> 5
Company may be included in the registration without the prior written consent of
Investors holding at least 67% of the Underlying Common Stock held by the
Investors and to be included in the registration. No Common Stock, Registrable
Stock or other securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
Holders who hold securities of the Company which were not included in the
registration shall not sell such securities in a public offering until at least
one hundred eighty (180) days following the effective date of the registration,
or for such other shorter period as may be determined by the Company and
Investors holding at least 67% of the Underlying Common Stock held by all
Investors.
(c) Withdrawal. The Company may decline to file a Registration
Statement after notice to each Holder, or withdraw a Registration Statement
after filing and after such notice, but prior to the effectiveness thereof,
provided that it shall promptly notify each Holder, in writing, of any such
action. Any Holder may, at any time prior to the effectiveness of a Registration
Statement filed pursuant to this Section 3, withdraw its Registrable Stock
therefrom. The fact that any Registrable Stock has been the subject of a request
for registration pursuant to this Section 3 shall not prevent such Common Stock
from being the subject of future requests for registration pursuant to this
Section 3 or Sections 2 or 4 if such Registrable Stock was not sold in a public
offering pursuant to the Registration Statement with respect to which the prior
request was made.
4. Form S-3 Registration. The Company will use its best efforts to
qualify for registration on Form S-3 (references to Form S-3 to include any
substantially equivalent successor form) and to that end, the Company shall
register (whether or not required by law to do so) its Common Stock under the
Exchange Act within twelve (12) months following the effective date of the first
registration of any securities of the Company, provided that securities have
been sold to the public pursuant to such registration. After the Company has
qualified for the use of Form S-3, the Investors holding Underlying Common Stock
shall have the right to request an unlimited number of registrations on Form S-3
under this Section 4 (each such request shall be in writing and shall state the
number of the shares of Underlying Common Stock to be disposed of and the
intended method of disposition of such shares by such Investor or Investors),
provided that the Company shall not be required to effect more than two
registrations pursuant to this Section 4 in any twelve-month period, and shall
not be required to effect a registration unless the Investors requesting
registration propose to dispose of shares of Underlying Common Stock that they
reasonably anticipate will have an aggregate disposition price (before deduction
of underwriting discounts and expenses of sale) of at least $750,000. The
Company shall give notice to all Investors of the receipt of a request for
registration pursuant to this Section 4 and shall provide a reasonable
opportunity for other Investors to participate in the registration. Subject to
the foregoing, the Company shall use its best efforts to effect promptly the
registration of all shares of Underlying Common Stock on Form S-3, to the extent
requested by the Investors.
5. State Qualification. In connection with any registration of
Registrable Stock pursuant to Sections 2, 3 or 4 or the sale of Registrable
Stock pursuant to Rule 144 under the Securities Act, the Company will use its
best efforts to qualify the offering under such state securities laws as the
Holders requesting registration shall reasonably request or to otherwise satisfy
the requirements of such state securities laws.
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6. Expenses of Registration. In connection with any Registration
Statements prepared and filed in accordance with Sections 2, 3 or 4, the Company
will bear the entire expense of the (i) preparation and filing of such
Registration Statement, (ii) furnishing of such number of copies of the
prospectus included therein as may be reasonably required in connection with the
offering, (iii) qualification of such offering under such state securities laws
as the Holders requesting registration shall request, (iv) the fees and expenses
of counsel for the Company and the fees and expenses of one counsel for the
Holders. The Holders shall pay all selling expenses attributable to their
Registrable Stock that is included in the Registration Statement, including
underwriting commissions and discounts.
7. Legal Opinion; Accountant's Letter. The Company shall furnish to each
Holder of Registrable Stock included in a Registration Statement a signed
counterpart, addressed to each such Holder and their underwriters, if any, of:
(i) an opinion of counsel for the Company, dated the
effective date of the Registration Statement; and
(ii) a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included in
the Registration Statement; covering substantially the same matters with respect
to the Registration Statement (and the prospectus included therein) and (in the
case of the accountants' letter) with respect to the events subsequent to the
date of the financial statements, as are customarily covered (at the time of
such registration) in opinions of issuer's counsel and in accountants' letters
delivered to underwriters in connection with underwritten public offerings of
securities.
8. Indemnification.
(a) Indemnification by Company. In the event of any registration
of any of its securities under the Securities Act pursuant to this Agreement,
the Company shall indemnify and hold harmless each Holder requesting or joining
in a registration of such securities, each of its officers, directors and
partners and such Holder's legal counsel and accountants, each underwriter (as
defined in the Securities Act) and each controlling person of each of the
foregoing, if any, (within the meaning of the Securities Act or Exchange Act)
against any losses, claims, damages or liabilities, joint or several (or actions
in respect thereof), including any of the foregoing incurred in the settlement
of any litigation, commenced or threatened, to which any of them may be subject
under the Securities Act or Exchange Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (A) any untrue statement (or alleged
untrue statement) of any material fact contained in any offering circular or
Registration Statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any summary prospectus issued in connection with any securities
being registered, or any amendment or supplement thereto, or any other document,
or (B) any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (C) any violation by the Company of the Securities Act or any
Blue Sky law or any other statute or common law, or any rule or regulation
promulgated under the Securities Act or Exchange Act or any Blue Sky law or any
other law, applicable to the Company in connection with any such registration,
qualification or compliance, and shall
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<PAGE> 7
reimburse each such person entitled to indemnification under this subsection (a)
for any legal or other expenses reasonably incurred by such person in connection
with investigating or defending any such loss, claim, damage, liability or
action including if requested by Holders holding a majority of the Registrable
Stock included in the registration, the fees and disbursements of separate
counsel designated by Holders holding a majority of such Registrable Stock;
provided, however, that the Company shall not be liable to any such person in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement (or alleged untrue statement
unless it is ultimately determined that such alleged untrue statement is not
actionable) or omission (or alleged omission unless it is ultimately determined
that such alleged omission is not actionable) made in such offering circular,
Registration Statement, preliminary prospectus, summary prospectus, prospectus,
or amendment or supplement thereto, or any other document, in reliance upon and
in conformity with written information furnished to the Company by such person,
specifically for use therein. The indemnity provided for herein shall remain in
full force and effect regardless of any investigation made by or on behalf of
the person seeking indemnification and shall survive transfer of such securities
by such Holder.
(b) Indemnification by Holders. The Company may require as a
condition to having the Registrable Stock included among the securities as to
which such registration is being effected that each Holder requesting or joining
in a registration agree (severally and not jointly) to indemnify the Company,
its directors and officers and its legal counsel and accountants, each
underwriter (as defined in the Securities Act), each controlling person of each
of the foregoing and each other such Holder, each of its officers, directors and
partners and each controlling person of such Holder, against any losses, claims,
damages or liabilities (or actions in respect thereof), including any of the
foregoing incurred in the settlement of any litigation, commenced or threatened,
joint or several, to which any of them may become subject under the Securities
Act or Exchange Act or under any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement (or alleged untrue statement) of any
material fact contained in any offering circular or Registration Statement under
which such securities were registered under the Securities Act at the request of
such Holder pursuant to this Agreement, any preliminary prospectus or final
prospectus contained therein, or any summary prospectus issued in connection
with any securities being registered, or any amendment or supplement thereto, or
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, in
each case to the extent that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) was made in such Registration Statement,
preliminary prospectus, summary prospectus, prospectus or amendment or
supplement thereto, solely in reliance upon and in conformity with written
information furnished to the Company by such Holder specifically for use
therein, and to reimburse such persons for any legal or other expenses
reasonably incurred in connection with investigating or defending any such loss,
claim, damage, liability or action, provided that a Holder's total liability
under any indemnity given pursuant to this subsection (b) shall not exceed the
net proceeds received by such Holder from the sale of stock pursuant to the
registration.
(c) Notice of Claim. Each party entitled to indemnification under
this Agreement (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has written notification of any claim as to which indemnity
may be sought, and shall permit the
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<PAGE> 8
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that (i) if the claim is made under clause (a)
above, the Holders of a majority of the Registrable Stock included in the
Registration will have the right to designate separate counsel, (ii) if separate
counsel is not designated under clause (i) counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be withheld), and
the Indemnified Party may participate in such defense at the Indemnified Party's
expense, and (iii) the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this subsection (c). No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation.
9. Contribution. If the indemnification provided for in Section 9 is for
any reason held to be unavailable, or insufficient to hold harmless an
Indemnified Party with respect to any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Party shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damage or liabilities in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand, and of the Indemnified
Party on the other, in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities as well as any other relevant
equitable considerations; provided, however that each Holder's liability under
this Section 10 shall not exceed such Holder's net proceeds from the offering of
securities made in connection with a registered offering pursuant to this
Agreement. The relative fault of the Indemnifying Party and of the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. For purposes of this Section 10 each person, if any, who
controls, within the meaning of the Securities Act, any Indemnified Party shall
have the same rights to contribution as such Indemnified Party, and each person,
if any, who controls the Company within the meaning of the Securities Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company. Any party entitled to contribution, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 10, will notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 10. Notwithstanding the
foregoing, to the extent that the provisions on indemnification and contribution
contained in the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall be controlling.
10. Transfer of Registration Rights. The rights to cause the Company to
register Underlying Common Stock granted to the Investors may only be assigned
to a transferee in
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connection with the transfer or assignment by an Investor of at least 20% of the
Underlying Common Stock (including the Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and/or Series E Preferred) held by such
Investor or to any transferee or assignee who is an affiliate, a general or
limited partner or retired general or limited partner of such Investor or any
affiliate of such Investor or a limited partnership or limited liability company
member or retired limited liability company member of such transferee or
assignee, provided that such transfer or assignment is otherwise effected in
accordance with applicable securities laws and that any such transferee or
assignee agrees in writing to be bound by the terms of this Agreement. The
rights of an Existing Shareholder under this Agreement are not transferable or
assignable (voluntarily, involuntarily or by operation of law) except they may
be assigned in connection with a Permitted Family Transfer (as defined under the
Purchasers and Existing Shareholders Agreement dated April 3, 1995 by and among
the Company and the individuals and entities set forth therein) and in the event
of a Permitted Family Transfer the term "Existing Shareholder" shall include
such permitted transferees.
11. Information by Holder. The Holder or Holders of Registrable Stock
included in any registration shall furnish to the Company such information
regarding such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may request in writing and as shall be required in
connection with any registration referred to in this Agreement.
12. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Securities and Exchange Commission which
may at any time permit the sale of the Underlying Common Stock to the public
without registration, after such time as a public market exists for the Common
Stock of the Company, the Company agrees to:
(a) Public Information. Make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act, at all times after the effective date of the first registration
under the Securities Act filed by the Company for an offering of its securities
to the general public and to use its best efforts to cause its Common Stock to
be quoted in the National Association of Securities Dealers, Inc.'s electronic
interdealer quotation system known as NASDAQ.
(b) Filing. File with the Securities and Exchange Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and Exchange Act (at any time after it has become subject to such
reporting requirements).
(c) Evidence of Compliance. So long as an Investor owns any
Underlying Common Stock to furnish to the Investor forthwith upon request (i) a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public) and of the Securities Act and
Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as an
Investor may reasonably request in availing itself of any rule or regulation of
the Commission allowing an Investor to sell any such securities without
registration.
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(d) Other Action. The Company, at its expense, will also take
such other action necessary or desirable to permit the Investors to sell the
Underlying Common Stock pursuant to the requirements of Rule 144 and all
applicable securities laws of such states as the Investors desiring to sell the
Underlying Common Stock shall request.
13. Other Registration Rights. The Company will not grant to any
existing or future holder of its securities any rights to require the Company to
register such securities under the Securities Act that are more favorable than
those provided for herein and will not grant any registration rights that
diminish or adversely affect the registration rights of Investors hereunder or
that could result in a reduction in the amount of any securities of the
Investors that are included in any registration if the managing underwriter in
any offering determined that marketing factors required the limitation of the
number of shares of Common Stock or other securities to be included in the
offering, provided that the foregoing shall not prohibit the Company from
granting future purchasers of securities the right to participate with the
Investors on a pro rata basis in the exercise of "piggyback" registration rights
in offerings where no marketing cutback rights are exercised by the
underwriters.
14. Notices. All notices hereunder shall be in writing and shall be
given by personal delivery or by registered or certified mail (postage prepaid
and return receipt requested) or by courier or other delivery service (which
obtains a receipt evidencing delivery) or by facsimile transmission addressed
(i) to any Purchaser at its address as set forth in the Schedule of Purchasers,
(ii) to any Existing Shareholder at his address set forth in the Schedule of
Existing Shareholders, (iii) to any subsequent Holder at its address which it
gives in the manner herein specified to the other parties to this Agreement and
(iv) to the Company, at its address set forth below:
Virage, Inc.
177 Bovet Road, Suite 520
San Mateo, California 94402
Attn: Paul Lego, President
Facsimile: (650) 573-3211
or such other address as any party may designate to the other parties hereto in
accordance with the aforesaid procedure. All notices shall be deemed to have
been given as of the date of personal delivery, delivery by a courier or as of
the date of deposit in the United States mail, as the case may be.
15. Assignment, Binding Effect. This Agreement shall inure to the
benefit of and be binding upon the parties and their respective permitted
transferees, heirs, executors, legal representatives and successors; provided
that an Existing Shareholder's rights hereunder may only be assigned in
connection with a Permitted Family Transfer as provided in Section 11.
16. Remedies. The rights of the parties under this Agreement are unique
and, accordingly, the parties intend that in addition to all other legal or
equitable remedies available, injunctive relief and the remedy of specific
performance may be utilized in the event of the breach or threatened breach of
this Agreement.
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17. Entire Agreement. This Agreement contains the sole and entire
understanding of the parties with respect to its subject matter, and all prior
negotiations, discussions, commitments and understandings heretofore had between
them with respect thereto are merged herein.
18. Amendments and Waivers. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated orally or in writing, except
that any term of this Agreement may be amended and the observance of any such
term may be waived (either generally or in a particular instance either
retroactively or prospectively) with (but only with) the written consent of the
Company and the Investors holding at least 67% of the Underlying Common Stock;
provided that (i) no such amendment or waiver shall affect the provisions of
Section 3(b) and this Section 18 without the written consent of all Investors,
and (ii) any amendment that has a material adverse effect on the rights of the
Existing Shareholders under any section of this Agreement which specifically
grants rights to the Existing Shareholders, shall also require the written
consent of Existing Shareholders holding at least a majority of the Registrable
Stock held by all Existing Shareholders. No such waiver shall extend to or
affect any obligation not expressly waived.
19. Counterparts. This Agreement may be executed in more than one
counterpart, each of which shall be deemed to be an original and which,
together, shall constitute one and the same instrument.
20. Governing Law. The validity, legality, enforceability and
interpretation of this Agreement shall be governed by the laws of the State of
California, without giving effect to principles of conflicts of laws.
(The remainder of this page is intentionally left blank.)
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IN WITNESS WHEREOF, this Agreement has been duly executed on the date
hereinabove set forth.
COMPANY:
VIRAGE, INC.
By: /s/ Paul Lego
-----------------------------------------
Its: President and Chief Executive Officer
----------------------------------------
PURCHASERS:
- --------------------------------------------
By:
-----------------------------------------
Name:
---------------------------------------
Its:
----------------------------------------
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EXHIBIT 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of __________, 1999, is made by and
between Virage, Inc., a Delaware corporation (the "Company"), and
______________________ (the "Indemnitee").
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers
and agents and the directors, officers and agents of its subsidiaries to assume
the risk of huge judgments and other expenses which may occur in cases in which
the director, officer or agent received no personal profit and in cases where
the director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors, officers and agents
of the Company and its subsidiaries and to
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encourage such individuals to take the business risks necessary for the success
of the Company and its subsidiaries, it is necessary for the Company to
contractually indemnify its directors, officers and agents and the directors,
officers and agents of its subsidiaries, and to assume for itself maximum
liability for expenses and damages in connection with claims against such
directors, officers and agents in connection with their service to the Company
and its subsidiaries, and has further concluded that the failure to provide such
contractual indemnification could result in great harm to the Company and its
subsidiaries and the Company's stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include
all out of pocket expenses costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or
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<PAGE> 3
enforcing a right to indemnification under this Agreement or Section 145 or
otherwise; provided, however, that "expenses" shall not include any judgments,
fines, ERISA excise taxes or penalties, or amounts paid in settlement of a
proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding"
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. Liability Insurance.
(a) Maintenance of D&O Insurance. The Company hereby covenants
and agrees that, so long as the Indemnitee shall continue to serve as an agent
of the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
(c) Limitation on Required Maintenance of D&O Insurance.
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
shall indemnify the Indemnitee as follows:
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(a) Successful Defense. To the extent the Indemnitee has been
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was or
is a party or is threatened to be made a party to any proceeding by or in the
right of the Company by reason of the fact that he is or was an agent of the
Company, or by reason of anything done or not done by him in any such capacity,
the Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not
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limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid
in settlement) for which payment is actually made to Indemnitee under a valid
and collectible insurance policy of D&O Insurance, or under a valid and
enforceable indemnity clause, by-law or agreement.
5. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below, the
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by
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the Company, (B) the Indemnitee shall have reasonably concluded that there may
be a conflict of interest between the Company and the Indemnitee in the conduct
of any such defense; or (C) the Company shall not, in fact, have employed
counsel to assume the defense of such proceeding, the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
8. Exceptions. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee under
this Agreement for any amounts paid in settlement of a proceeding unless the
Company consents to such settlement, which consent shall not be unreasonably
withheld.
9. Non-exclusivity. The provisions for indemnification and advancement
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements, or otherwise, both as
to action in his official capacity and to action in another capacity while
occupying his position as an agent of the Company, and the Indemnitee's rights
hereunder shall continue after the Indemnitee has ceased acting as an agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by
this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee
in any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation
(including
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its Board of Directors or its stockholders) to have made a determination prior
to the commencement of such enforcement action that indemnification of
Indemnitee is proper in the circumstances, nor an actual determination by the
Company (including its Board of Directors or its stockholders) that such
indemnification is improper, shall be a defense to the action or create a
presumption that Indemnitee is not entitled to indemnification under this
Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
(a) All agreements and obligations of the Company contained
herein shall continue during the period Indemnitee is an agent of the Company
and shall continue thereafter so long as Indemnitee shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal, arbitrational, administrative or investigative, by
reason of the fact that Indemnitee was serving in the capacity referred to
herein.
(b) The Company shall require any successor to the Company
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business or assets of the Company, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place.
13. Interpretation of Agreement. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any
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<PAGE> 8
other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
16. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
17. Governing Law. This Agreement shall be governed exclusively by and
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
18. Consent to Jurisdiction. The Company and the Indemnitee each hereby
consent to the jurisdiction of the courts of the State of Delaware with respect
to any action or proceeding which arises out of or relates to this Agreement.
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The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
THE COMPANY:
VIRAGE, INC.
By
----------------------------------
Its
---------------------------------
Address: 177 Bovet Road, Suite 520
San Mateo, California 94402
INDEMNITEE:
------------------------------------
[NAME]
Address:
------------------------------------
------------------------------------
9
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EXHIBIT 10.2
VIRAGE, INC.
1995 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Virage, Inc. 1995 Stock Option Plan (the
"PLAN") is hereby established effective as of March 13, 1995.
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its shareholders by providing an
incentive to attract, retain and reward persons performing services for the
Participating Company Group and to motivate such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until
terminated by the Board or until all of the shares of Stock available for
issuance under the Plan have been issued and all restrictions on such shares
under the terms of the Plan and the agreements evidencing Options granted under
the Plan have lapsed. However, all Options shall be granted, if at all, prior to
March 13, 2005.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "Board" shall also mean such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means Virage, Inc., a Delaware corporation,
or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
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(f) "DIRECTOR" means a member of the Board or of the board
of directors of any other Participating Company.
(g) "DISABILITY" means the inability of the Optionee, in
the opinion of a qualified physician, to perform the major duties of the
Optionee's position with the Participating Company Group because of the sickness
or injury of the Optionee.
(h) "EMPLOYEE" means any common-law employee (including
officers and Directors who are also common-law employees) of a Participating
Company; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for this purpose.
(i) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(j) "INSIDER" means an officer or Director of the Company
or any other person whose transactions in the Stock are subject to Section 16 of
the Exchange Act.
(k) "FAIR MARKET VALUE" means, as of any date, the value
of a share of stock or other property as determined by the Board, in its sole
discretion; provided, however, that for purposes of establishing the exercise
price of an Option pursuant to Section 6.1, the value of a share of Stock shall
be determined in accordance with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(l) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 5.2) pursuant to the terms and conditions of
the Plan. An Option may be either (i) an Option intended to be an "INCENTIVE
STOCK OPTION" within the meaning of Section 422(b) of the Code or (ii) a
"NONSTATUTORY STOCK OPTION" which is not intended to, or does not, qualify as an
Incentive Stock Option.
(m) "OPTIONEE" means a person who has been granted one or
more Options.
(n) "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee.
(o) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(p) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(q) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
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(r) "RULE 16b-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(s) "SECTION 162(m)" means Section 162(m) of the Code, as
amended by the Revenue Reconciliation Act of 1993 (P.L. 103-66).
(t) "SERVICE" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company.
(u) "STOCK" means the common stock, without par value, of
the Company, as adjusted from time to time in accordance with Section 5.2.
(v) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(w) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at
the time an Option is granted to the Optionee, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
a Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered
by the Board, including any duly appointed Committee of the Board. All questions
of interpretation of the Plan or of any Option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such Option. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, or election which is the responsibility of or which
is allocated to the Company herein, provided the officer has apparent authority
with respect to such matter, right, obligation, or election.
3.2 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
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(a) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of stock
or other property;
(d) to determine the terms and conditions of each Option
(which need not be identical), including, without limitation, the exercise price
of the Option, the method of payment for shares purchased upon the exercise of
the Option, the method for satisfaction of any tax withholding obligation
arising in connection with the Option, including by the withholding or delivery
of shares of stock, the timing and terms of the exercisability and vesting of
the Option, the time of the expiration of the Option, the effect of the
Optionee's termination of employment or Service, and all other terms and
conditions of the Option not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, or renew, or grant a new
Option in substitution for, any Option or to waive any restrictions or
conditions applicable to any Option or the exercise thereof;
(g) to amend the exercisability or vesting of any Option,
including with respect to the period following an Optionee's termination of
employment or Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan and
any Option as the Board may deem advisable, to the extent consistent with the
Plan and applicable law.
3.3 DISINTERESTED ADMINISTRATION. With respect to participation
by Insiders in the Plan, at any time that any class of equity security of the
Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall
be administered by the Board in compliance with the "disinterested
administration" requirements of Rule 16b-3.
4. ELIGIBILITY AND OPTION LIMITATIONS.
4.1 ELIGIBLE PERSONS. Options may be granted only to Employees,
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Consultants, and Directors. For purposes of the foregoing sentence, "Employees"
shall include prospective Employees to whom Options are granted in connection
with written offers of employment with the Participating Company Group, and
"Consultants" shall include prospective Consultants to whom Options are granted
in connection with written offers of engagement with the Participating Company
Group. Eligible persons may be granted more than one (1) Option.
4.2 DIRECTORS SERVING ON COMMITTEE. At any time that any class of
equity security of the Company is registered pursuant to Section 12 of the
Exchange Act, no member of a Committee established to administer the Plan in
compliance with the "disinterested administration" requirements of Rule 16b-3,
while a member, shall be eligible to be granted an Option.
4.3 OPTION GRANT RESTRICTIONS. A Director may only be granted a
Nonstatutory Stock Option unless the Director is also an Employee. An individual
who is a Consultant, or who is a prospective Employee or prospective Consultant,
may only be granted a Nonstatutory Stock Option.
4.4 FAIR MARKET VALUE LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time the Option is granted) of
stock with respect to which Incentive Stock Options are exercisable by an
Optionee for the first time during any calendar year (under all stock option
plans of the Participating Company Group, including the Plan) exceeds One
Hundred Thousand Dollars ($100,000), such options shall be treated as
Nonstatutory Stock Options. This Section 4.4 shall be applied by taking
Incentive Stock Options into account in the order in which they were granted. If
the Code is amended to provide for a different limitation from that set forth in
this Section 4.4, such different limitation shall be deemed incorporated herein
effective as of the date and with respect to such Options as required by such
amendment to the Code. If an Option is treated as an Incentive Stock Option in
part and as a Nonstatutory Stock Option in part by reason of the limitation set
forth in this Section 4.4, separate certificates representing each such portion
shall be issued upon the exercise of the Option.
5. SHARES SUBJECT TO PLAN.
5.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 5.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be One Million Seven Hundred Eighty Thousand
Seven Hundred Twenty (1,780,720) and shall consist of authorized but unissued
shares of Stock. In the event that any outstanding Option for any reason expires
or is terminated or canceled or shares of Stock acquired, subject to repurchase,
upon the exercise of an Option are repurchased by the Company, the shares of
Stock allocable to the unexercised portion of such Option, or such repurchased
or reacquired shares of Stock, shall again be available for issuance under the
Plan.
5.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price of
any outstanding Options. If a majority of the shares which are of the same class
as the
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shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to a Transfer of Control (as
defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares subject to and the exercise price of the outstanding Options
shall be adjusted in a fair and equitable manner as determined by the Board, in
its sole discretion. Notwithstanding the foregoing, any fractional share
resulting from an adjustment pursuant to this Section 5.2 shall be rounded up or
down to the nearest whole number, as determined by the Board, and in no event
may the exercise price of any Option be decreased to an amount less than the par
value, if any, of the stock subject to the Option.
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish, which Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on date the Option is granted, (b) the
exercise price per share for a Nonstatutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of a share of Stock on the
date the Option is granted, and (c) no Option granted to a Ten Percent Owner
Optionee shall have an exercise price per share less than one hundred ten
percent (110%) of the Fair Market Value of a share of Stock on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than the minimum exercise price set forth above if such
Option is granted pursuant to an assumption or substitution for another option
in a manner qualifying under the provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times and subject to such terms, conditions, performance criteria, and
restrictions as shall be determined by the Board and set forth in the Option
Agreement evidencing such Option; provided, however, that (a) no Option shall be
exercisable after the expiration of ten (10) years after the date such Option is
granted, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the date such
Option is granted, and (c) no Option granted to a prospective Employee or
prospective Consultant may become exercisable prior to the date on which such
individual commences Service with a Participating Company. Subject to this
Section 6.2 and Sections 6.5 and 8 below, an Option must become exercisable at
the rate of no less than 20% for each full year which occurs after the date of
grant of the Option, unless the grant of the Option and issuance of Stock upon
the exercise of the Option may occur in compliance with an exemption from the
requirement to qualify such securities under the California Corporate Securities
Law of 1968, as amended.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF PAYMENT AUTHORIZED. Except as otherwise
provided
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below, payment of the exercise price for the number of shares of Stock being
purchased pursuant to any Option shall be made (i) in cash, by check, or cash
equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value (determined without regard to any
restrictions on transferability applicable to such stock by reason of federal or
state securities laws or agreements with an underwriter for the Company) not
less than the exercise price, (iii) by the assignment of the proceeds of a sale
of some or all of the shares being acquired upon the exercise of the Option
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "SAME-DAY SALE"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. Unless otherwise provided by the Board, an Option may not be exercised by
tender to the Company of shares of Stock unless such shares either have been
owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(c) SAME-DAY SALE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Same-Day Sale.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall
be permitted if an exercise using a promissory note would be a violation of any
law. Any permitted promissory note shall be due and payable not more than four
(4) years after the Option is exercised, and interest shall be payable at least
annually and at a rate at least equal to the minimum interest rate necessary to
avoid imputed interest pursuant to all applicable sections of the Code. The
Board shall have the authority to permit or require the Optionee to secure any
promissory note used to exercise an Option with the shares of Stock acquired
upon the exercise of the Option or with other collateral acceptable to the
Company. Unless otherwise provided by the Board, in the event the Company at any
time is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option shares the Fair Market Value of which is equal to all or any part of
the federal, state, local and foreign taxes, if any, required by law to be
withheld by the Participating Company Group with respect to such Option.
Alternatively, in its sole discretion, the Company shall have the right to
require the
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Optionee, through payroll withholding or otherwise, to make adequate provision
for any such tax withholding obligations of the Participating Company Group
arising in connection with the Option. The Company shall have no obligation to
deliver shares of Stock or to release shares of Stock from an escrow established
pursuant to the Option Agreement until the Participating Company Group's tax
withholding obligations have been satisfied.
6.5 EFFECT OF TERMINATION OF SERVICE. An Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminates, shall remain exercisable for such period of time following the
Optionee's termination of Service as shall be determined by the Board, in its
sole discretion, upon the grant or subsequent amendment of the Option; provided,
however, that such period of time shall be no less than (a) six (6) months if
the Optionee's Service terminates by reason of the Optionee's death or
Disability, or (b) thirty (30) days if the Optionee's Service terminates for any
other reason or no reason. Notwithstanding the foregoing, in no event shall an
Option be exercisable after the expiration of its term as set forth in the
Option Agreement evidencing such Option.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as an "Incentive
Stock Option" shall comply with and be subject to the terms and conditions set
forth in the form of Incentive Stock Option Agreement attached hereto as Exhibit
A.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided for by
the Board at the time an Option is granted, an Option designated as a
"Nonstatutory Stock Option" shall comply with and be subject to the terms and
conditions set forth in the form of Nonstatutory Stock Option Agreement attached
hereto as Exhibit B.
7.3 STANDARD TERM OF OPTIONS. Except as otherwise provided in
Section 6.2 or by the Board in the grant of an Option, any Option granted
hereunder shall be exercisable for a term of ten (10) years.
7.4 AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
such revised or amended standard form or forms of Option Agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are immediately
exercisable subject to the Company's right to repurchase any unvested shares of
Stock acquired by an Optionee upon the exercise of an Option in the event such
Optionee's employment or Service with the Participating Company Group is
terminated for any reason, with or without cause.
8. TRANSFER OF CONTROL.
8.1 DEFINITION. A "TRANSFER OF CONTROL" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
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<PAGE> 9
(a) the direct or indirect sale or exchange by the
shareholders of the Company of all or substantially all of the stock of the
Company where the shareholders of the Company before such sale or exchange do
not retain, directly or indirectly, as a result of their ownership of shares of
the Company's stock prior to such event, beneficial ownership of at least a
majority of the voting stock of the Company after such sale or exchange;
(b) a merger or consolidation where the shareholders of
the Company before such merger or consolidation do not retain, directly or
indirectly, as a result of their ownership of shares of the Company's stock
prior to such event, beneficial ownership of at least a majority of the voting
stock of the Company after such merger or consolidation;
(c) the sale, exchange, or transfer of all or
substantially all of the assets of the Company (other than a sale, exchange, or
transfer to one or more Subsidiary Corporations of the Company);
(d) a liquidation or dissolution of the Company.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, the Board, in its sole discretion, may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), for the
Acquiring Corporation to either assume the Company's rights and obligations
under outstanding Options or substitute substantially equivalent options for the
Acquiring Corporation's stock for outstanding Options. Any Options which are
neither assumed or substituted for by the Acquiring Corporation in connection
with the Transfer of Control nor exercised as of the date of the Transfer of
Control shall terminate and cease to be outstanding effective as of the date of
the Transfer of Control.
9. PROVISION OF INFORMATION. At least annually, copies of the Company's
balance sheet and income statement for the just completed fiscal year shall be
made available to each Optionee and purchaser of shares of Stock upon the
exercise of an Option. The Company shall not be required to provide such
information to persons whose duties in connection with the Company assure them
access to equivalent information.
10. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
11. TRANSFER OF COMPANY'S RIGHTS. In the event any Participating Company
assigns, other than by operation of law, to a third person, other than another
Participating Company, any of the Participating Company's rights to repurchase
any shares of Stock acquired upon the exercise of an Option, the assignee shall
pay to the assigning Participating Company the value of such right as determined
by the Company in the Company's sole discretion. Such consideration shall be
paid in cash. In the event such repurchase right is exercisable at the time of
such assignment, the value of such right shall be not less than the fair market
value of the shares of Stock which may be repurchased under such right (as
determined by the Company)
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<PAGE> 10
minus the repurchase price of such shares. The requirements of this Section 11
regarding the minimum consideration to be received by the assigning
Participating Company shall not inure to the benefit of the Optionee whose
shares of Stock are being repurchased. Failure of a Participating Company to
comply with the provisions of this Section 11 shall not constitute a defense or
otherwise prevent the exercise of the repurchase right by the assignee of such
right.
12. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board, members of the Board and any officers
to whom authority to act for the Board is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for negligence or misconduct in duties;
provided, however, that within sixty (60) days after the institution of such
action, suit or proceeding, such person shall offer to the Company, in writing,
the opportunity at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
shareholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 5.2), (b) no change in the class of persons eligible to receive
Incentive Stock Options, (c) no expansion in the class of persons eligible to
receive Nonstatutory Stock Options, (d) no extension of the period during which
Options may be granted under the Plan, and (e) if a class of any equity security
of the Company is registered pursuant to Section 12 of the Exchange Act, no
amendment to the Plan which, in the opinion of the Board, would require
shareholder approval in order to comply with Rule 16b-3. In any event, no
termination or amendment of the Plan may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such termination or amendment is required to enable an Option designated
as an Incentive Stock Option to qualify as an Incentive Stock Option or is
necessary to comply with any applicable law or government regulation.
14. Shareholder Approval. The Plan or any increase in the maximum number
of shares of Stock issuable thereunder as provided in Section 5.1 (the "Maximum
Shares") shall be approved by the shareholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
shareholder approval of the Plan or in excess of the Maximum Shares previously
approved by the shareholders shall become exercisable no earlier than the date
of shareholder approval of the Plan or such increase in the Maximum Shares, as
the case may be.
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IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Virage, Inc. 1995 Stock Option Plan was duly adopted by the
Board on March 13, 1995.
/s/ Cameron Jay Rains
------------------------------------
Cameron Jay Rains, Secretary
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EXHIBIT A
STANDARD FORM OF
VIRAGE, INC.
INCENTIVE STOCK OPTION AGREEMENT
<PAGE> 13
EXHIBIT B
STANDARD FORM OF
VIRAGE, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
<PAGE> 1
EXHIBIT 10.3
VIRAGE, INC.
1997 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENT. The Virage, Inc. 1997 Stock Option
Plan (the "PLAN") is hereby established effective as of December 4, 1997.
1.2 PURPOSE. The purpose of the Plan is to advance the interests
of the Participating Company Group and its stockholders by providing an
incentive to attract, retain and reward persons performing services for the
Participating Company Group and by motivating such persons to contribute to the
growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Options
shall be granted, if at all, within ten (10) years from the earlier of the date
the Plan is adopted by the Board or the date the Plan is duly approved by the
stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
If one or more Committees have been appointed by the Board to administer the
Plan, "BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means Virage, Inc., a Delaware corporation,
or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
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(f) "DIRECTOR" means a member of the Board or of the board
of directors of any other Participating Company.
(g) "DISABILITY" means the inability of the Optionee, in
the opinion of a qualified physician acceptable to the Company, to perform the
major duties of the Optionee's position with the Participating Company Group
because of the sickness or injury of the Optionee.
(h) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value
of a share of Stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing sale price
of a share of Stock (or the mean of the closing bid and asked prices of a share
of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board without regard to any restriction other than a restriction which, by its
terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended to be
(as set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended
to be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
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(n) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(o) "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee setting forth the terms, conditions and restrictions
of the Option granted to the Optionee and any shares acquired upon the exercise
thereof.
(p) "OPTIONEE" means a person who has been granted one or
more Options.
(q) "PARENT CORPORATION" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any
Parent Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(t) "RULE 16b-3" means Rule 16b-3 under the Exchange Act,
as amended from time to time, or any successor rule or regulation.
(u) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(v) "SERVICE" means an Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Furthermore,
an Optionee's Service with the Participating Company Group shall not be deemed
to have terminated if the Optionee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Company; provided, however,
that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day
of such leave the Optionee's Service shall be deemed to have terminated unless
the Optionee's right to return to Service with the Participating Company Group
is guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining vesting under the
Optionee's Option Agreement. The Optionee's Service shall be deemed to have
terminated either upon an actual termination of Service or upon the corporation
for which the Optionee performs Service ceasing to be a Participating Company.
Subject to the foregoing, the Company, in its sole discretion, shall determine
whether the Optionee's Service has terminated and the effective date of such
termination.
(w) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
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(x) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(y) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at
the time an Option is granted to the Optionee, owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
a Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered
by the Board. All questions of interpretation of the Plan or of any Option shall
be determined by the Board, and such determinations shall be final and binding
upon all persons having an interest in the Plan or such Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, determination or election which
is the responsibility of or which is allocated to the Company herein, provided
the officer has apparent authority with respect to such matter, right,
obligation, determination or election.
3.2 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.3 POWERS OF THE BOARD. In addition to any other powers set
forth in the Plan and subject to the provisions of the Plan, the Board shall
have the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or
times at which, Options shall be granted and the number of shares of Stock to be
subject to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock
or other property;
(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the
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exercisability of the Option or the vesting of any shares acquired upon the
exercise thereof, (v) the time of the expiration of the Option, (vi) the effect
of the Optionee's termination of Service with the Participating Company Group on
any of the foregoing, and (vii) all other terms, conditions and restrictions
applicable to the Option or such shares not inconsistent with the terms of the
Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or
otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the
exercisability of any Option or the vesting of any shares acquired upon the
exercise thereof, including with respect to the period following an Optionee's
termination of Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option Agreement and to make all
other determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be Nine Hundred Forty-Two Thousand Nine
Hundred Ninety-Five (942,995) and shall consist of authorized but unissued or
reacquired shares of Stock or any combination thereof; provided, however, that
such number shall be increased automatically by a number of shares equal to the
number of shares subject to any option outstanding under the Company's 1995
Stock Option Plan which expires or which is terminated, canceled or repurchased,
provided that in no event will the maximum aggregate number of shares of stock
that may be issued under the Plan exceed Five Million Four Hundred Ninety-Eight
Thousand Thirty-Four (5,498,034) subject to adjustment as provided for in
Section 4.2. If an outstanding Option for any reason expires or is terminated or
canceled or if shares of Stock are acquired upon the exercise of an Option
subject to a Company repurchase option and are repurchased by the Company at the
Optionee's exercise price, the shares of Stock allocable to the unexercised
portion of such Option or such repurchased shares of Stock shall again be
available for issuance under the Plan. Notwithstanding the foregoing, at any
such time as the offer and sale of securities pursuant to the Plan is subject
to compliance with Section 260.140.45 of Title 10 of the California Code of
Regulations ("SECTION 260.140.45"), the total number of shares of Stock
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<PAGE> 6
issuable upon the exercise of all outstanding Options (together with options
outstanding under any other stock option plan of the Company) and the total
number of shares provided for under any stock bonus or similar plan of the
Company shall not exceed thirty percent (30%) (or such other higher percentage
limitation as may be approved by the stockholders of the Company pursuant to
Section 260.140.45) of the then outstanding shares of the Company as calculated
in accordance with the conditions and exclusions of Section 260.140.45.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options and in the exercise price per
share of any outstanding Options. If a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to an
Ownership Change Event, as defined in Section 8.1) shares of another corporation
(the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to
provide that such Options are exercisable for New Shares. In the event of any
such amendment, the number of shares subject to, and the exercise price per
share of, the outstanding Options shall be adjusted in a fair and equitable
manner as determined by the Board, in its sole discretion. Notwithstanding the
foregoing, any fractional share resulting from an adjustment pursuant to this
Section 4.2 shall be rounded up or down to the nearest whole number, as
determined by the Board, and in no event may the exercise price of any Option be
decreased to an amount less than the par value, if any, of the stock subject to
the Option. The adjustments determined by the Board pursuant to this Section 4.2
shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"EMPLOYEES," "CONSULTANTS" and "DIRECTORS" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationship
with the Participating Company Group. Eligible persons may be granted more than
one (1) Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee
on the effective date of the grant of an Option to such person may be granted
only a Nonstatutory Stock Option. An Incentive Stock Option granted to a
prospective Employee upon the condition that such person become an Employee
shall be deemed granted effective on the date such person commences Service with
a Participating Company, with an exercise price determined as of such date in
accordance with Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair
6
<PAGE> 7
Market Value of stock shall be determined as of the time the option with respect
to such stock is granted. If the Code is amended to provide for a different
limitation from that set forth in this Section 5.3, such different limitation
shall be deemed incorporated herein effective as of the date and with respect to
such Options as required or permitted by such amendment to the Code. If an
Option is treated as an Incentive Stock Option in part and as a Nonstatutory
Stock Option in part by reason of the limitation set forth in this Section 5.3,
the Optionee may designate which portion of such Option the Optionee is
exercising. In the absence of such designation, the Optionee shall be deemed to
have exercised the Incentive Stock Option portion of the Option first. Separate
certificates representing each such portion shall be issued upon the exercise of
the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. No Option or purported Option shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Option granted
to a Ten Percent Owner Optionee shall have an exercise price per share less than
one hundred ten percent (110%) of the Fair Market Value of a share of Stock on
the effective date of grant of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be
granted with an exercise price lower than the minimum exercise price set forth
above if such Option is granted pursuant to an assumption or substitution for
another option in a manner qualifying under the provisions of Section 424(a) of
the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and restrictions as shall be determined by the Board and
set forth in the Option Agreement evidencing such Option; provided, however,
that (a) no Option shall be exercisable after the expiration of ten (10) years
after the effective date of grant of such Option, (b) no Incentive Stock Option
granted to a Ten Percent Owner Optionee shall be exercisable after the
expiration of five (5) years after the effective date of grant of such Option,
(c) no Option granted to a prospective Employee, prospective Consultant or
prospective Director may become exercisable prior to the date on which such
person commences Service with a Participating Company, and (d) with the
exception of an Option granted to an officer, Director or Consultant, no Option
shall become exercisable at a rate less than twenty percent (20%) per year over
a period of five (5) years from the effective date of grant of such Option,
subject to the Optionee's continued Service. Subject to the foregoing, unless
otherwise specified by the Board in the grant of an Option, any Option granted
hereunder shall have a term of ten (10) years from the effective date of grant
of the Option.
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<PAGE> 8
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as
otherwise provided below, payment of the exercise price for the number of shares
of Stock being purchased pursuant to any Option shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company, or attestation to the
ownership, of shares of Stock owned by the Optionee having a Fair Market Value
(as determined by the Company without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company) not less than
the exercise price, (iii) by the assignment of the proceeds of a sale or loan
with respect to some or all of the shares being acquired upon the exercise of
the Option (including, without limitation, through an exercise complying with
the provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender, or attestation to the
ownership, of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company, or attestation to the ownership, of shares of Stock unless such
shares either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall
be permitted if the exercise of an Option using a promissory note would be a
violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
8
<PAGE> 9
6.4 TAX WITHHOLDING. The Company shall have the right, but not
the obligation, to deduct from the shares of Stock issuable upon the exercise of
an Option, or to accept from the Optionee the tender of, a number of whole
shares of Stock having a Fair Market Value, as determined by the Company, equal
to all or any part of the federal, state, local and foreign taxes, if any,
required by law to be withheld by the Participating Company Group with respect
to such Option or the shares acquired upon the exercise thereof. Alternatively
or in addition, in its sole discretion, the Company shall have the right to
require the Optionee, through payroll withholding, cash payment or otherwise,
including by means of a Cashless Exercise, to make adequate provision for any
such tax withholding obligations of the Participating Company Group arising in
connection with the Option or the shares acquired upon the exercise thereof. The
Company shall have no obligation to deliver shares of Stock or to release shares
of Stock from an escrow established pursuant to the Option Agreement until the
Participating Company Group's tax withholding obligations have been satisfied by
the Optionee.
6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be
subject to a right of first refusal, one or more repurchase options, or other
conditions and restrictions as determined by the Board in its sole discretion at
the time the Option is granted. The Company shall have the right to assign at
any time any repurchase right it may have, whether or not such right is then
exercisable, to one or more persons as may be selected by the Company. Upon
request by the Company, each Optionee shall execute any agreement evidencing
such transfer restrictions prior to the receipt of shares of Stock hereunder and
shall promptly present to the Company any and all certificates representing
shares of Stock acquired hereunder for the placement on such certificates of
appropriate legends evidencing any such transfer restrictions.
6.6 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier termination
of the Option as otherwise provided herein, an Option shall be exercisable after
an Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months (or such longer or shorter period of time as
determined by the Board, in its sole discretion, which in no event shall be less
than six (6) months) after the date on which the Optionee's Service terminated,
but in any event no later than the date of expiration of the Option's term as
set forth in the Option Agreement evidencing such Option (the "OPTION EXPIRATION
DATE").
(ii) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months (or such longer or shorter period of time as determined by the
Board, in its sole discretion, which in no event shall be less than six (6)
months) after the date on which the Optionee's Service terminated, but in any
event no later than the Option Expiration Date. The
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<PAGE> 10
Optionee's Service shall be deemed to have terminated on account of death if
the Optionee dies within three (3) months after the Optionee's termination of
Service.
(iii) OTHER TERMINATION OF SERVICE. If the
Optionee's Service with the Participating Company Group terminates for any
reason, except Disability or death, the Option, to the extent unexercised and
exercisable by the Optionee on the date on which the Optionee's Service
terminated, may be exercised by the Optionee within three (3) months (or such
longer or shorter period of time as determined by the Board, in its sole
discretion, which in no event shall be less than thirty (30) days) after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW.
Notwithstanding the foregoing, if the exercise of an Option within the
applicable time periods set forth in Section 6.6(a) is prevented by the
provisions of Section 11 below, the Option shall remain exercisable until three
(3) months after the date the Optionee is notified by the Company that the
Option is exercisable, but in any event no later than the Option Expiration
Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.6(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 INCENTIVE STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as an "INCENTIVE
STOCK OPTION" shall comply with and be subject to the terms and conditions set
forth in the form of Incentive Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.2 NONSTATUTORY STOCK OPTIONS. Unless otherwise provided by the
Board at the time the Option is granted, an Option designated as a "NONSTATUTORY
STOCK OPTION" shall comply with and be subject to the terms and conditions set
forth in the form of Nonstatutory Stock Option Agreement adopted by the Board
concurrently with its adoption of the Plan and as amended from time to time.
7.3 AUTHORITY TO VARY TERMS. The Board shall have the authority
from time to time to vary the terms of any of the standard forms of Option
Agreement described in this Section 7 either in connection with the grant or
amendment of an individual Option or in connection with the authorization of a
new standard form or forms; provided, however, that the terms and conditions of
any such new, revised or amended standard form or forms of Option Agreement are
not inconsistent with the terms of the Plan.
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<PAGE> 11
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company
is a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event
of a Change in Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under
outstanding Options or substitute for outstanding Options substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 8.2, an Option shall be deemed assumed if, following the Change in
Control, the Option confers the right to purchase in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Change in Control, the consideration (whether stock, cash or other
securities or property) to which a holder of a share of Stock on the effective
date of the Change in Control was entitled. Any Options which are neither
assumed or substituted for by the Acquiring Corporation in connection with the
Change in Control nor exercised as of the date of the Change in Control shall
terminate and cease to be outstanding effective as of the date of the Change in
Control. Notwithstanding the foregoing, shares acquired upon exercise of an
Option prior to the Change in Control and any consideration received
11
<PAGE> 12
pursuant to the Change in Control with respect to such shares shall continue to
be subject to all applicable provisions of the Option Agreement evidencing such
Option except as otherwise provided in such Option Agreement. Furthermore,
notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Options immediately prior to an Ownership Change Event
described in Section 8.1(a)(i) constituting a Change in Control is the surviving
or continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the outstanding Options
shall not terminate unless the Board otherwise provides in its sole discretion.
9. PROVISION OF INFORMATION.
At least annually, copies of the Company's balance sheet and
income statement for the just completed fiscal year shall be made available to
each Optionee and purchaser of shares of Stock upon the exercise of an Option.
The Company shall not be required to provide such information to persons whose
duties in connection with the Company assure them access to equivalent
information.
10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee or the Optionee's guardian or legal
representative. No Option shall be assignable or transferable by the Optionee,
except by will or by the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto
as may be requested by the Company.
12. INDEMNIFICATION.
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<PAGE> 13
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's stockholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's stockholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or rule.
14. SHAREHOLDER APPROVAL.
The Plan or any increase in the maximum number of shares of Stock
issuable thereunder as provided in Section 4.1 (the "MAXIMUM SHARES") shall be
approved by the stockholders of the Company within twelve (12) months of the
date of adoption thereof by the Board. Options granted prior to stockholder
approval of the Plan or in excess of the Maximum Shares previously approved by
the stockholders shall become exercisable no earlier than the date of
stockholder approval of the Plan or such increase in the Maximum Shares, as the
case may be.
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<PAGE> 14
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies
that the foregoing Virage, Inc. 1997 Stock Option Plan was duly adopted by the
Board on December 4, 1997.
/s/ Frank Pao
----------------------------------------
Secretary
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<PAGE> 15
STANDARD FORM OF
VIRAGE, INC.
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
<PAGE> 16
STANDARD FORM OF
VIRAGE, INC.
IMMEDIATELY EXERCISABLE
NONSTATUTORY STOCK OPTION AGREEMENT
<PAGE> 1
EXHIBIT 10.5
This Lease, between the parties named below as Landlord and Tenant, is dated
January 17, 1996, for reference purposes only.
SALIENT LEASE TERMS AND DEFINITIONS.
1.1 Salient Lease Terms.
a. Rent Payment Address:
c/o Birtcher Property Services
177 Bovet Road, Suite 200
San Mateo, CA 94402
b. Parties and Notice Addresses:
Landlord:
Casiopea Venture Corporation
c/o Birtcher Property Services
177 Bovet Road, Suite 200
San Mateo, CA 94402
Tenant:
Virage, Inc.
9605 Scranton Road, Suite 240
San Diego, CA 92121-1768
c. Premises:
1. Name and Location of Facility where the Building is
located: Bovet Office Centre
2. Street Address of Building: 177 Bovet Road
3. Suite No. of Premises: 520, located on the fifth
floor of the Building.
4. Approximate No. of net rentable square feet:
i. the Premises: 5,674;
ii. the Building: 92,099.
d. Term:
1. A period of five years.
2. Scheduled to commence on April 1, 1996, and end on
March 31, 2001.
1
<PAGE> 2
e. Monthly Rent:
1. Initial Monthly Rent: $10,213.20/month (subject to
adjustment per Exhibit F)
2. Prepaid Rent: $10,213.20 (24th month)
f. Deposit: $10,213.20
g. Permitted Uses: The Premises shall be used solely for the
following uses: General office use, software development,
and incidental uses directly related thereto.
h. Tenant's Percentage Share: 6%. (Subsection 5.1)
i. Base Years: The Base Expense Year for Operating Expenses
shall be calendar year 1996, and the Base Tax Year shall
be the fiscal tax year 1996-1997
j. Landlord's Broker: Cornish & Carey Commercial Tenant's
Broker: Cornish & Carey Commercial
k. Vehicle Parking Privileges Allocated to Tenant: 20.
l. Contents: This Lease consists of:
Pages 1 through 25, and Sections 1 through 48
Exhibits:
Lease Rider No. 1
Lease Rider No. 2
Lease Rider No. 3
A-1. Site Plan or Legal Description of the
Facility
A-2. Floor Plan of the Premises
B. Work Letter
C. Rules and Regulations
D. Standards for Utilities and Services
E. Acknowledgment of Commencement of Term
F. Adjustments to Monthly Rent
1.2 Definitions. For the convenience of the parties, a listing of
certain defined terms used in this Lease is set forth below:
<TABLE>
<CAPTION>
Section Where Section Where
Term Defined Term Defined
---- ---------------- ------------------ ----------------
<S> <C> <C> <C>
ALTERATIONS Subsection 9.1 OPERATING EXPENSES Subsection 5.3.1
ASSESSMENTS Subsection 5.2.2 OPTION Subsection 36.1
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
BASE EXPENSE YEAR Subsection 1.1(i) PERSONAL PROPERTY Subsection 9.3.2
BASE TAX YEAR Subsection 1.1(i) PREMISES Subsection 1.2
BUILDING Subsection 1.2 REAL PROPERTY Subsection 1.2
CASUALTY Subsection 23.2 READY FOR OCCUPANCY Exhibit B
CLAIMS Subsection 14.1 RENT Subsection 4.3
COMMENCEMENT DATE Subsection 1.2 RULES AND REGULATIONS Section 18
DEPOSIT Subsection 6.1 SCHEDULED COMMENCEMENT Subsection 1.2
DATE
ENVIRONMENTAL REQUIREMENTS Subsection 7.1 TAXES Subsection 5.2.1
EVENT OF DEFAULT Subsection 22.1.1 TENANT DELAYS Exhibit B
FACILITY Subsection 1.2 TENANT IMPROVEMENTS Exhibit B & Subsection 9.1
FORCE MAJEURE Section 17
GROSS RENT Subsection TENANT PARTIES Subsection 10.1
13.5.1(iii)
HAZARDOUS SUBSTANCE Subsection 7.1 TENANT'S PERCENTAGE Subsection 5.1
SHARE
LANDLORD PARTIES Subsection 14.1 TERM Subsection 1.2
LAWS Subsection 2.2 TRANSFER Subsection 13.1
MINIMUM MONTHLY RENT Subsection 4.1
</TABLE>
1. Lease Of Premises:
1.1 Demising Clause. Landlord hereby leases to Tenant, and Tenant
hires from Landlord, the Premises for the entire Term. Said letting and hiring
are upon and subject to the terms, covenants, and conditions set forth in this
Lease, including the Salient Terms and Definitions in Section 1 and the attached
exhibits. Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants, and conditions
applicable to Tenant hereunder. This Lease is made upon the condition of such
performance. Landlord reserves to Landlord the areas beneath and above the
Premises and the use thereof together with the right to install, maintain, use,
repair and replace pipes, ducts, conduits, wires, and structural elements
leading through the Premises and serving other parts of the Facility, so long as
such items are concealed by walls, flooring or ceilings. Such reservation shall
in no way affect the maintenance obligations imposed herein.
1.2 Description. As used herein, the following capitalized terms
shall have the indicated meanings;
3
<PAGE> 4
(a) The "Facility" shall mean that certain real
property (including the building(s), parking facilities, if any, and other
improvements now located and/or subsequently constructed thereon) owned by
Landlord and described in Exhibit A-1 attached hereto, said real property being
described generally in Subsection 1.1(c)(1) above.
(b) The "Building" shall mean that certain building
in which the Premises are located, said Building being a part of the Facility
and being more particularly described in Subsection 1.1(c)(2) above.
(c) The "Premises" shall mean that certain space
located in the Building and described in Subsection 1. I (c)(3) above and
delineated on Exhibit A-2 attached hereto, which space consists of the
approximate amount of rentable square footage specified in said Subsection
1.1(c)(4).
(d) The Term of the Lease shall be for the period
shown in Item 1.1(d) of the Salient Lease Terms commencing, subject to the
provisions of the "Work Letter" attached hereto as Exhibit "B," on the date the
Premises shall be tendered to Tenant ready for occupancy or such earlier date as
Tenant takes possession or commences use of the Premises for any purpose
including construction (the "Lease Commencement Date"). The Premises shall be
deemed ready for occupancy on the date of issuance of a Certificate of
Occupancy, Temporary Certificate of Occupancy or other equivalent approval by
the City of San Mateo of the improvements required by this Lease to be
constructed by Landlord. Landlord agrees to use its best efforts to give Tenant
estimates of the schedule for completion of the improvements and to give Tenant
ten (10) days prior notice of the anticipated date the Premises will be ready
for occupancy. The Target Commencement Date is a date which Landlord has
projected for occupancy, based upon its present estimates of construction
schedules. Subject to "Force Majeure" (as that term is defined below), Tenant
shall have the right to cancel this Lease in the event Landlord has not
delivered the Premises to Tenant within one hundred twenty (120 days after the
Target Commencement Date, as such date may be modified by the provisions of the
"Work Letter" attached hereto as Exhibit "B," which right is exercisable by
Tenant by delivering written notice to Landlord within five (5) business days
following expiration of said one hundred twenty (120) day period. "Force
Majeure" is hereby defined to mean any cause beyond the reasonable control of
Landlord, including but not limited to, strikes, acts of God, war, governmental
laws and regulations or restrictions, including delays in the issuance of
permits, inspections and approvals, shortages of labor or materials, or delays
caused by acts of Tenant as more particularly set forth in paragraph "7." of the
"Work Letter" attached hereto as Exhibit "B." In the event permission is given
to Tenant to enter or occupy all or a portion of the Premises prior to the
Target Commencement Date, such occupancy shall be subject to all of the terms
and conditions of this Lease. When the Lease Commencement Date has been
determined, the parties shall execute an amendment to this Lease in the form of
Exhibit "E" attached hereto and incorporated herein by this reference, stating
the actual Lease Commencement Date and the date for expiration of the Term (the
"Expiration Date") and setting forth an acknowledgment by Tenant that Landlord
has completed all improvements to the Premises in accordance with this Lease and
to the satisfaction of Tenant, subject to the items listed in a punch list, if
any, delivered to Landlord.
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2. Uses:
2.1 Permitted Uses. Except as otherwise expressly provided
herein, the Premises shall be used only for the Permitted Uses specified in
subsection 1.1(g) and for no other use or purpose.
2.2 Restriction on Use. Without limitation to the generality of
the foregoing use restriction, Tenant specifically covenants and agrees that it
shall not (a) do, bring, or keep, or permit to be done, brought, or kept,
anything in or about the Premises that will in any way (1) obstruct or interfere
with the rights of any other tenants or occupants of the Facility or injure or
annoy them, (2) cause a weight load or stress on the floor or any other portion
of the Premises in excess of the weight load or stress that the floor or other
portion of the Premises is designed to bear, (3) increase the existing rate of,
or adversely affect, any fire or other insurance upon the Building or its
contents, or (4) violate any of Landlord's Rules and Regulations; (b) use the
Premises, or allow them to be used, for any residential or disreputable purpose;
(c) commit or suffer to be committed any waste in or upon the Premises or the
Facility; or (d) provided such exclusive does not prohibit Tenant from primarily
using the Premises for the Permitted Uses specified in Subsection 1.1(g), Tenant
shall not conduct or permit to be conducted on or from the Premises activities
that violate any exclusive use right presently or subsequently granted by
Landlord to another tenant. Tenant, at Tenant's sole cost, shall comply with all
laws, statutes, rules, regulations, ordinances, codes, licenses, permits,
orders, decrees, judgments, approvals, plans, authorizations, and similar items
of any local, state, or federal governmental or quasi-governmental authority
(collectively, "Laws," or individually, a "Law") affecting the Premises, and
with the requirements of any Board of Fire Underwriters or other similar body
now or hereafter instituted, and shall also comply with any order, directive or
certificate of occupancy, issued pursuant to any Laws, that affects the
condition, use, or occupancy of the Premises, including, but not limited to, any
requirements of structural changes related to or affected by Tenant's acts or
use of the Premises.
2.3 Compliance by Other Tenants. Upon Landlord's receipt of
Tenant's written notice that another tenant or occupant of the Facility is
engaging in conduct prohibited by this Section, to the material detriment of
Tenant, Landlord agrees to use commercially reasonable efforts, consistent with
Landlord's rights under the lease of such other tenant or occupant, to cause
such party to desist from such prohibited conduct. Notwithstanding the
foregoing, Landlord shall not be liable to Tenant for any such conduct on the
part of other tenants or occupants of the Building.
2.4 Compliance by Landlord. Landlord represents and warrants to
Tenant that as of the Commencement Date, Tenant is or will be able to use the
Premises for general office uses and that the Premises and the Building are in
compliance with all laws, including the Americans with Disabilities Act ("ADA"),
regulating Tenant's intended use of the Premises.
3. Condition Of The Premises. Except as otherwise expressly provided in
Exhibit B attached hereto, it is specifically understood and agreed that (a)
Landlord has no obligation and has made no promises to alter, remodel, improve,
repair, decorate, or paint the Premises or any part thereof, (b) Landlord has
made no representations to Tenant respecting the condition of the Premises or
the Building or the suitability or legality of the Premises for the uses
contemplated
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by this Lease, and (c) by accepting possession of the Premises after substantial
completion of the work (if any) to be performed by Landlord pursuant to such
Exhibit B, Tenant acknowledges that the Premises are in good condition, and with
such acceptance of possession Tenant waives any claim against Landlord or
Landlord's agents or contractors for the condition or functioning of any
improvements within or about the Premises.
4. Rent.
4.1 Monthly Rent. From and after the Commencement Date, Tenant
shall pay to the Landlord, for each calendar month of the Term, the Monthly Rent
set forth in Subsection 1.1(e)(1), as the same may be adjusted from time to time
as provided in Section 4.2. Monthly Rent shall be due and payable to Landlord in
lawful money of the United States, in advance, on the first (1st) day of each
calendar month of the Term, without abatement, deduction, claim or offset, and
without prior notice, invoice or demand, at Landlord's address set forth in
Subsection 1.1.(a) or at such place as Landlord may from time to time designate.
Tenant's payment of Monthly Rent for the first (1st) month of the Term shall be
delivered to Landlord concurrently with Tenant's execution of this Lease.
4.1.1 Adjustments. Monthly Rent shall be adjusted from
time to time as provided in Exhibit F.
4.2 In the event that Landlord is unable to deliver to Tenant the
notice of the increased Minimum Monthly Rent at least five (5) business days
prior to the Adjustment Date, Tenant shall commence to pay the increased Minimum
Monthly Rent on the first day of the month following the receipt of such notice,
which notice must be sent at least five (5) business days prior to the first day
of such month ("Payment Date"), and shall also pay, together with the first
payment of the increased Minimum Monthly Rent, an amount determined by
multiplying the amount of the increase in Minimum Monthly Rent times the number
of months which have elapsed between the Adjustment Date and the Payment Date.
Should the Bureau discontinue the publication of the Index, or publish the same
less frequently, or alter the same in some other manner, Landlord, in its
discretion, shall adopt a substitute index or procedure that reasonably reflects
and monitors consumer prices.
4.3 Definition of "Rent"; Prorations. Any and all payments of
Minimum Monthly Rent and any and all taxes, assessments, fees, charges, costs,
expenses, insurance obligations, late charges, Common Area Costs, and all other
payments, disbursements, or reimbursements that are attributable to, payable by
or the responsibility of Tenant under this Lease shall constitute "rent" for all
purposes of this Lease and any applicable unlawful detainer statute. Any rent
payable to Landlord by Tenant for any fractional month shall be prorated based
upon the actual number of days in such calendar month.
4.4 Place and Manner of Payment. All rent shall be paid by Tenant
to Landlord in lawful money of the United States of America at Landlord's
address set forth in Subsection 1.1(a) above, or to such other person or at such
other place as Landlord may from time to time designate. All payments of rent
shall be payable without prior notice or demand and shall be paid without
deduction, setoff or counterclaim for any reason whatsoever.
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4.5 Late Charges. Tenant acknowledges that the late payment of
rent will cause Landlord to incur damages, the exact amount of which would be
impractical and extremely difficult to ascertain. Such damages may include,
without limitation, processing, accounting, and other administrative costs, loss
of use of the overdue funds, and late charges that may be imposed on Landlord by
the terms of any encumbrance and note secured by any encumbrance covering the
Premises. Landlord and Tenant agree that if Landlord does not receive a payment
of rent within ten (10) days after such payment becomes due, Tenant shall pay to
Landlord a late charge in an amount equal to ten percent (10%) of such overdue
rent. If Landlord does not receive a payment of rent within thirty (30) days
after such payment becomes due, Tenant shall pay to Landlord additional late
charges computed at the interest rate of ten percent (10%) per annum or, if
lower, the maximum interest rate allowed by law. Such interest shall begin to
accrue as of such 30th day after such rent payment became due. The parties agree
that such late charges represent a fair and reasonable estimate of the cost that
Landlord will incur by reason of late payment by Tenant. Acceptance of any late
charge by Landlord shall not cure or waive Tenant's default, nor prevent
Landlord from exercising, before or after such acceptance, any of the rights and
remedies for a default provided by this Lease or at law. Tenant shall be liable
for late charges regardless of whether Tenant's failure to pay the rent when due
constitutes an Event of Default under this Lease.
4.6 Time of Payment; Disputed Amounts. Tenant agrees to pay all
rent required under this Lease within the applicable time limits set forth in
this Lease. If no such time period is elsewhere specified herein for payment of
a particular amount, then such amount shall be paid within ten (10) days after
Landlord's delivery of an invoice or demand therefor. If Tenant receives from
Landlord an invoice or statement, sent by Landlord in good faith, and Tenant in
good faith disputes whether all or any part of such rent is due and owing,
Tenant shall nevertheless pay to Landlord the amount of the rent indicated on
the invoice or statement until such time as the dispute is resolved by mutual
agreement of the parties or by final judgment from a court of competent
jurisdiction (or when arbitration is permitted or required, by a final award
from an arbitrator) relieving or mitigating Tenant's obligation to pay such
rent. Failure by Tenant to pay any disputed amounts when due (as if there were
no dispute) shall constitute an Event of Default under this Lease, and
Landlord's rights shall be as provided for in Section 22 (Defaults and
Remedies). In such instance where Tenant disputes its obligations to pay all or
part of the rent indicated on such invoice or statement, Tenant shall,
concurrently with the payment of such rent, provide Landlord with a written
notice specifying in detail why Tenant is not required to pay all or part of
such rent. Tenant shall be deemed to have waived its right to contest any past
payment of rent unless it has filed a lawsuit against Landlord (or when
arbitration is permitted or required, filed for arbitration) and has served
Landlord with notice of such filing within one (1) year after such payment.
4.7 Partial Payments. Any partial payment of rents outstanding
hereunder shall be allocated to such outstanding rental charges as Landlord may
elect. In the absence of a contrary election made by Landlord, payments by
Tenant shall be applied against the then outstanding rental charges that first
became due.
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5. Payment Of Taxes, Assessments, And Operating Expenses.
5.1 Tenant's Percentage Share. In addition to paying the Minimum
Monthly Rent, Tenant shall pay to Landlord the percentage set forth in
Subsection 1.1(h) ("Tenant's Percentage Share") of the amounts set forth below
in Subsections 5.2 and 5.3. Tenant's Percentage Share has been calculated by
dividing the number of square feet of rentable area of the Premises by the
number of square feet of rentable area in the Building, based upon the best
information available to Landlord as of the execution of this Lease. Said
Tenant's Percentage Share shall not be subject to correction or recalculation,
except in the event the rentable area of the Building is changed due to events
of damage, destruction, demolition, or construction. Tenant hereby approves and
accepts Landlord's calculations of the Tenant's Percentage Share as set forth in
Subsection 1.1(h).
5.2 Taxes and Assessments.
5.2.1 Tenant shall pay to Landlord an amount equal to
Tenant's Percentage Share of any increase in Taxes above the amount of Taxes
levied or assessed for the Base Tax Year set forth in Subsection 1.1(i), either
by way of increase in the rate or in the assessed valuation of the Real Property
(or any portion thereof) or by imposition of any such charges by ordinance or
statute of any authority having jurisdiction. As used in this Section 5, the
term "Taxes" shall mean all taxes, excises, penalties (unless due solely to
Landlord's negligence or willful misconduct), fees (including, without
limitation, all license, permit and inspection fees), and other charges (but
excluding Assessments, as defined in Subsection 5.2.2 below) assessed, levied,
charged, confirmed, or imposed by any federal, state, or local government, any
political subdivision, public corporation, district, or other political or
public entity or public authority (a) on the Real Property (or any portion
thereof), (b) on Landlord with respect to the Real Property (or any portion
thereof), (c) on the act of leasing or entering into leases of space in the Real
Property, (d) on or measured by the rent payable under leases of space, or in
connection with the business of leasing space, in the Real Property, or (e) on
personal property of Landlord used in the operation of the Real Property (or any
portion thereof). Such Taxes may be general or specific, ordinary or
extraordinary, or of any kind or nature whatsoever, whether or not now customary
or within the contemplation of the parties to this Lease. Notwithstanding the
foregoing, documentary transfer taxes, gift, inheritance, succession, and estate
taxes, and federal and state income taxes computed on Landlord's income shall
not be included as Taxes, nor shall the computation of increases in Taxes for
which Tenant shall pay Tenant's Percentage Share include any amounts paid by
Tenant under Subsections 5.2.3 and 5.2.4 or any amounts separately billed to a
particular tenant of the Real Property with respect to similar matters (other
than as its percentage share of increases in Taxes or Assessments).
5.2.2 Tenant shall also pay to Landlord an amount equal to
Tenant's Percentage Share of any increase in Assessments above the amount of
Assessments levied or assessed against the Real Property for the Base Tax Year.
As used in this Section 5, the term "Assessments" shall mean all assessments,
transit charges, housing charges, and levies assessed, charged, levied,
confirmed, or imposed by any federal, state, or local government, any political
subdivision, public corporation, district, or other political or public entity
or public authority on or with respect to any of the items described in clauses
(a) through (e) of Subsection 5.2.1 or with respect to the use, occupancy,
management, maintenance, alteration, repair, or operation of
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the Real Property (or any portion thereof) or any services or utilities
furnished or consumed in connection therewith.
5.2.3 In addition to paying Tenant's Percentage Share of
increases in the Taxes and Assessments described in Subsections 5.2.1 and 5.2.2,
Tenant shall pay one hundred per cent (100%) of the following, as reasonably
determined by Landlord: any increase in Taxes or Assessments caused by the
improvements described in Exhibit B or any other improvements or installations
at any time made to the Premises by or at the instance of Tenant. The total
amounts due under this Subsection 5.2.3 shall be paid to Landlord on or before
the date full payment of such Taxes or Assessments shall become due, or if
payable in installments, the date payment of the first installment of such Taxes
or Assessments shall become due. In the event such Taxes or Assessments are paid
by Landlord, Tenant forthwith upon demand therefor shall reimburse Landlord for
all amounts of such Taxes or Assessments chargeable against Tenant pursuant to
this Subsection 5.2.3.
5.2.4 Tenant shall pay, before delinquency, any and all
levied or assessed taxes that become payable during or with respect to the Term
upon Tenant's equipment, furnishings, fixtures, and other personal property
located in the Premises, including carpeting installed by or at the instance of
Tenant, even though said carpeting has become a part of the Premises. In the
event said taxes are paid by Landlord, Tenant forthwith upon demand therefor
shall reimburse Landlord for all such taxes paid by Landlord.
5.2.5 Any Taxes or Assessments that may be paid over more
than a one-year period shall be apportioned evenly over the maximum period of
time permitted by Law and only the portion thereof attributable to a given year
shall be included in Taxes or Assessments for that year. In the event that
Landlord contests the amount of any Taxes or Assessments and receives a refund
or credit as a result thereof, then Landlord shall pay Tenant its pro rata share
of such refund to the extent that the refund relates to Taxes or Assessments
that have been paid by Tenant. Upon Tenant's request, Landlord shall provide a
copy of all applicable tax bills.
5.3 Operating Expense Increases.
5.3.1 Tenant shall pay to Landlord an amount equal to
Tenant's Percentage Share of any increase in Operating Expenses above the
Operating Expenses for the Base Expense Year. As used in this Section 5, the
term "Operating Expenses" shall mean all costs and expenses paid or incurred by
Landlord in connection with the operation, management, or maintenance of the
Real Property (which costs shall be accounted for under generally accepted
accounting principles and shall be amortized when and as required thereunder),
excluding, however, the items described in Subsection 5.3.2 below, which items
shall not be included in Operating Expenses for purposes of this Lease. By way
of illustration but not limitation, Operating Expenses shall include (subject to
the specific exclusions described in Subsection 5.3.2 below) all (a) costs for
heating, cooling, ventilation, fuel, and utilities; (b) costs and expenses for
maintenance, ordinary and extraordinary repairs and replacements, testing, and
operation of building systems and components; (c) costs and expenses for
security, landscaping, refuse disposal, janitorial services, labor, supplies,
materials, equipment, and tools, including any sales, use, or excise taxes
thereon; (d) reasonable management fees and other costs of managing the Real
Property, whether managed by Landlord or an independent contractor; (e) the
wages,
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salaries, bonuses, employee benefits and payroll burden of all Landlord's (or
its agents') on-site employees engaged in the operation, maintenance,
management, or security of the Real Property, including employers' payroll,
social security, workers' compensation, unemployment, and similar taxes with
respect to such employees; (f) all insurance premiums paid or incurred by
Landlord with respect to the Real Property and all amounts paid in connection
with claims or losses that are less than the amount of such deductibles or
self-insured retentions as Landlord may have deemed reasonable for its insurance
policies; (g) all costs and expenses of contesting by appropriate proceeding the
amount or validity of any Taxes or Assessments; (h) the cost of any capital
improvements or capital assets constructed, made, purchased, or installed in
order to comply with the requirements of any governmental or quasi-governmental
law or authority, or constructed, made, purchased, or installed in order to
conserve energy or reduce other Operating Expenses, amortized over the useful
life of such capital improvements or capital assets, as reasonably determined by
Landlord, together with such interest and finance charges as Landlord may pay in
financing such costs or (if such financing is not obtained) interest on the
unamortized balance of such costs accruing at an annual interest rate equal to
the interest rate from time to time publicly announced by the San Francisco Main
office of Bank of America, NT&SA (or any successor bank thereto), as its prime
annual interest rate (or "reference rate") charged to substantial commercial
borrowers for 90-day loans; (i) the fair market rental value of the building
office and other space in the building occupied by Landlord or its manager in
connection with the operation or management of the Real Property; and (j) and
all other costs and expenses that under generally accepted accounting principles
and practices would clearly be included in operating expenses.
5.3.2 The following costs and expenses shall be excluded
from the definition of "Operating Expenses" for purposes of this Lease: (a) any
and all Taxes and Assessments, as defined in Subsections 5.2.1 and 5.2.2 above;
(b) any costs or expenses separately billed to a particular tenant of the Real
Property and not billed as such tenant's percentage share of costs or expenses
of that type (provided, however, Tenant's Percentage Share, as applied to such
cost categories, shall be recomputed to exclude the rentable area of premises of
tenants being so billed separately); (c) costs for tenant improvements and
leasing commissions; (d) depreciation on the Building and the equipment therein;
(e) costs of capital improvements, other than such as are specifically included
as Operating Expenses in Subsection 5.3.1 above; (f) any costs recovered from
condemnation or insurance proceeds; (g) depreciation, amortization, and interest
on and capital retirement of debt, except to the extent such costs shall have
been elsewhere expressly included in the definition of Operating Expenses; (h)
attorneys' fees, costs and disbursements and other expenses incurred in
connection with negotiations or disputes with tenants, other occupants, or
prospective tenants or other occupants of the Building; (i) costs of Landlord's
general administration, other than as specifically set forth in Subsection
5.3.1; (j) costs incurred in advertising and promotional activities for
marketing of the Building to persons other than the then occupants of the
Building; (k) when and if any service (such as janitorial service) that is
normally provided by Landlord to tenants of the Building is not provided by
Landlord to Tenant in the Premises pursuant to agreement with Tenant under the
specific terms of this Lease, then in determining Operating Expenses for Tenant,
the cost of that service (except as it relates to common areas) shall be
excluded; and (1) unless specifically included under Subsection 5.3.1 above, any
other expense that under generally accepted accounting principles and practice
would clearly be excluded from operating expenses.
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5.3.3 If at any time less than ninety-five percent (95%)
of the rentable area of the Building is occupied, the Operating Expenses shall
be reasonably adjusted by Landlord to approximate such operating and maintenance
costs as would have been incurred if the Building had been at least ninety-five
percent (95%) occupied.
5.4 Allocations of Certain Costs. If any Taxes, Assessments, or
Operating Expenses paid in one year relate to more than one calendar year,
Landlord shall allocate such Taxes, Assessments, or Operating Expenses among the
appropriate calendar years. If the Term ends other than on December 31, Tenant's
obligations to pay Tenant's Percentage Share of estimated and actual amounts of
increases in Taxes, Assessments, and Operating Expenses for such final calendar
year shall be prorated to reflect the portion of such year included in the Term.
Such proration shall be made by multiplying the total estimated or actual (as
the case may be) Taxes, Assessments, and Operating Expenses for such calendar
year by a fraction, the numerator of which shall be the number of days of the
Term during such calendar year, and the denominator of which shall be 365.
Landlord may, but shall not be required to, calculate prorations with regard to
when during a calendar year particular items of Taxes, Assessments, and
Operating Expenses were incurred. If any Taxes, Assessments, or Operating
Expenses are not separately assessed against or separately charged to the Real
Property, but are (a) jointly assessed against or changes to the Real Property
and other land or improvements in the Facility, or (b) assessed against or
charged to land or improvements in the Facility that are used as common areas
for the benefit of the Building and one or more other buildings in the Facility,
an equitable portion, as reasonably determined by Landlord, of such Taxes,
Assessments, or Operating Expenses shall be allocated to the Real Property for
purposes of this Section 5.
5.5 Estimated Payments. Landlord shall notify Tenant of the
estimated monthly amount of Tenant's Percentage Share of increases in Taxes,
Assessments, or Operating Expenses and Tenant shall pay Landlord such estimated
amount at the same time as and together with Tenant's Minimum Monthly Rent.
Landlord may from time to time, by notice to Tenant, change such estimated
monthly or quarterly amounts based upon Landlord's actual or projected Taxes,
Assessments, or Operating Expenses.
5.6 Statement of Expenses. Landlord shall, after December 31 of
each year, determine and furnish to Tenant a notice containing a computation of
the charge or credit to Tenant for any difference between (a) Tenant's allocable
share of the actual Taxes, Assessments, and Operating Expenses and (b) the
estimated portion(s) thereof paid by Tenant for the preceding calendar year, and
the amount of any underpayment shall be paid by Tenant within ten (10) days
after delivery of said notice. Such notice shall contain a line item detail
setting forth by categories the actual Operating Expenses incurred by Landlord
for the previous year. In the event of overpayment by Tenant, Landlord shall
credit such overpayment in full against Tenant's payment of rent next coming due
hereunder. Upon expiration or sooner termination of this Lease, if Tenant was
not in material default hereunder immediately prior thereto, Landlord shall
refund to Tenant any overpayment.
5.7 Non-Waiver of Rights. Without limitation to the provisions of
Section 31 (Non-Waiver), no failure or determination of Landlord in any one year
to include or exclude certain items in its computation of Taxes, Assessments, or
Operating Expenses or to invoice Tenant for the full amount of Tenant's
allocable share of Taxes Assessments, or Operating
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Expenses shall be construed as depriving Landlord of the right to include such
items as Taxes, Assessments, or Operating Expenses or to invoice Tenant for the
full amount of Tenant's allocable share thereof in any subsequent year in strict
accordance with the provisions of this Section 5.
5.8 Right to Audit.
5.8.1 The good-faith determination of the accountant then
serving Landlord shall be conclusive and determinative of what constitutes a
Tax, Assessment, or Operating Expense each year. During the 30-day period
commencing upon Tenant's receipt of any statement provided by Landlord under
Subsection 5.6 above, Tenant shall have the right, at Tenant's expense and upon
not less than forty-eight (48) hours' prior notice to Landlord, to inspect at
reasonable times Landlord's books and records for the Facility for the calendar
year covered by such statement, for purposes of verifying Landlord's calculation
of Taxes, Assessments, and Operating Expenses. Such inspection may only be done
by an accounting firm which is generally considered to be one of the ten (10)
largest accounting firms headquartered in the United States. If Tenant shall not
have availed itself of such inspection, Tenant shall be deemed to have accepted
as final and determinative the amounts shown on the statement of expenses. If
Tenant shall have availed itself of its right to inspect the books and records,
and then disputes the accuracy of the information set forth in Landlord's books
and records with respect to the statement of expenses, Tenant shall nevertheless
continue to pay the amounts as required by the provisions of this Section 5;
provided however, that no later than six (6) months after receipt of the
statement of expenses, Tenant must (or its right to contest such charges shall
be deemed waived) institute arbitration proceedings against Landlord, in an
arbitration proceeding governed by the rules of the American Arbitration
Association, to collect and recover any overpayment made by Tenant resulting
from errors in the books and records of Landlord; and provided further, that
Tenant shall, within ten (10) days after filing of the complaint, serve Landlord
with a copy of the complaint filed in any such proceeding. Tenant shall be
precluded from contesting Taxes, Assessments, or Operating Expenses, or
Landlord's computations of the amounts payable by Landlord or Tenant pursuant to
this Section 5, unless an arbitration complaint is filed and served within such
six (6) month period. Should the arbitrator find errors in excess of ten percent
(10%) of the statement of expenses, then Landlord shall be responsible for all
reasonable fees incurred by Tenant with respect to the arbitration proceeding.
Should the arbitrator find errors of less than four percent (4%) of the
statement, then Tenant shall be responsible for all the reasonable fees incurred
by Landlord with respect to the arbitration proceeding. Should the arbitrator
find errors of between four percent (4%) and ten percent (10%) of the statement,
then each party shall be responsible for all fees incurred by it with respect to
the arbitration proceeding.
5.8.2 If Tenant institutes such arbitration procedures,
then the arbitrator shall determine whether or not Tenant was over-charged for
Tenant's Percentage Share of increases in Taxes, Assessments, or Operating
Expenses or undercharged for its share of increases. At the conclusion of the
arbitration, the arbitrator shall issue a ruling as to what the Taxes,
Assessments, and Operating Expenses, and Tenants Percentage Share of increases
therein, should have been had Landlord strictly complied with the provisions of
this Lease. If Landlord overcharged Tenant for increases in Taxes, Assessments,
or Operating Expenses, the amount of the overcharge shall be returned to Tenant
within thirty (30) days following the
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conclusion of the arbitration. If the arbitrator determines that Tenant was
undercharged for increases in Taxes, Assessments, or Operating Expenses, Tenant
shall pay the amount of such undercharge to Landlord within thirty (30) days
following the issuance of the arbitration ruling.
6. Security.
6.1 Deposit. Concurrently with the execution of this Lease,
Tenant shall deposit with Landlord the amount specified in Subsection 1.1(f)
(the "Deposit"), which shall be held by Landlord as security for the full and
faithful performance of Tenant's covenants and obligations under this Lease. The
Deposit is not an advance Minimum Monthly Rent deposit, an advance payment of
any other kind, or a measure of Landlord's damages in case of Tenant's default.
If Tenant fails to comply with the full and timely performance of any or all of
Tenant's covenants and obligations set forth in this Lease, then Landlord may
(but shall not be required to), from time to time, without waiving any other
remedy available to Landlord use the Deposit, or any portion of it, to the
extent necessary to cure or remedy such failure or to compensate Landlord for
all damages sustained by Landlord resulting from Tenant's failure to comply
fully and timely with its obligations pursuant to this Lease. No acceptance of
such payment shall be construed as an admission that Tenant has performed all of
its obligations hereunder. If Landlord elects to make such application of all or
any portion of the Deposit, Landlord shall notify Tenant of the nature and
amount thereof and Tenant shall within ten (10) days thereafter deposit with
Landlord an amount sufficient to increase the Deposit to an amount equal to one
hundred ten percent (110%) of the amount thereof set forth in Subsection 1.1(f),
as the same may have been increased by prior applications of this Subsection
6.1, and any Tenant failure to immediately do so shall constitute an Event of
Default under this Lease. If Tenant is in compliance with this Lease's covenants
and obligations as of the sixtieth (60th) day after the expiration or earlier
termination of this Lease and Tenant's vacating of the Premises, Landlord shall
thereupon, return to Tenant the unused portion of the Deposit and any advance
rent paid by Tenant. Each time the Minimum Monthly Rent shall increase pursuant
to the provisions of this Lease, within five (5) business days thereafter,
Tenant shall pay to Landlord as additional Deposit an amount equal to the
difference between the new Minimum Monthly Rent and the Minimum Monthly Rent in
effect immediately prior to such increase. Landlord's obligations with respect
to the Deposit are those of a debtor and not a trustee. Landlord shall not be
required to maintain the Deposit separate and apart from Landlord's general or
other funds, and Landlord may commingle the Deposit with any of Landlord's
general or other funds. Tenant shall not at any time be entitled to interest on
the Deposit.
6.2 No Bar or Defense to Other Remedies. No security or guaranty
that may now or hereafter be furnished to Landlord for the payment of the rent
herein reserved or for performance by Tenant of the other covenants or
conditions of this Lease shall in any way be a bar or defense to any action in
unlawful detainer, or for the recovery of the Premises, or to any action that
Landlord may at any time commence for a breach of any of the covenants or
conditions of this Lease.
7. Hazardous Substances.
7.1 Definitions. As used herein, "Hazardous Substance" shall mean
any substance, material, or waste that is or becomes regulated by any federal,
state, or local
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governmental authority because of its toxicity, infectiousness, radioactivity,
explosiveness, ignitability, corrosiveness, or reactivity; and "Environmental
Requirements" shall mean all Laws relating to industrial hygiene, protection of
human health, warnings, hazard communication, employee rights-to-know,
environmental protection, or any Hazardous Substance.
7.2 Consent Required for Hazardous Substances. Tenant shall not
cause or permit any Hazardous Substance to be brought upon, generated, produced,
kept or used in or about the Facility by Tenant or any Tenant Parties unless (a)
such Hazardous Substance is necessary for Tenant's business (and such business
is a Permitted Use) and (b) Tenant first obtains the consent of Landlord if such
Hazardous Substance is other than (i) an "Article" (as defined in 29 C.F.R.
Section 1910.1200) that is free of asbestos (whether friable or nonfriable) and
polychlorinated biphenyls (PCBs) or (ii) a consumer product that is used on the
Premises in quantities that would not require any notification or reporting
under any Environmental Requirement, or any warnings to any persons located
anywhere outside the Premises, if the entire quantities were released into the
environment. Any request by Tenant for such consent shall be in writing and
shall demonstrate to the reasonable satisfaction of Landlord that such Hazardous
Substance will be stored, used, and disposed of in a manner that complies with
all Environmental Regulations applicable to such Hazardous Substance. Such
consent shall not be unreasonably withheld, but Landlord shall in no case be
obligated to consent to the presence of any Hazardous Substance that will
increase the likelihood or magnitude of Landlord's liability, or to any
treatment, storage, or disposal upon the Premises or the Facility of any
Hazardous Substance whose treatment, storage, or disposal requires a permit or
variance under applicable Environmental Requirements. In no event shall Landlord
ever be obligated to execute any application for any such permit or variance.
7.3 Notices. Tenant shall promptly deliver to Landlord copies of
any reports made to any environmental agency arising out of or relating to any
Hazardous Substances in, on, or from the Premises and copies of all hazardous
waste manifests reflecting the legal and proper disposal of all hazardous wastes
removed by Tenant from the Facility. If at any time Tenant shall become aware,
or have reasonable cause to believe that any Hazardous Substances, other than
those already known by Landlord or permitted under this Lease, have come to be
located in or about the Premises, or that any known Hazardous Substances have
been, are being, or threaten to be released into the environment, Tenant shall,
immediately upon discovering same, give notice of that condition to Landlord.
7.4 Compliance with Environmental Requirements. Without
limitation to the generality of Subsection 2.2 (Restriction on Use), Tenant
shall at its own expense fully comply with all Environmental Requirements,
prudent industry practices, and Landlord's Rules and Regulations regarding use,
handling, disturbance, management, or disposal of Hazardous Substances, except
as otherwise provided in Subsection 7.5 below. Except as discharged into the
sanitary sewer in strict accordance and conformity with all applicable
Environmental Requirements, Tenant shall cause any and all Hazardous Substances
removed from the Premises (or from any other portion of the Facility, if their
removal is at the instance or direction of Tenant) to be removed and transported
solely by duly licensed haulers to duly licensed facilities for final disposal
of such materials and wastes. Upon expiration or earlier termination of the
Term, Tenant shall cause to be removed from the Premises and the Facility all
Hazardous Substances that Tenant or any Tenant Parties caused or permitted to be
located there. If the
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presence of Hazardous Substances brought onto the Facility by any of such
persons results in contamination of any portion of the Facility, Tenant shall be
solely responsible, at its sole expense, for taking any and all necessary steps
to return the affected portion of the Facility to its condition prior to such
contamination, as reasonably determined by Landlord; provided, however, that
Tenant shall not take any remedial action (except in emergencies) in response to
the presence of, nor enter into any settlement agreement, consent decree, or
other compromise in respect to any claims relating to, any Hazardous Substance
in any way connected with the Facility, without first notifying Landlord of
Tenant's intention to do so and affording Landlord ample opportunity to appear,
intervene, or otherwise appropriately assert and protect Landlord's interest
with respect thereto; and further provided, that Landlord shall have the right
(but not the obligation) to perform any such remediation on Tenant's behalf, in
which event Tenant shall reimburse Landlord for all of Landlord's reasonable
costs and expenses incurred in connection therewith.
7.5 Landlord's Obligation. Subject to Landlord's right to
reimbursement of certain costs or expenses under other provisions of this Lease,
Landlord. agrees to use commercially reasonable efforts to comply with all
applicable Environmental Requirements regarding the use, management, or disposal
of Hazardous Substances (a) that were existing on the Premises as of the date
Tenant originally took occupancy thereof under a prior lease or (b) that were
otherwise brought upon or kept or used in or about the Facility by Landlord, its
agents, employees, or contractors.
8. No Light, Air Or View Easement. No diminution or shutting off of
light, air, or view by any structure that may be erected on the lands of the
Facility or other nearby lands shall in any way affect this Lease, abate any
rent hereunder, or otherwise impose any liability on Landlord.
9. Alterations.
9.1 Tenant's Right to Make Alterations. Tenant shall not make or
suffer to be made any alterations, additions, improvements, or utility
installations (collectively, "Alterations") to the Premises or any part thereof
of an amount greater than $2,500.00 without the prior consent of Landlord which
shall not be unreasonably withheld. Tenant specifically acknowledges that it
shall not be unreasonable for Landlord to withhold approval of any proposed
contractor or subcontractor of Tenant on the grounds that Landlord believes that
the performance of work in the Building by such contractor or subcontractor
could result in labor disputes with Landlord's own contractors or Building
employees of Landlord or Landlord's contractors. Landlord may, at any time
during the Term, require Tenant to remove any or all Alterations made without
Landlord's consent or otherwise made in material violation of any of the
provisions of this Section 9. In no event shall Landlord be required to consent
to any Alterations that would not be normal for the Permitted Uses, that might
adversely affect the utility or value of the Premises or the Building for future
tenants, that would alter the exterior appearance of the Building, that would be
of a structural nature, that could adversely affect the plumbing, mechanical, or
electrical systems servicing the Facility, that would be excessively expensive
to remove, or that would otherwise be prohibited under this Lease. All permitted
Alterations shall be made in conformity with the requirements of Subsection 9.2
below. Once
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any such Alterations have been completed, whether prior to or during the Term of
this Lease, they shall thereafter be included in the designation of the Tenant
Improvements.
9.2 Installation of Alterations. Any Alterations installed by
Tenant during the Term shall be done in strict compliance with all of the
following requirements:
9.2.1 No such work shall proceed without Landlord's prior
written approval of (i) Tenant's contractor(s); (ii) certificates of insurance
from a company or companies approved by Landlord, furnished to Landlord by
Tenant's contractor, for combined single limit bodily injury and property damage
insurance covering comprehensive general liability and automobile liability, in
an amount not less than One Million Dollars ($1,000,000) per occurrence and
endorsed to show Landlord, Landlord's property manager, and each general partner
of Landlord (if Landlord is a partnership) as additional insureds, and for
workers' compensation as required by law, endorsed to show a waiver of
subrogation by the insurer to any claims Tenant's contractor may have against
Landlord (provided, however, nothing in this Subsection 9.2.1 shall release
Tenant of its other insurance obligations hereunder); and (iii) detailed plans
and specifications for such work. Any changes in, deviations from, modifications
of, or amendments to the approved plans and specifications shall also require
Landlord's prior written approval.
9.2.2 Tenant shall cause its contractor(s) to coordinate
with Landlord's building management all construction and installation activities
covered by this Subsection 9.2. All such work shall be done in a skillful and
first class workmanlike manner, consistent with the best practices and standards
of the construction industry, and shall be pursued diligently and continuously
until completed, always in conformity with the approved plans and
specifications. All materials, equipment, and articles incorporated into the
Alterations shall be new, and of recent manufacture, and of the most suitable
grade for the purpose intended.
9.2.3 No Alterations shall be commenced without Tenant
first having obtained a valid building permit and/or all other permits or
licenses when and where required, copies of which shall be furnished to Landlord
before the work is commenced. Any work not acceptable to any governmental
authority or agency having or exercising jurisdiction over such work, or not
reasonably satisfactory to Landlord, shall be promptly replaced and corrected at
Tenant's expense. Landlord's approval or consent to any such work shall not
impose any liability upon Landlord. No work shall commence until and unless
Landlord has received at least ten (10) days' notice that such work is to
commence.
9.2.4 Tenant shall immediately reimburse Landlord for any
reasonable expense incurred by Landlord in reviewing and approving the plans and
specifications (and any modifications thereto) for such work or the work itself.
9.2.5 If the estimated cost of the Alterations exceeds
$15,000.00, then (a) Tenant shall obtain any bonds required by Landlord pursuant
to Section 12 below and (b) during all such times as the work is being
performed, Tenant shall carry, or cause its approved contractors to carry,
builder's risk completed value insurance, in an amount approved by Landlord.
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9.2.6 Prior to undertaking any physical work in or around
the Premises, Tenant shall notify Landlord, in writing, of the exact nature and
location of the proposed work and shall promptly supply such additional
information regarding the proposed work as Landlord shall request. After receipt
of Tenant's notice, Landlord may, to the extent appropriate, supply Tenant with
the Building regulations and procedures for working in areas where there is a
risk of coming into contact with materials or building systems that, if not
properly handled, could cause health or safety risks or that could damage such
systems and/or the Building. Tenant shall cause its contractors, at Tenant's
sole cost and expense, strictly to comply with all such Building regulations and
procedures established by Landlord and with all applicable Laws. Landlord shall
have the right at all times to monitor the work for compliance with the Building
regulations and any applicable Laws. If Landlord determines that any applicable
Law or any Building regulations and/or procedures are not being strictly to
complied with, Landlord may immediately require the cessation of all work being
performed in or around the Premises until such time as Landlord is satisfied
that the applicable Laws and Building regulations and procedures will be
observed. Neither Landlord's review and approval of the plans and specifications
nor Landlord's monitoring of any work in or around the Premises shall not be
deemed a certification by Landlord of compliance with any applicable Laws or
with the Building regulations and procedures or a waiver by Landlord of its
right to require strict compliance with such Laws, regulations, or procedures,
nor shall such monitoring relieve Tenant from any liabilities relating to such
work.
9.2.7 Upon completion of any Alterations, Tenant shall
provide Landlord with construction plans, copies of all construction contracts,
and proof of payment for all labor and materials.
9.3 Tenant Improvements - Treatment at End of Lease.
9.3.1 All Tenant Improvements (and all Alterations, upon
their completion) made by or for Tenant, whether temporary or permanent in
character, and whether made by Landlord or Tenant, shall be Landlord's property,
and shall be surrendered to Landlord in good order, condition, and repair
(ordinary wear and tear excepted), broom clean, upon the expiration or earlier
termination of the Term, and Tenant shall not be entitled to any compensation
therefor; provided however, that at the election of Landlord, exercisable by
notice to Tenant, Tenant shall, at Tenant's sole expense, prior to the
expiration of the Term, remove from the Premises all Tenant Improvements and
Alterations (or such portion thereof as Landlord may require to be removed) and
repair all damage to the Premises caused by such removal. At least thirty (30)
days prior to the termination of this Lease, Tenant shall submit by notice to
Landlord a written request of Landlord for instructions as to whether or not
Landlord elects to require any such removal of Tenant Improvements or
Alterations. Any damage or deterioration of the Premises or any Tenant
Improvements that could have been prevented by good maintenance practices shall
not be deemed to be ordinary wear and tear.
9.3.2 All of Tenant's furniture, furnishings, trade
fixtures, equipment not attached to the Building or the Premises, other personal
property, and all trash and debris (collectively, the "Personal Property"),
shall be completely removed by Tenant prior to the expiration of the Term;
provided, however, that Tenant shall repair all damage caused by such removal
prior to the expiration of the Term, and provided further, that any of Tenant's
Personal
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Property not so removed shall, at the option of Landlord, automatically become
the property of Landlord. Thereafter, Landlord may retain or in any manner
dispose of said Personal Property not so removed, without liability to Tenant.
9.4 Other Improvements in the Building. If as a result of any
Alterations or Tenant Improvements or as a result of Tenant's particular use of
the Premises, Landlord shall be required by any applicable Law to make other
improvements (including, without limitation, upgrading of installations of life
safety systems or compliance with standards for handicapped persons) in or upon
the Premises or any other portion of the Building or Facility, then Landlord
shall have the right to charge Tenant for the cost of such other improvements.
10. Repair Obligations.
10.1 Tenant's Obligations. Except as otherwise provided in
Section 9 (Alterations), Section 16 (Building Services), and Section 23 (Damage
or Destruction), Tenant, at its sale cost and expense, shall keep the Premises
and every part thereof in good, clean, pest-free, and sanitary condition and
repair at all times during the Term. All damage, injury or breakage to any part
or portion of the Premises or the Facility caused by the willful or negligent
act or omission of Tenant or any of its officers, directors, trustees, partners,
agents, contractors, employees, licensees, invitees, visitors, customers, or
trespassers (collectively, the "Tenant Parties") shall be promptly repaired at
Tenant's sole cost and expense, to the satisfaction of Landlord; provided,
however, that Tenant shall be entitled to receive reimbursement for such expense
to the extent that the cost of any such repair is covered by insurance obtained
by Landlord as part of Operating Expenses. Landlord shall have the right to
perform such repair work. Tenant shall be solely responsible for the design and
function of all of Tenant Improvements, whether or not installed by Landlord at
Tenant's request. Tenant waives all rights to make repairs to the Premises or to
the Facility at the expense of Landlord, or to deduct the cost of such repairs
from any payment owed to Landlord under this Lease.
10.2 Landlord's Obligations. Provided that no Event of Default
shall have occurred and then remain uncured, Landlord shall keep in good
condition and repair the foundations, exterior walls, structural condition of
the interior bearing walls, and the roof of the Building, as well as any parking
lots, parking structures, walkways, driveways, landscaping, fences, signs, and
utility installations of the common areas. Landlord's obligations under this
Subsection shall not apply to any non-insured damage or wear and tear caused by
any breach or default by Tenant under this Lease or by any negligent or willful
act or omission of Tenant or the Tenant Parties. Landlord shall not be obligated
to perform repairs for which Tenant has expressly assumed responsibility under
other provisions of this Lease. Landlord shall have no obligation to make any
repairs under this Subsection until a reasonable time after receipt of notice
from Tenant of the need for such repairs. Tenant hereby acknowledges that the
foregoing description of certain obligations and rights of Landlord is not
intended to limit or restrict Landlord's rights under other provisions of this
Lease to reimbursement for costs and expenses incurred in connection with such
matters.
11. Liens. Tenant shall keep the Premises, the Building, and the rest of
the Facility free from liens arising out of any work or materials actually or
allegedly performed or furnished, or obligations incurred, by or for Tenant. At
any time Tenant either desires or is required to
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make any Alterations whose estimated cost is greater than $5,000.00, Landlord
may, without limitation to the provisions of Section 9 (Alterations) above, (a)
require Tenant, at Tenant's sole cost and expense, to obtain and provide to
Landlord a completion or performance bond, in a form and by a surety acceptable
to Landlord and in an amount not less than one and one-half (1-1/2) times the
estimated cost of such Alterations, to insure Landlord against liability from
mechanics' and materialmen's liens and to insure completion of the work, and (b)
require such additional items or assurances as Landlord in its sole discretion
may deem reasonable or desirable. Tenant agrees to indemnify and hold Landlord
harmless from and against any and all claims for mechanics', materialmen's or
other liens in connection with any Alterations, repairs, or any work performed,
materials furnished, or obligations incurred by or for Tenant. In the event any
such lien is filed or asserted, Tenant shall immediately post any bond required
to release the Premises and the Facility therefrom.
12. Signs; Names Of Building And Facility. Except for a sign (which
shall comply Landlord's with building standard criteria) placed on the entry
door to the Premises, Tenant shall not place any logo, sign, advertisement,
announcement, warning, or notice upon or in front of the Premises or any common
areas. Tenant shall not use any name, insignia, or logotype of the Building or
Facility for any purpose. Tenant shall not use any picture of the Building or
Facility in its advertising or stationery or in any other manner. Landlord
expressly reserves the right, in Landlord's sole and absolute discretion, at any
time to change the name, insignia, logotype, or street address of the Building
or the Facility without in any manner being liable to Tenant.
13. Assignment And Subletting
13.1 "Transfer" Defined. As used herein, the term "Transfer"
shall mean any assignment of this Lease (including, without limitation,
assignment by operation of law--e.g., death of an individual tenant or merger,
dissolution, consolidation, or other reorganization of a corporate tenant),
subletting of all or any part the Premises, or transfer of possession, or right
of possession or contingent right of possession of all or any portion of the
Premises, including without limitation, concession, mortgage, encumbrance,
devise, hypothecation, agency, franchise, or management agreement, or to suffer
any other person (the agents and employees of Tenant excepted) to occupy or use
the said Premises or any portion thereof. If Tenant is a corporation that is not
deemed a public corporation, or is an unincorporated association or partnership,
or if Tenant consists of more than one party, the transfer, assignment
(including, without limitation, assignment by operation of law), or
hypothecation of any stock of or interest in Tenant in the aggregate in excess
of forty percent (40%), shall also be deemed to be a "Transfer." If Tenant is a
partnership or consists of more than one party, then any of the foregoing events
with respect to any such party comprising Tenant, or with respect to any general
partner of Tenant or any such party, shall also be deemed to be a "Transfer."
Notwithstanding the foregoing, occupancy of all or part of the Premises by
parent, subsidiary, or affiliated companies of Tenant shall not be deemed a
"Transfer," provided that such parent, subsidiary or affiliated companies were
not formed as a subterfuge to avoid the obligations of this Section 13.
Notwithstanding the foregoing, Landlord's prior consent shall not be required
for an assignment or sublease to any corporation, partnership or other entity
resulting from any merger, consolidation, stock purchase, reorganization or
other restructuring of Tenant, provided such successor entity has the financial
capacity to perform the obligations of Tenant under the Lease.
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13.2 No Transfer Without Consent. Tenant shall not, either
voluntarily or by operation of law or otherwise, suffer a Transfer without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld, except as otherwise expressly provided below. Landlord's consent to
one Transfer shall not be deemed to be a consent to any subsequent Transfer; nor
shall Landlord's consent constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Tenant; nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated in writing by Landlord at the time; nor shall Landlord's
acceptance of rent from any person be deemed a waiver by Landlord of any
provision of this Section 13. If Landlord's approval or consent for any
agreement or instrument is required hereunder, then no amendment or modification
shall be made thereto without Landlord's prior consent. Any Transfer that is not
in compliance with the provisions of this Section 13 shall be voidable at
Landlord's election.
13.3 Procedure for Assignment and Subletting/Landlord's Recapture
Rights. Tenant shall advise Landlord by written notice of (a) Tenant's intent to
make a Transfer, (b) the name of the proposed transferee, and evidence
reasonably satisfactory to Landlord that such proposed transferee is comparable
in reputation, stature and financial condition to the other tenants then leasing
comparable space in the Facility (such evidence shall include, without
limitation, (i) a description of the proposed transferee's business background
and experience, (ii) the past two year's Federal Income Tax returns of the
proposed transferee, (iii) the proposed transferee's audited annual Balance
Sheets and Profit and Loss Statements for the past two years, certified correct
by a Certified Public Accountant, (iv) banking references of the proposed
transferee, and (vi) at least five business and three personal references for
the proposed transferee), and (c) the terms of the proposed assignment or
subletting (including the financial terms and the intended use of the Premises),
together with a copy of the proposed Transfer documents. Landlord need not
commence its review of any proposed Transfer, or respond to any request by
Tenant with respect to such, unless and until Landlord has received all of the
foregoing documentation from Tenant. Landlord shall, within thirty (30) days
after receipt of such notice and documentation, and any additional information
reasonably requested by Landlord, elect one of the following:
(i) Consent to such proposed Transfer;
(ii) Refuse such consent, which refusal
shall be on reasonable grounds, subject to the provisions of Subsection 13.4
below; or
13.4 Conditions to Approval.
13.4.1 It is understood and agreed that, without limiting
Landlord's right of consent as provided herein, Landlord's withholding consent
shall be deemed reasonable if the proposed assignment or sublease fails to meet
any one or more of the following criteria: (i) neither the proposed Transfer nor
the proposed use of the Premises by the proposed transferee shall conflict with
or result in a breach of Subsections 2.2 (Restriction on Use), 7.2 (Consent
Required for Hazardous Substances), or 13.8 (Non-Competition), or any other
provision of this Lease, nor shall it violate any exclusivity arrangement that
Landlord may then have with any other tenant of the Facility; (ii) the proposed
transferee shall not be a governmental entity; (iii) if Tenant's obligations
under this Lease have been guaranteed by one or more third parties, then
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each such guarantor's written consent to the proposed Transfer shall have been
furnished to Landlord; (iv) the tenancy of the proposed transferee shall not
have a disadvantageous impact on the Common Areas or the other occupants of the
Facility; (v) the occupation of the proposed transferee in the Premises shall
not cause a diminution in the reputation of the Facility or the other businesses
located therein; (vi) the proposed transferee shall be at least comparable in
reputation, stature and financial condition to the other tenants then leasing
comparable space in the Facility; and (vii) the rent payable by any proposed
assignee or subtenant be at least at the then current rental rates for the
Premises or comparable premises in the Facility, but not less than the then
current Minimum Monthly Rent under this Lease.
13.4.2 In the event that Landlord shall consent to a
proposed Transfer, or shall reasonably disapprove a proposed Transfer (other
than in connection with an exercise of Landlord's recapture rights under
Subsection 13.3), pursuant to the provisions of this Section 13, Tenant shall
pay Landlord's processing costs and attorneys' fees (including reasonable costs
of Landlord's in-house counsel) incurred in connection with such matter, as
reasonably determined by Landlord.
13.5 Landlord's Right to Bonus Rentals.
13.5.1 If Tenant at any time duly assigns this Lease
(including, without limitation, a sale of all or substantially all of Tenant's
assets or corporate stock) or subleases the Premises or any part thereof, then
Tenant shall pay to Landlord, immediately upon Tenant's receipt thereof, ninety
percent (90%) of the "Rent Differential" received by Tenant in connection with
or in respect to such assignment or subletting. For purposes of this Subsection,
the following definitions shall apply:
(i) the term "Rent Differential" shall mean
the excess of (a) any and all "Proceeds" payable to Tenant over (b) Tenant's
"Allowed Costs";
(ii) the term "Proceeds" shall mean any and
all fees, rents, charges, payments, or other sums or consideration payable or
deliverable to Tenant in connection with such assignment or subletting,
regardless of whether any or all of such Proceeds are deemed to be allocable to
the leasehold or to Tenant's corporate stock or to Tenant's business at the
Premises or to Tenant's trade fixtures, equipment, furnishings, accounts
receivable, or inventory at the Premises or to any other tangible or intangible
personal property of Tenant connected with the Premises or Tenant's business
there conducted; and the term "Allowed Costs" shall mean (a) reasonable
attorneys' fees and reasonable broker's commissions and fees paid by Tenant to
nonaffiliated attorneys or brokers in connection with such assignment or
subletting, plus (b) the reasonable costs of constructing any tenant
improvements Tenant is required to furnish to such assignee or subtenant, plus
(c) in the case of an assignment, all of the Gross Rent, or in the case of a
subletting, the proportionate amount of the Gross Rent allocable to the portion
of the Term and portion of the Premises (if less than all) covered by such
subletting, as reasonably determined by Landlord, plus (d) the lesser of (1) the
fair market value, as reasonably determined by Landlord, of any of Tenant's
trade, fixtures, equipment, furniture, accounts receivable, and/or tangible or
intangible personal property sold to such subtenant or assignee in connection
with such assignment or subletting or (2) the actual consideration therefor
received by Tenant. For purposes of this Lease, the term "Gross Rent" shall mean
Minimum
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Monthly Rent and the sums payable pursuant to Subsections 5.1, 5.2.1, 5.2.2,
5.2.3, 5.3.1, and 5.5 of this Lease.
13.5.2 In the event the Proceeds are paid in installments
(e.g., monthly sub-rent), then the Allowed Costs shall be amortized over the
scheduled number of installment payments, and Landlord's share of the Rent
Differential shall be payable at the same time such installment payments are
made.
13.5.3 Tenant covenants that any allocation of payments or
other consideration payable or deliverable to Tenant in connection with any
subletting of the Premises or assignment of this Lease shall be made in good
faith and not with a purpose to avoid Tenant's obligation to pay 50% of the Rent
Differential to Landlord.
13.6 Joint and Several Obligations. Each permitted subtenant or
assignee shall assume all obligations of Tenant under this Lease with respect to
the Premises, or such portion thereof as may be covered by the sublease, and
shall be and remain jointly and severally liable with Tenant for the payment of
Minimum Monthly Rent and additional rent and the performance of all of the
terms, covenants, conditions, and agreements herein contained on Tenant's part
to be performed with respect to such space; provided, however, that without
limiting the obligations of Tenant under this Lease, such subtenant shall be
liable to Landlord for rent only in the amount set forth in the sublease, unless
otherwise agreed in writing by the parties thereto. No Transfer shall be valid
and no transferee shall take possession of the Premises or any part thereof
unless, within ten (10) days after the execution of the documentary evidence
thereof, Tenant shall deliver to Landlord a duly executed duplicate original of
the Transfer instrument in a form satisfactory to Landlord that (i) provides
that the transferee assumes Tenant's obligations for the payment of rent and for
the full and faithful observance and performance of the covenants, terms and
conditions contained herein, applicable to the Premises in the event of an
assignment or applicable to the subleased space in the event of a sublease, (ii)
provides that the transferee will, at Landlord's election, attorn directly to
Landlord in the event Tenant's Lease is terminated for any reason on the terms
set forth in the instrument of transfer, and (iii) contains such other
assurances as Landlord reasonably deems necessary. The failure or refusal of a
transferee to execute such an instrument of assumption shall not release or
discharge the assignee from its obligations set forth above.
13.7 Assignment of Subrents. Tenant hereby assigns and transfers
to Landlord all of Tenant's interest in any rentals or other income arising from
any sublease heretofore or hereafter made by Tenant. Landlord may collect such
rentals and income and apply same toward Tenant's obligations under this Lease;
provided, however, that until an Event of Default shall have occurred, Tenant
shall be entitled to receive, collect, and enjoy such rentals and income,
subject to the provisions of Subsection 13.5 above. Landlord shall not, by
reason of this or any other assignment of any sublease to Landlord, nor by
reason of any collection of rentals from a subtenant, be deemed liable to such
subtenant for any failure of Tenant to perform or comply with any of Tenant's
obligations to such subtenant under its sublease. Tenant hereby irrevocably
authorizes and directs any such subtenant, upon receipt of a written notice from
Landlord stating that an Event of Default has occurred under this Lease, to pay
to Landlord the rentals due and to become due under the sublease. Tenant agrees
that such subtenant shall have the right to rely upon any such statement and
request from Landlord, and that such subtenant shall pay such rents
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to Landlord without any obligation or right to inquire as to whether such Event
of Default has occurred and notwithstanding any notice from or claim from Tenant
to the contrary. Tenant shall have no right or claim against such subtenant or
Landlord for any such rentals so paid by such subtenant to Landlord.
13.8 Non-Competition. In no event shall Tenant, without
Landlord's prior consent, assign this Lease or sublet the Premises or any
portion thereof to any then tenant or occupant of space in the Facility, or any
prospective tenant with whom Landlord is then, or has within six (6) months
prior thereto, engaged in lease negotiations or discussions that included the
delivery of written correspondence concerning same by at least one of the
parties thereto, or by its broker agent or representative.
13.9 No Merger. The voluntary or other surrender of this Lease by
Tenant or mutual cancellation of this Lease shall not work a merger. At the
option of Landlord, any such surrender or cancellation of this Lease shall
either terminate any and all then existing subleases or subtenancies or operate
as an assignment to Landlord of Tenant's interest in any and all such subleases
or subtenancies.
13.10 Landlord's Right to Assign. Landlord shall have the right
to sell, encumber, convey, transfer, and/or assign any of its rights and
obligations under this Lease.
14. Indemnification; Insurance; Allocation Of Risk.
14.1 Indemnification. Tenant agrees to indemnify, defend and hold
Landlord and its officers, directors, partners and employees entirely harmless
from and against all liabilities, losses, demands, actions, expenses or claims,
including attorneys' fees and court costs, for injury to or death of any person
or for damages to any property arising out of or in any manner connected with:
(i) the use, occupancy or enjoyment of the
Premises and Common Areas and all facilities and amenities located within the
Common Areas by Tenant or Tenant's agents, employees, invitees or contractors
(the "Tenant's Agents") or any work, activity or other things allowed or
suffered by tenant or Tenant's Agents to be done in or about the Common Area or
Premises,
(ii) any breach or default in the
performance of any obligation of Tenant under this Lease, and
(iii) any act or failure to act, whether
negligent or otherwise tortious, by Tenant or Tenant's Agents on or about the
Premises, Building or Common Area.
Notwithstanding the foregoing, Tenant shall not be liable and Landlord shall
indemnify and hold Tenant free and harmless to the extent that damage or injury
is ultimately determined to be caused by the active negligence or willful
misconduct of Landlord. All property of Tenant kept or stored on the Premises or
in the Building shall be so kept or stored at the risk of Tenant only, and
Tenant shall hold Landlord harmless from any claims arising out of damage to the
same, including subrogation claims by Tenant's insurance carriers, unless such
damage shall be caused
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by the negligence of Landlord. The indemnification contained herein shall
survive the expiration or earlier termination of this Lease.
14.2 Tenant's Insurance. Tenant shall have the following
insurance obligations:
14.2.1 Liability Insurance. Tenant shall, at Tenant's
expense, obtain and keep in force at all times during the Term, a policy of
commercial general liability and property damage insurance (including automobile
liability). The minimum limits of liability shall be a combined single limit of
not less than ONE MILLION DOLLARS ($1,000,000.00) per occurrence. The policy
shall state that Landlord and the Landlord Parties are named as additional
insureds and are entitled to recovery for the negligence of Tenant. The policy
shall also provide for severability of interest; shall provide that an act or
omission of one of the insured or additional insureds that would void or
otherwise reduce coverage shall not void or reduce coverages as to other insured
or additional insureds; shall insure performance by Tenant of the indemnity
provisions of this Lease; and shall afford coverage after the Term of this Lease
(by separate policy or extension if necessary) for all claims based on acts,
omissions, injury or damage that occurred or arose in whole or in part during
the term of this Lease. The policy shall be primary coverage for Tenant and
Landlord for any liability arising out of Tenant's and the Tenant Parties' use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. The
limits of said insurance shall not, however, limit any liability of Tenant under
Subsection 14.1.
14.2.2 Personal Property Insurance. Tenant shall maintain
in full force and effect on all of its fixtures, personal property, and
equipment in the Premises a policy or, policies of fire and casualty insurance
in "all risk" form (including water damage) to the extent of at least ninety
percent (90%) of their replacement cost (without deduction for depreciation), or
that percentage of the replacement cost required to negate the effect of a
coinsurance provision, whichever is greater. No such policy shall have a
deductible in a greater amount than FIVE HUNDRED DOLLARS ($500.00). Tenant shall
also insure in the same manner the physical value of all its leasehold
improvements, if any, in the Premises. The "full replacement value" of the
improvements to be insured under this Subsection 14.2.2 shall be determined by
the company issuing the insurance policy at the time the policy is initially
obtained. Not less frequently than once every three (3) years, Landlord shall
have the right to notify Tenant that it elects to have the replacement value
redetermined by an insurance company or insurance consultant. The
redetermination shall be made promptly and in accordance with the rules and
practices of the Board of Fire Underwriters, or a like board recognized and
generally accepted by the insurance company, and each party shall be promptly
notified of the results by the company. The insurance policy shall be adjusted
according to the redetermination. During the Term, the proceeds from any such
policy or policies of insurance shall be used for the repair or replacement of
the fixtures, equipment, and leasehold improvements so insured. Landlord shall
have no interest in said insurance, and will sign all documents necessary or
proper in connection with the settlement of any claim or loss by Tenant. Tenant
shall also maintain insurance for all plate glass upon the Premises. All such
insurance shall contain waivers of subrogation to the extent available on a
commercially reasonable basis.
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14.2.3 Worker's Compensation Insurance. Tenant shall carry
and maintain Workers Compensation and Employer's Liability insurance as required
by applicable Laws.
14.2.4 Business Interruption. Tenant shall maintain loss
of income and business interruption insurance in such amounts as will reimburse
Tenant for direct or indirect loss of earnings attributable to all perils
commonly insured against by prudent tenants or attributable to prevention of
access to the Premises or to the Building as a result of such perils, but in no
event in an amount less than the Gross Rent payable hereunder for six (6)
months. All such insurance shall contain waivers of subrogation to the extent
available on a commercially reasonable basis.
14.2.5 Other Coverage. Not more frequently than every
three (3) years, if, in the reasonable opinion of Landlord's lender or of the
insurance consultant retained by Landlord, the amount of public liability and
property damage insurance coverage at that time is not adequate, or additional
coverages not specified above should be obtained, Tenant, at its cost, shall
increase such insurance coverage, and/or obtain such additional coverages, as
required by either Landlord's lender or Landlord's insurance consultant,
consistent with the then prevailing custom for new leases of similar space in
the business district where the Facility is located.
14.2.6 Insurance Criteria. All the insurance required to
be carried by Tenant (except Tenant's Personal Property Insurance and Workers
Compensation Insurance) hereunder shall:
(i) Be issued by insurance companies that
are qualified and admitted to do business in the State where the Facility is
located and that carry a designation in "Best's Insurance Reports," as issued
from time to time throughout the Term, as follows: Policy holders' rating of A;
financial rating of not less than X;
(ii) Be issued in a form acceptable to
Landlord.
(iii) Contain an endorsement requiring
thirty (30) days' written notice from the insurance company to both parties and
to Landlord's lender before cancellation or expiration or decrease in the
coverage, scope, or amount of any policy.
(iv) Waive subrogation, as required by
Subsections 14.2.2, 14.2.4, and 14.5, with respect to property loss or damage by
fire or other casualty.
(v) Name Landlord and its property manager
as additional insureds and, at Landlord's request, shall carry a lender's loss
payee endorsement in favor of Landlord's lender and such other endorsements as
Landlord may reasonably require from time to time.
14.2.7 Evidence of Coverage. An executed copy of each
insurance policy, or a certificate thereof with the actual policy attached,
shall be delivered to Landlord prior to Tenant's commencing remodeling work in
or taking occupancy of the Premises, and Tenant shall keep each such policy in
full force and effect throughout the Term. Renewal
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policies or certificates thereof shall be delivered to Landlord at least thirty
(30) days in advance of the expiration dates of the expiring policies.
14.2.8 Tenant Insurance Default. In the event that Tenant
fails to deliver to Landlord any policy, certificate, or renewal notice
hereunder required within the prescribed time period, or if any such policy is
canceled or modified during the Term without Landlord's consent, Landlord may at
its option, but shall not be obligated to, obtain such insurance on behalf of
Tenant and bill Tenant, as additional rent, for the cost thereof. The provisions
of this Section 14 are for the benefit of Landlord and its lenders only and are
not nor shall they be construed to be for the benefit of any employee of Tenant,
any other tenant or occupant of the Building or the Facility, or any other
person whatsoever.
14.3 Landlord's Insurance. Landlord shall maintain policies of
insurance covering loss of or damage to the Building in the full amount of its
replacement cost. Such policies shall provide protection (subject to reasonable
deductibles) against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, special extended perils (all
risk), sprinkler leakage, and any other perils (e.g., flood and earthquake) that
Landlord reasonably deems appropriate. Landlord shall not obtain insurance for
Tenant's trade fixtures or equipment.
14.4 Exculpation. Except to the extent otherwise expressly
provided below in this Subsection, Tenant hereby waives all Claims against
Landlord and the Landlord Parties for any loss, theft, or damage to Tenant's
business or Personal Property or injury (including death and physical,
psychological, and emotional injuries) to persons, in, upon or about the
Premises and/or the Facility from any cause whatsoever, except for the active or
passive negligence of Landlord or the Landlord Parties. Without limiting the
generality of the foregoing, Tenant specifically acknowledges that such waived
Claims includes injuries, losses, and damage resulting from the following
causes:
Fire; smoke; explosion; falling plaster, ceiling tiles, fixtures, or
signs; broken glass; steam; gas; fumes; vapors; odors; dust; dirt; grease; acid;
oil; any other Hazardous Substance; debris; noise; air or noise pollution;
vibration; theft; breakage; vermin; electricity; computer or electronic
equipment or systems malfunction or stoppage; water; rain; flooding; freezing;
windstorm; snow; sleet; hail; frost; ice; excessive heat or cold; sewage; sewer
backup; toilet overflow; leaks or discharges from or into the Premises or any
other part of the Facility, or from any pipes, sprinklers, appliances, equipment
(including, without limitation, heating, ventilating, and air-conditioning
equipment); electrical or other wiring; plumbing fixtures; roofs; windows;
skylights; doors; trapdoors; the surface or subsurface of any floor or ceiling
of any part of the Facility; dampness or climatic conditions; maintenance,
repair, or construction activities; renovation work; and any interruption,
cessation, or failure of any public or other utility service.
The foregoing notwithstanding, neither Landlord nor the Landlord Parties
shall be released from liability for their own gross negligence or willful
misconduct or Landlord's negligent failure to respond to written notice from
Tenant of deficiencies that result in such loss, damage, or injury (provided
that the correction of such deficiencies is the obligation of Landlord
hereunder). However, Landlord's liability shall be subject to the further
limitations set forth in Subsection 22.6. BY SIGNING ITS INITIALS BELOW, TENANT
ACKNOWLEDGES THAT
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IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THE PROVISIONS SET
FORTH IN THIS SUBSECTION AND FURTHER ACKNOWLEDGES THAT SUCH PROVISIONS WERE
SPECIFICALLY NEGOTIATED.
/s/ P. G. L. TENANT'S INITIALS
--------------
14.5 Allocation of Insured Risks/Subrogation.
14.5.1 Landlord and Tenant release each other from any
Claims of whatever nature for damage, loss, or injury to the Premises, the
Building, and/or the Facility, or to the other's property in, on, or about the
Premises and the Facility, to the extent of any insurance proceeds that are
received or receivable (or that would have been receivable but for such
releasing party's breach or default of its obligations under this Lease), even
if such damage, loss, or injury shall have been caused by the fault or
negligence (but not willful misconduct) of the other party or anyone for whom
such party may be responsible. Landlord and Tenant shall each cause their
respective insurance policies to provide that the insurance company waives all
right of recovery by way of subrogation against either Landlord or Tenant in
connection with any damage covered by any policy. To the extent of any insurance
proceeds actually received, or that would have been payable but for a breach of
this Lease, neither Landlord nor Tenant shall be liable to the other for any
damage caused by fire or any of the risks insured against under any insurance
policy required by this Lease.
14.5.2 If an insurance policy cannot be obtained with a
waiver of subrogation, or is obtainable only by the payment of an additional
premium charge above that charged by insurance companies issuing policies
without waiver of subrogation, the party undertaking to obtain the insurance
shall notify the other party of this fact. The other party shall have a period
of ten (10) days after receiving the notice either to place the insurance with a
company that is reasonably satisfactory to the other party and that will carry
the insurance with a waiver of subrogation, or to agree to pay the additional
premium if such a policy is obtainable at additional cost. If the insurance
cannot be obtained or the party in whose favor a waiver of subrogation is
desired refuses to pay the additional premium charged, the other party is
relieved of the obligation to obtain a waiver of subrogation with respect to the
particular insurance involved.
15. Security Services.
15.1 Landlord's Obligation to Furnish Security Services. Landlord
may, but shall not be obligated to, furnish security services for the Premises
and/or the Building and/or the Facility as Landlord deems appropriate in its
sole and absolute discretion. In the event Landlord does furnish or contract to
furnish any such services, Tenant shall nevertheless have sole responsibility
for the protection of itself, the Tenant Parties and all property of Tenant and
the Tenant Parties located in, on, or about the Premises or the Building or the
Facility, and the provisions of Section 15 shall nevertheless continue in full
force and effect.
15.2 Tenant's Right to Install Security System. If Tenant wishes
to establish or install any automated and/or non-automated security system in,
on, or about the Premises, Tenant shall first notify Landlord of Tenant's plan
for any such system, and Landlord shall have the
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right to review and approve or disapprove said plan in Landlord's discretion. If
Landlord approves any such plan and Tenant establishes or installs any automated
and/or nonautomated security system in, on, or about the Premises, and should
such system adversely affect the Premises or the Facility or the desirability of
the Premises or the Facility as commercial space for its then current uses, or
have an adverse effect on other tenants, respectively, Landlord shall
subsequently have the right to review Tenant's security system from time to time
and request Tenant to make such changes in personnel and/or equipment. Tenant
shall make said requested changes immediately thereafter.
16. Building Services.
16.1 Standard Building Services. Subject to the full performance
by Tenant of all of Tenant's obligations under the Lease, Landlord shall furnish
the Premises with the standard building services and utilities as set forth in
the attached Exhibit D.
16.2 Additional Services. Tenant shall not, without the consent
of Landlord, (a) use any equipment, apparatus, or device in the Premises that
will in any way increase the amount of electricity, cooling capacity, or water
usually furnished or supplied for use of the Premises for general office
purposes or (b) connect with electric current, except through existing
electrical outlets in the Premises, or connect to water pipes, any apparatus or
device for the purpose of using electric current or water. Tenant agrees to pay
immediately upon demand all reasonable charges imposed by Landlord from time to
time for all building services and utilities supplied to or used by Tenant in
excess of or in addition to those standard building services and utilities
described in Exhibit D. Such excess and additional building services and
utilities are hereinafter referred to as "Additional Services." Landlord may at
any time cause a switch and/or metering system to be installed at Tenant's
expense (which expense Tenant shall pay within ten (10) working days after
receipt of an invoice from Landlord covering the installment cost of such switch
or metering system) to measure the amount of building services, utilities,
and/or Additional Services consumed by Tenant or used in the Premises.
16.3 Conservation. Tenant shall cooperate fully with Landlord to
effect conservation of all utilities in the Building and shall use its best
efforts to minimize its use of water, heat, electricity, and air conditioning.
16.4 Landlord's Right to Cease Providing Services. Landlord
reserves the right, in its sole and absolute discretion with respect to item (a)
below, and in its reasonable discretion with respect to item (b) below, to
reduce, interrupt, or cease service of the heating, air conditioning,
ventilation, elevator, plumbing, electrical systems, telephone systems, and/or
utility services of the Premises, the Building, or the Facility, for any of the
following reasons or causes:
(a) any accident, emergency, Law, or Force Majeure
(as defined in Section 17); or
(b) the making of any repairs, additions,
alterations, or improvements to the Premises, the Building, or the Facility,
until such repairs, additions, alterations, or improvements shall have been
completed.
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No such interruption, reduction, or cessation of any such building
services or utilities shall constitute an eviction or disturbance of Tenant's
use or possession of the Premises or common areas, or a breach of Landlord's
obligations hereunder, or render Landlord liable for any damages (including,
without limitation, any damages, compensation, or claims arising from any
interruption or cessation of Tenant's business), or entitle Tenant to be
relieved from any of its obligations under the Lease, or result in any abatement
of rent. However, Landlord shall use commercially reasonable diligence to
restore such service, and to minimize any disturbance to Tenant, where it is
within Landlord's commercially reasonable control to do so. Notwithstanding the
foregoing, if any of the utilities and services cease to be provided to Tenant
as a result of the negligence or willful misconduct of Landlord, resulting in
the Premises being rendered uninhabitable, and if such interruption continues in
excess of five (5) consecutive business days, then all rent payable by Tenant to
Landlord under this Lease shall be abated for the period the Premises are
rendered uninhabitable for such reasons.
17. Force Majeure. Except as otherwise expressly provided elsewhere in
this Lease with respect to Tenant's right to abatement of Gross Rent under
certain circumstances, Landlord shall not be chargeable with, liable for, or
responsible to Tenant for anything or in any amount for any failure to perform
or delay caused by any of the following events (collectively, "Force Majeure"):
fire; earthquake; explosion; flood; hurricane; the elements; acts of God or the
public enemy; actions, restrictions, limitations or interference of governmental
or quasi-governmental authorities or agents; war; invasion; insurrection;
rebellion; riots; strikes or lockouts; inability to obtain necessary materials,
goods, equipment, services, utilities or labor; accident; breakage; or any other
cause whether similar or dissimilar to the foregoing which is beyond the
reasonable control of Landlord; and any such failure or delay due to said causes
or any of them shall not be deemed a breach of or default in the performance of
this Lease by Landlord.
18. Rules And Regulations. Tenant, its agents, employees, and servants
and those claiming under Tenant will at all times observe, perform, and abide by
all of the general rules and regulations promulgated by Landlord as set forth in
Exhibit C, and as reasonably modified, supplemented, or amended by Landlord from
time to time (the "Rules and Regulations"). Landlord shall not be responsible to
Tenant for the nonperformance by any other tenant or occupant of the Facility of
any of said rules and regulations, and Landlord reserves the right to make
reasonable exceptions for specific tenants or occupants with respect to the
application of certain rules and regulations. Subject to the foregoing, Landlord
agrees to use commercially reasonable efforts, consistent with Landlord's rights
under applicable leases, to apply the Rules and Regulations in a fair,
responsible, and equitable manner. If there is a conflict between the Rules and
Regulations and any provision of this Lease, the provisions of this Lease shall
prevail.
19. Holding Over.
19.1 Surrender of Possession. Tenant shall surrender possession
of the Premises immediately upon the expiration of the Term or termination of
this Lease. If Tenant retains possession of the Premises or any part thereof
after the expiration or earlier termination of the Term, whether with or without
Landlord's consent, all of the provisions of this Lease pertaining to the
obligations of Tenant and the rights of Landlord during the Term shall apply to
such holdover period, except as expressly modified by this Section 19.
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19.2 Holding Over With Consent. If Tenant, with Landlord's
consent, retains possession of the Premises after the expiration of the Term,
Tenant shall become a tenant from month-to-month, at a monthly rental equal to
one hundred fifty percent (150%) of the Minimum Monthly Rent applicable
immediately prior to the expiration of the Term. Such month-to-month tenancy
shall be terminable in the manner provided by law.
19.3 Holding Over Without Consent. If Tenant, without Landlord's
consent, retains possession of the Premises after the expiration or earlier
termination of Term (or, in the case of a month-to-month tenancy under
Subsection 19.2, after the duly noticed termination date of such tenancy), then
Tenant shall pay to Landlord monthly rental equal to two hundred percent (200%)
of the Minimum Monthly Rent applicable immediately prior to the expiration or
earlier termination of the Term, and Tenant shall indemnify Landlord from and
against all losses, costs, claims, liabilities, and expenses (including, without
limitation, reasonable' attorneys' fees and disbursements) sustained by Landlord
by reason of such retention (including, without limitation, claims for damages
by any other person to whom Landlord may have agreed to lease all or any part of
the Premises effective on or after the date Tenant was obligated to surrender
possession of the Premises). No acceptance by Landlord of rent during any such
holding over without Landlord's approval shall reinstate, continue, or extend
the Term of this Lease or shall affect any notice of termination given to Tenant
prior to the payment of such money, it being agreed that after the service of
such notice or the commencement of any suit by Landlord to obtain possession of
the Premises, Landlord may receive and collect when due any and all payments
owed by Tenant under this Lease, and otherwise exercise its rights and remedies.
The making of any such payments by Tenant shall not waive such notice, or in any
manner affect any pending suit or judgment obtained.
20. Subordination. This Lease shall, at Landlord's sole option, be
subject and subordinate at all times to the lien of any mortgages or deeds of
trust in any amounts whatsoever now or hereafter placed on or against the
Facility (or any portion thereof) or on or against Landlord's interest or estate
therein without the necessity of having further interests on the part of Tenant
to effectuate such subordination. Notwithstanding such subordination, Tenant's
right to quiet possession of the Premises shall not be disturbed as a result of
any foreclosure or deed in lieu of any mortgage or deed of trust hereafter
placed on or against the Facility, if and so long as Tenant is not in default of
any of its obligations under this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease deemed to be prior to the lien of its mortgage,
deed of trust, or ground lease, and shall give written notice thereof to Tenant,
then this Lease shall be deemed to be prior to such instrument, regardless of
whether this Lease is dated prior or subsequent to the execution or recording
date thereof. Tenant covenants and agrees to execute and deliver, upon demand,
such further instruments evidencing such subordination of this Lease as may be
required by Landlord, provided that said instruments recognize that Tenant's
right to quiet possession of the Premises shall not be disturbed if and so long
as Tenant is not in default of its obligations under this Lease. Tenant hereby
irrevocably appoints Landlord the attorney-in-fact of Tenant to execute and
deliver any such instruments for or in the name of Tenant.
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21. Entry By Landlord.
21.1 Landlord reserves and shall have the right to enter the
Premises at any and all reasonable times to inspect the same, to verify Tenant's
compliance with its obligations under this Lease, to post notices of
non-responsibility (if permitted by the Laws of the State where the Facility is
located), to post any notices Landlord reasonably believes are required by law
to be posted on the Premises, to deliver notices to Tenant or any subtenant or
occupant of any portion of the Premises, to supply any service to be provided by
Landlord to Tenant hereunder, to submit the Premises to prospective lender,
purchasers, investors, or tenants. Landlord may, during the last six (6) months
of the Term, place "For Lease" signs on or about the Premises.
21.2 Landlord also reserves and shall have the right to enter the
Premises, upon reasonable prior written notice (except in emergencies), to
alter, improve, renovate, or repair the Premises and any portion of the Facility
or its mechanical systems, and Landlord may for such purposes erect scaffolding
and other appropriate structures where reasonably required by the character of
the work to be performed. In the event that any such entry by Landlord into the
Premises, or such work performed by Landlord at the Facility, prevents Tenant
from gaining access to all or any significant portion of the Premises for more
than five (5) consecutive business days, then Minimum Monthly Rent shall be
abated in proportion to the part of the Premises (if less than all) to which
Tenant shall have been denied access, but there shall be no abatement of rent by
reason of all or any portion of the Premises being inaccessible for a period of
five (5) or fewer consecutive business days. Further, Tenant shall not be
entitled to any abatement of rent on account of any noise, vibration, or other
disturbance to Tenant's business at the Premises that may arise out of any such
entry by Landlord into the Premises or out of Landlord's performance of any such
work at the Facility, and under no circumstances shall any such noise,
vibration, disturbance, work, or entry by Landlord be construed or deemed to be
a forcible or unlawful entry into or a detainer of the Premises or an eviction
of Tenant from the Premises or any portion thereof. Landlord shall use
commercially reasonable efforts (which shall not include any obligation to
employ labor at overtime rates) to avoid or minimize disruption of Tenant's
business during any such entry or work by Landlord.
21.3 Landlord shall have the right to use any and all means that
Landlord may deem appropriate to open any doors in an emergency in order to
obtain entry to the Premises.
22. Defaults And Remedies.
22.1 Events of Default.
22.1.1 Definition. In addition to those events designated
as Events of Default in other provisions of this Lease, each of the following
shall constitute an "Event of Default" by Tenant and a material breach of this
Lease:
(1) Tenant's failure to make any
payment owed by Tenant under this Lease, as and when due, where such failure is
not cured within five (5) business days following Tenant's receipt of Landlord's
written notice thereof; or
(2) Tenant's failure to observe,
keep, or perform any of the terms, covenants, agreements, or conditions under
this Lease that Tenant is obligated
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to observe or perform, other than that described in subdivision (1) above, for a
period of thirty (30) days after delivery of notice to Tenant of said failure;
provided however, that if the nature of Tenant's default is such that more than
thirty (30) days are reasonably required for its cure, then Tenant shall not be
deemed to be in default under this Lease if Tenant shall commence the cure of
such default so specified within said ten (10) day period and diligently
prosecute the same to completion; or
(3) Landlord's discovery that any
financial statement given to Landlord by Tenant, by any assignee or subtenant of
Tenant, by any successor in interest of Tenant, or by any guarantor of any
obligations of Tenant under this Lease, was materially false, where Tenant
fails, within ten (10) days after delivery of Landlord's written demand, to give
Landlord such additional assurances or security for the full and faithful
performance of all Tenant's obligations under this Lease as Landlord shall
reasonably have demanded; or
(4) The occurrence of any of the
events described in Subsection 36.5 (Events of Bankruptcy) below with respect to
any guarantor of any obligations of Tenant under this Lease, where Tenant fails
to furnish a substitute guarantor, or alternative security, satisfactory to
Landlord within ten (10) days after Landlord's delivery of Landlord's written
demand therefor.
22.1.2 Notice of Default. The notices of default provided
for in Subsection 22.1.1(1) and (2), and the written demands provided for in
Subsection 22.1.1(3) and (4), shall in each case be in lieu of, and not in
addition to, any notice required under applicable unlawful detainer Laws;
22.2 Remedies. Upon the occurrence of any Event of Default,
Landlord may exercise any one or more of the termination rights and other
remedies, in addition to all other rights and remedies now or hereafter provided
at law or in equity.
22.3 Right to Cure. All covenants and agreements to be performed
by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost
and expense. If Tenant shall fail to perform any act on its part to be performed
under this Lease, and such failure shall continue for five (5) business days
after notice thereof to Tenant (except that no notice shall be required in cases
of emergency), Landlord may, but shall not be obligated to do so, without
waiving or releasing Tenant from any obligations of Tenant, perform any such act
on Tenant's part to be performed as provided in this Lease. All costs incurred
by Landlord with respect to any such performance by Landlord (including
reasonable attorneys' fees) shall be paid by Tenant to Landlord immediately upon
demand.
22.4 Waiver of Redemption. Tenant hereby waives, for itself and
all persons claiming by and under Tenant, all rights and privileges which it
might have under any present or future law to redeem the Premises or to continue
the Lease after being dispossessed or ejected from the Premises.
22.5 Remedies Cumulative. All remedies of Landlord under this
Lease are cumulative. Efforts by Landlord to mitigate the damages caused by
Tenant's default shall not
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constitute a waiver of Landlord's right to recover damages, nor shall Landlord
have any obligation to mitigate damages, except to the extent otherwise provided
by applicable Laws.
22.6 Default by Landlord. In no event shall Landlord be deemed to
be in default of any obligation hereunder unless and until thirty (30) days have
expired after delivery of notice of such deficiency to Landlord and to anyone
else, or to any lien holder, to whom Landlord has instructed Tenant to send
duplicative notices, specifying in detail Landlord's failure to perform, to
Landlord and to the holder of any recorded interest pertaining to the Building;
provided, however, that if such deficiency cannot be cured or corrected within
such 30-day period Landlord shall not be in default if Landlord or anyone on
behalf of Landlord commences such cure or correction within such 30-day period
and thereafter diligently prosecutes the same to completion. If Landlord is
deemed to be in default under the provisions of this Subsection, Tenant shall be
entitled to bring an action for declaratory judgment or specific performance, or
for damages (subject to the provisions of this Lease limiting Landlord's
liability) shown by Tenant to have been proximately caused by such default.
Notwithstanding anything to the contrary in this Lease, Tenant agrees that, in
the event that it becomes entitled to receive damages from Landlord, Tenant
shall not be allowed to recover from Landlord consequential damages or damages
in excess of the out-of-pocket expenditures incurred by Tenant as a result of a
default by Landlord. Landlord's liability to Tenant for damages resulting from
Landlord's breach of any provision or provisions of the Lease shall not exceed
the value of Landlord's equity interest in the Facility. Tenant hereby expressly
waives its rights under any and all Laws, now or hereafter in effect, to
terminate this Lease (whether prior to or after the commencement of the Term) or
to withhold any payment owed by Tenant under this Lease, on account of any
damage, condemnation, destruction, or state of disrepair of the Premises, or any
part thereof, it being the parties' intent that the provisions of this Lease
shall govern the parties' rights and obligations with respect to such matters.
23. Damage Or Destruction.
23.1 Total or Substantial Destruction. In the event that the
Facility or Building shall be destroyed to the extent of forty percent (40%) or
more of the replacement cost thereof, Landlord may elect to terminate this
Lease, whether the Premises be damaged or not, upon written notice to Tenant not
later than the 60th day after the date of such destruction.
23.2 Loss Covered by Insurance. If, at anytime prior to the
expiration or termination of this Lease, (a) all or any portion of the Premises,
or any portion of the Common Areas whose use is required for Tenant's business,
shall be wholly or partially damaged or destroyed by fire or other casualty or
peril (collectively, a "Casualty"), and (b) at least ninety percent (90%) of the
total costs of performing the necessary repairs and replacements under then
applicable Law will be fully covered and paid for by available proceeds of
insurance maintained by Landlord, and (c) such damage or destruction shall
render the Premises totally or partially inaccessible or unusable by Tenant in
the ordinary conduct of Tenant's business, then:
23.2.1 Repairs That Can Be Completed Within One Hundred
Eighty Days. Within sixty (60) days after the date of Tenant's notice to
Landlord of such damage or destruction (the "Damage Notice Date"), Landlord
shall give Tenant notice of Landlord's good faith determination of whether the
damage or destruction can be repaired under applicable Laws,
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without the payment of overtime or other premiums, within one hundred eighty
(180) days after the date such determination of Landlord is made. If all such
repairs to the Premises and/or such portions of the Common Areas can, in
Landlord's good faith judgment, be substantially completed in such manner within
such one hundred eighty (180) day period, Landlord shall undertake such repairs
and this Lease shall remain in full force and effect.
23.2.2 Repairs That Cannot Be Completed Within One Hundred
Eighty Days. In the event that Landlord ever determines that such repairs to the
Premises or to such portions of the Common Areas cannot, in Landlord's good
faith judgment, be substantially completed under applicable Laws, without the
payment of overtime or other premiums, within one hundred eighty days after the
date of such casualty, then Landlord shall notify Tenant of such determination
within ten (10) days of such casualty. In such notice Landlord shall either
agree to undertake such repairs (in which even the notice shall include
Landlord's estimate of the time required to complete same) or elect to terminate
this Lease. If Landlord so agrees to undertake repairs, but states that the
required repairs will not be completed within 180 days after delivery of such
notice, then Tenant shall have an option, exercisable by written notice thereof
delivered to Landlord not later than the tenth (10th) day after Landlord's
delivery of Landlord's notice that the repairs will not be completed within such
180-day period, to terminate this Lease. If neither Landlord nor Tenant exercise
such a right of termination following Landlord's determination that repairs will
take more than 180 days, then Landlord shall diligently undertake to repair such
damage or destruction.
23.3 Loss Not Covered By Insurance. If, at anytime prior to the
expiration or termination of this Lease, (a) all or any portion of the Premises,
or any portion of the Common Areas whose use is required for Tenant's business,
is wholly or partially damaged or destroyed by a Casualty, and (b) less than
ninety percent (90%) (if any) of the total costs of performing the necessary
repairs and replacements will be fully covered and paid for by available
proceeds of insurance maintained by Landlord, and (c) such damage or destruction
renders the Premises totally or partially inaccessible or unusable by Tenant in
the ordinary conduct of Tenant's business, then:
23.3.1 Landlord shall deliver to Tenant, within sixty (60)
days after the Damage Notice Date, a written notice whereby Landlord shall
either (a) elect to terminate this Lease or (b) agree to undertake such repairs,
in which latter event such notice shall include a statement of Landlord's good
faith estimate of the number of days required in order to achieve substantial
completion, under applicable Laws, of such repair and restoration work. If
Landlord does not elect by such notice to Tenant to repair such damage, this
Lease shall be deemed to have been terminated by Landlord.
23.3.2 If pursuant to Subsection 23.3.1 Landlord elects to
undertake such repairs, but states that the required repairs will not be
completed within 180 days after delivery of such notice, then Tenant shall have
an option, exercisable by written notice thereof delivered to Landlord not later
than the tenth (10th) day after Landlord's delivery of Landlord's notice that
the repairs will not be completed within such 180-day period, to terminate this
Lease. If neither Landlord nor Tenant exercise such a right of termination with
respect to a Casualty covered by this Subsection 23.3, then Landlord shall
diligently undertake to repair such damage or destruction.
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23.4 Destruction During Final Year. Notwithstanding anything to
the contrary contained in Subsections 23.1 or 23.2, if the Premises or the
Building or a portion of the Common Areas required for Tenant's business are
wholly or partially damaged or destroyed within the final twelve (12) months of
the Term of this Lease, and no renewal rights have been exercised prior to such
damage or destruction, and if as a result of such damage or destruction Tenant
is denied access or use of the Premises for the conduct of its business
operations for a period of ten (10) consecutive business days, Landlord or
Tenant may, at its option, by giving the other written notice prior to
substantial completion of the repairs, and in no event later than the 60th day
after the Damage Notice Date, elect to terminate this Lease.
23.5 Effective Date of a Lease Termination. Any notice of
Tenant's election to terminate under this Section 23 shall include a statement
of the effective date of such termination, which shall not be more than sixty
(60) days after the date such notice is delivered. Any notice of Landlord's
election to terminate under this Section 23 shall be effective (a) on the tenth
(10th) day after delivery of the notice, if the damage or destruction shall have
prevented Tenant from conducting business at the Premises, or (b) on the
sixtieth (60th) day after delivery of the notice, in the event that Tenant shall
not have been so prevented from conducting business at the Premises.
23.6 Abatement of Gross Rent. In the event that all or any
portion of the Premises shall be rendered inaccessible or unusable to Tenant,
and unused by Tenant, for a period of more than ten (10) consecutive days as a
result of any damage or destruction caused by any Casualty (and provided that
such Casualty shall not have arisen in whole or in part out of any gross
negligence or willful misconduct on Tenant), then Gross Rent shall be reduced
proportionately for such portion of the Premises as shall be rendered
inaccessible or unusable to Tenant, and unused by Tenant, during the period of
time that such portion is unusable or inaccessible to Tenant, and unused by
Tenant.
23.7 Destruction of Tenant's Personal Property, Tenant
Improvements or Property of the Tenant Parties. In the event a Casualty causes
damage to or destruction of the Premises or the Building or the Facility, under
no circumstances shall Landlord be required to repair damage to, or make any
repairs to or replacements of, Tenant's Personal Property. However, as part of
Common Area Costs, Landlord shall cause to be insured Tenant Improvements and
Alterations that do not consist of Tenant's Personal Property and shall cause
proceeds of such insurance to be applied to the cost of repairing or restoring
such Tenant Improvements and Alterations, but Tenant shall pay for such portion
of those costs as may be uninsured or be subject to a deductible. Landlord shall
have no responsibility for any contents placed or kept in or on the Premises or
the Building or the Facility by Tenant or the Tenant Parties.
23.8 Exclusive Remedy. The remedies provided for in this Section
23 shall be Tenant's sole and exclusive remedy in the event a Casualty causes
damage to or destruction of all or any portion of the Premises, Building, or
Facility, and Tenant, as a material inducement to Landlord's entering into this
Lease, irrevocably waives and releases the provisions of any Law that would
automatically terminate this Lease or otherwise be contrary to the provisions of
this Section in the event of any such damage or destruction.
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24. Eminent Domain.
24.1 Definitions. The following terms shall have the indicated
definitions as used herein: (a) "Condemnation" or "Taking" means (i) the
exercise of any governmental or power, whether by legal proceedings or
otherwise, by a Condemnor and/or (ii) a voluntary sale or transfer by Landlord
to any Condemnor, either under threat of eminent domain or while legal
proceedings for eminent domain are pending; (b) "Date of Taking" means the date
the Condemnor has the right to possession of the property being condemned; (c)
"Award" means all compensation, sums, or anything of value awarded, paid, or
received on a total or partial Condemnation; and (d) "Condemnor" means any
public or quasi-public authority, or private corporation or individual, having
the power of eminent domain.
24.2 Permanent Taking.
24.2.1 Total Taking. If the Premises are totally taken by
Condemnation, this Lease shall terminate on the Date of Taking.
24.2.2 Partial Taking; Common Areas.
24.2.2.1 If any portion of the Premises is taken by
Condemnation, this Lease shall remain in effect, except that Tenant shall have
the right to elect to terminate this Lease if forty percent (40%) or more of the
rentable square footage of the Premises is taken, or if the portion taken
renders the remainder of the Premises economically unusable by Tenant, as
determined by condemning authority. To be effective, such election to terminate
must be made by written notice delivered to Landlord within twenty (20) days
after Tenant's obtaining knowledge of the impending acquisition of such portion
of the Premises by Condemnation. Tenant shall be deemed to have knowledge of
such impending acquisition if Tenant enters into negotiations with the
Condemnor's representatives, on receipt of service of complaint and summons or
order for immediate possession, or on receipt of a letter of inquiry from
Landlord advising Tenant of the impending acquisition and requesting notice of
Tenant's resulting elections and contentions. Tenant's notice shall contain a
clear and unequivocal statement of its election to terminate, and its reasons
for this election.
24.2.2.2 If any part of the common areas of the
Facility is taken by Condemnation, this Lease shall remain in full force and
effect so long as there is no material interference with the access to the
Premises. If such a Taking materially interferes with access to the Premises,
either party shall have the election to terminate this Lease pursuant to this
Section 24.
24.2.2.3 If forty percent (40%) or more of the
Building or the Facility is taken by Condemnation (whether or not any Portion of
the Premises shall have been taken), Landlord shall have the election to
terminate this Lease in the manner prescribed herein.
24.2.3 Termination or Abatement. If either party elects to
terminate this Lease under the provisions of Subsection 24.2.2 (such party is
hereinafter referred to as the "Terminating Party"), it must terminate by giving
notice to the other party (the "Nonterminating Party") within twenty (20) days
after the nature and extent of the Taking have been finally determined (the
"Decision Period"). The Terminating Party shall notify the Nonterminating
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Party of the date of termination, which date shall not be earlier than sixty
(60) days after the Terminating Party has notified the Nonterminating Party of
its election to terminate, nor later than the Date of Taking. If such notice of
termination is not given within the Decision Period, this Lease shall continue
in full force and effect except that the Gross Rent shall be reduced by
subtracting therefrom an amount calculated by multiplying the Gross Rent in
effect prior to the Taking by a fraction the numerator of which is the square
footage taken from the Premises and the denominator of which is the square
footage in the Premises prior to the Taking.
24.2.4 Restoration. If there is a partial Taking of the
Premises and this Lease remains in full force and effect pursuant to this
Section 24, Landlord, at its cost, shall accomplish all necessary restoration so
that the Premises are returned as near as practical to their condition
immediately prior to the Date of Taking, but in no event shall Landlord be
obligated to expend more for such restoration than the extent of funds actually
paid to Landlord by the Condemnor.
24.2.5 Award. Any Award arising from the Condemnation or
the settlement thereof shall belong to and be paid to Landlord and Tenant hereby
assigns to Landlord any right of Tenant thereto, except that Tenant shall
receive from the Award compensation for the following, if specified by amount in
the Award by the Condemnor: Tenant's trade fixtures, tangible personal property,
goodwill, loss of business, and relocation expenses. Tenant shall have the right
to participate in condemnation proceedings for the purposes permitted under this
Section 24 and to complain against the Condemnor authority for a separate award
for such losses. At all events, Landlord shall be solely entitled to all Awards
in respect of the real property, including the bonus value of the leasehold.
Tenant shall not be entitled to any Award until Landlord has received the total
amount to which Landlord is entitled hereunder.
24.3 Temporary Taking. No temporary taking of the Premises or any
part of the Premises and/or of Tenant's rights to the Premises or under this
Lease shall terminate this Lease or give Tenant any right to any abatement of
any rents owed to Landlord pursuant to this Lease. Any award made to Tenant by
reason of such temporary taking shall belong entirely to Tenant.
25. Sale By Landlord. In the event Landlord shall sell, assign, convey,
or transfer all or a part of its interest in the Facility or any part of the
Facility, Tenant agrees to attorn to such transferee, assignee, or new owner. If
all of Landlord's interest in the Facility shall be sold, assigned, conveyed, or
transferred, then upon consummation of such sale, assignment, conveyance, or
transfer, Landlord shall automatically be freed and relieved from all liability
and obligations accruing or to be performed from and after the date of such
sale, assignment, transfer, or conveyance, and in such event Tenant agrees to
look solely to the responsibility of such transferee, assignee, or new owner. In
the event of such sale, assignment, transfer, or conveyance, Landlord shall
transfer, or in lieu thereof grant a credit at closing, to such transferee,
assignee, or new owner of the Facility the balance of the Deposit, if any,
remaining after lawful deductions and in accordance with applicable Law, after
notice to Tenant, and Landlord hall thereupon be relieved of all liability with
respect to the Deposit.
26. Estoppel Certificates. Upon either party's prior request from time
to time, but not more than once a year, the other party shall execute,
acknowledge, and deliver to the requesting
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party, not later than ten (10) days after such request, a statement (i)
certifying the date of commencement of this Lease, (ii) stating that this Lease
is unmodified and in full force and effect (or if there have been modifications,
that this Lease is in full force and effect as modified and the date and nature
of such modifications), (iii) stating the dates to which rent has been paid,
(iv) acknowledging that there are not, to the certifying party's knowledge, any
uncured defaults on the part of the other party, or specifying each such default
if any are claimed, and (v) setting forth such other matters as may reasonably
be requested. Landlord and Tenant intend that any such statement delivered
pursuant to this Section may be relied upon by any permitted subtenant,
assignee, or lender of Tenant, by the mortgagee or the beneficiary of any deed
of trust, or by any purchaser or prospective purchaser of the Real Property. If
Tenant's failure to deliver such statement within the required time is not cured
within three (3) days after Landlord's delivery of written notice of such
default, such failure to deliver the statement shall, at Landlord's option, be
an Event of Default under this Lease by Tenant, or it shall be conclusive upon
Tenant that (a) this Lease is then in full force and effect, without
modification except as may be represented by Landlord, (b) there are no uncured
defaults in Landlord's performance, and (c) not more than one month's rent has
been paid in advance. Tenant further agrees, from time to time upon Landlord's
request, promptly to furnish to Landlord financial statements reflecting
Tenant's then current financial condition and, if rendered in the ordinary
course of conducting Tenant's business, a copy of Tenant's then most current
certified financial statements.
27. Requirements Of Landlord's Lenders.
27.1 Financing Condition. Landlord may from time to time desire
to mortgage all or a portion of the Facility for the purpose of securing
financing from an institutional lender. In the event such institutional lender
requires, as a condition of granting Landlord such financing, that this Lease be
amended or modified, then Tenant shall, within thirty (30) days after Landlord's
request, consent to and execute any such reasonable amendment or modification of
this Lease; provided, however, that such modification or amendment only concerns
(a) the lender's right to notification, (b) the lender's right to cure defaults
by Landlord, (c) requirements for the lender's consent or approval when
Landlord's consent or approval is required hereunder, (d) requirements for the
lender's prior consent or approval for any amendment, modification, or early
termination of the Lease, for any waiver of any of the terms or conditions of
the Lease to be performed or observed by Tenant, or for any estoppel certificate
to be provided by Landlord, (e) restrictions on prepayments of rent, (f) the
lender's right to require that rents be paid directly to the lender, (g) the
resolution of ambiguities or correction or errors or omissions contained in this
Lease, and/or (h) such other matters as Tenant may consent to, which consent
shall not be unreasonably withheld. At Landlord's option, Tenant's failure to
execute and deliver such a Lease modification or amendment within the required
time shall be an Event of Default under this Lease by Tenant, without any
further notice to Tenant.
27.2 Mortgagee Protection. Tenant agrees to give any present or
future mortgagee and/or trust deed holders, by registered mail, a copy of any
notice of default served upon Landlord, provided that prior to such notice
Tenant has been notified, in writing (by way of notice of assignment of rents
and leases, or otherwise), of the address of such mortgagee and/or trust deed
holder. Tenant further agrees that if Landlord shall have failed to cure such
default within the time provided for in this Lease (if any), then the
mortgagees and/or trust deed holders shall have an additional thirty (30) days
within which to cure such default or if such default
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cannot be cured within that time, then such additional time as may be necessary
if, within such thirty (30) days, any mortgagee and/or trust deed holder has
commenced and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), in which event this Lease shall not be
terminated while such remedies are being diligently pursued.
28. Substitution Of Premises. Landlord hereby reserves the right, from
time to time prior to the Commencement Date or during the Term, to relocate
Tenant to other premises in the Facility on the following terms and conditions:
(a) the new premises shall be substantially the same in size, dimensions,
configuration, decor, and quality as the Premises described in this Lease, and
shall be placed in that condition by Landlord at its cost; (b) the physical
relocation of the Premises shall be accomplished by Landlord at its cost; (c)
Landlord shall give Tenant at least sixty (60) days' notice of Landlord's
intention to relocate the Premises; (d) the physical relocation of the Premises
shall take place on a weekend, if practicable, and shall be accomplished as
quickly as reasonably practicable; (e) all reasonable actual out-of-pocket costs
incurred by Tenant as a result of the relocation, including, without limitation,
costs incurred in changing addresses on stationery, business cards, directories,
advertising, and other such items, but excluding any lost revenues or any
intangible costs, shall be paid by Landlord; (f) if the relocated premises are
smaller than the Premises as they existed before the relocation, Gross Rent
shall be reduced to a sum computed by multiplying the Gross Rent specified in
Sections 4 and 5 by a fraction, the numerator of which shall be the total number
of rentable square feet in the relocated premises, and the denominator of which
shall be the total number of rentable square feet in the Premises before
relocation; and (g) from and after the date of such relocation and substitution,
the term "premises" as used in this Section shall mean the substituted premises
in the Facility, and Landlord and Tenant shall execute an amendment to this
Lease stating the relocation of the Premises and the reduction of Gross Rent, if
any.
29. Attorneys' Fees. In the event either party requires the services of
an attorney in connection with enforcing the terms of this Lease (including an
action or proceeding between one party and the trustee or debtor in possession
while the other party is a debtor in a proceeding under the Bankruptcy Code
(Title 11 of the United States Code or any successor statute to such Code)), or
in the event suit is brought for the recovery of any amount due and owing under
this Lease, the prevailing party shall be entitled to recover all its costs and
expenses in connection therewith (including court costs and reasonable
attorneys' fees, costs and disbursements) from the unsuccessful party, whether
or not such action, proceeding or appeal is prosecuted to judgment or other
final determination. The term "prevailing party" shall include, without
limitation, a party who obtains legal counsel or brings an action against the
other party by reason of the other party's breach or default and obtains
substantially the relief sought, whether by compromise, settlement, or judgment.
If such prevailing party shall recover in any such action, proceeding, or
appeal, such costs and expenses (including court costs and reasonable attorneys'
fees, costs and disbursements) shall be included in and as a part of such
judgment.
30. Non-Waiver. The waiver by Landlord or Tenant of any term, covenant,
agreement or condition contained in this Lease shall not be deemed to be a
waiver of any subsequent breach of the same or of any other term, covenant,
agreement, condition or provision of this Lease. Nor shall any consent by
Landlord or Tenant in any one instance dispense with necessity of consent in any
subsequent or other instance. Nor shall any custom or practice that
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may develop between the parties in the administration of this Lease be construed
to waive or lessen the right of Landlord or Tenant to insist upon performance by
the other in strict accordance with all of the terms, covenants, agreements,
conditions, and provisions of this Lease. The subsequent acceptance by Landlord
of any payment owed by Tenant to Landlord under this Lease, or the payment of
rent by Tenant, shall not be deemed to be a waiver of any preceding breach by
Tenant of any term, covenant, agreement, condition, or provision of this Lease,
other than the failure of Tenant to make the specific payment so accepted by
Landlord, regardless of Landlord's or Tenant's knowledge of such preceding
breach at the time of the making or acceptance of such payment.
31. Notices. All notices, notifications, demands, requests, consents,
approvals, designations, elections, and waivers that may or are required to be
given by either party to the other hereunder shall be in writing and shall be
deemed to have been duly given when delivered personally, or one business day
after such notice or demand is sent by a reliable overnight courier service, or
three (3) business days after it is sent by United States certified or
registered mail, in each case with postage prepaid and the notice or demand
addressed to the other party at its address set forth in Subsection 1.1(b) of
this Lease, or to such other place as such party may from time to time by like
notice designate. Written notice given in any other manner shall have been duly
given when actually received by Landlord's manager of the Facility (in the case
of notice to Landlord) or by any of the undersigned representatives of Tenant or
any other executive level employee or officer of Tenant. If there is more than
one tenant under this Lease, then notice to any one of them shall constitute
notice to all and notice from any one of them shall constitute notice from all.
32. Joint And Several Liability. If Tenant consists of more than one
person or other entity, Tenant's obligations hereunder shall be joint and
several as between such persons and/or entities.
33. Time. Subject to provisions of Section 17 (Force Majeure), time is
of the essence of this Lease and each and all of its provisions.
34. Successors. Subject to the provisions of Section 13 (Assignment and
Subletting) and Section 25 (Sale by Landlord), and except as otherwise provided
to the contrary in this Lease, the terms, covenants, and conditions herein
contained shall apply to, bind, and inure to the benefits of the heirs,
successors, executors, administrators, and permitted assigns of the respective
parties hereto.
35. Entire Agreement. This Lease (including the exhibits, riders,
addenda, and schedules referred to herein and made a part hereof) embodies the
entire agreement between, and understanding of, the parties and supersedes all
prior agreements and understandings (oral or written) between the parties with
respect to the subject matter hereof. This Lease shall not be modified by any
oral agreement, either express or implied, and all modifications hereof shall be
in writing and signed by both Landlord and Tenant.
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36. Restrictions On Options.
36.1 Definition. As used in this Section 36, the word "Option"
shall mean any of the following rights or options of Tenant, if any such rights
or options are granted pursuant to an addendum or other modification to this
standard lease form: (1) any right or option to extend the term of this Lease,
(2) any option or any right of first refusal or first offer to lease the
Premises or any other space within the Facility or other property of Landlord or
its affiliates, and (3) any right or option of Tenant to terminate or cancel
this Lease prior to the last day of the initial Term contemplated by Subsection
1.2(d).
36.2 Options Personal. Each Option, if any, granted to Tenant in
this Lease is personal to the original Tenant and may be exercised only by the
original Tenant while directly (and not through subleases) occupying more than
sixty percent (60%) of the Premises, and may not be exercised or assigned,
voluntarily or involuntarily, by or to any person or entity other than the
original Tenant. If the original Tenant consists of more than one person or
other entity, each such person or entity must join in the exercise of the Option
in order for it to be effective. The Options, if any, herein granted to Tenant
are not assignable separate and apart from this Lease, nor may any Option be
separated from this Lease in any manner, by reservation or otherwise.
36.3 Multiple Options. In the event that Tenant has multiple
Options to extend or renew the term of this Lease, a later Option cannot be
exercised unless the prior Option to extend or renew this Lease has been so
exercised.
36.4 Strict Enforcement of Conditions and Limitations Upon
Options.
36.4.1 Tenant hereby specifically acknowledges and agrees
that the time limitations upon the exercise of any Option will be strictly
enforced, that any attempt to exercise such Option at any other time shall be
void and of no force or effect, and that if any such Option is not exercised
within the applicable time period, Landlord intends immediately thereafter to
undertake appropriate efforts relating to the marketing or management of the
space affected by the Option. The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Tenant's inability to
exercise such Option because of the provisions of this Subsection or for any
other reason whatsoever.
36.4.2 Tenant further agrees that if Tenant is in default
hereunder on the date of giving the required notice of exercise of such Option,
such notice shall be totally ineffective, and if Tenant is in default hereunder
on the date any extension or renewal of the term of this Lease was to commence,
such extension or renewal of the term shall not commence, and this Lease shall
expire at the end of the Term as theretofore in effect. Notwithstanding any
provision of this Lease to the contrary, all Options shall automatically be
void, and shall have no effect, upon the commencement of any holdover by Tenant
after the expiration or earlier termination of the Term.
36.4.3 Tenant further agrees that if (a) more than once
during the twelve (12) month period immediately preceding delivery of a notice
of exercise of Option Tenant shall have failed to make timely payment of any
rent or any Event of Default shall have occurred, or (b) more than three (3)
times during the twenty-four (24) month period immediately preceding
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delivery of such notice Tenant shall have failed to make timely payment of rent
or any Events of Defaults shall have occurred, then such Option of Tenant shall
at once be void and of no further effect, notwithstanding Tenant's timely
exercise of such Option.
36.5 Events of Bankruptcy. In addition to those events and
occurrences constituting defaults or Events of Default under other provisions of
this Lease, the occurrence of any of the following events shall also constitute
a default and Event of Default for purposes of Subsection 36.4:
36.5.1 Filing by Tenant of a voluntary petition under any
applicable bankruptcy Law, or the issuance of an order for relief entered under
any applicable bankruptcy Law, or the filing by Tenant of any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief for Tenant under the present or any future
applicable Law relative to bankruptcy, insolvency, or other relief for debtors,
or Tenant's consent to or acquiescence in the appointment of any trustee,
receiver, conservator, or liquidator of Tenant or of all or any substantial part
of its properties or its interest in the Premises (the term "acquiesce," as used
in this clause, includes but is not limited to the failure to file a petition or
motion to vacate, appeal, or discharge any order, judgment, or decree within ten
(10) days after entry of such order, judgment, or decree);
36.5.2 Issuance or entry, by a court of competent
jurisdiction, of any order, judgment, or decree approving a petition filed
against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any present or
future applicable Law relating to bankruptcy, insolvency, or other relief for
debtors, and acquiescence by Tenant in the entry of such order, judgment, or
decree; or the failure of such order, judgment, or decree to be vacated or
stayed within an aggregate of thirty (30) days (whether or not consecutive)
after the date of entry thereof; or the appointment, without the consent or
acquiescence of Tenant, of any trustee, receiver, conservator, or liquidator of
Tenant or of all or any substantial part of its properties or its interest in
the Premises and the failure of such appointment to be vacated or stayed within
an aggregate of thirty (30) days (whether or not consecutive);
36.5.3 The inability of Tenant, or Tenant's admitting in
writing its inability, to pay its debts as they mature;
36.5.4 Tenant's giving notice to any governmental body of
Tenant's insolvency or pending insolvency, or suspension or pending suspension
of operations; or
36.5.5 Tenant's making a general arrangement or general
assignment for the benefit of creditors or taking any other similar action for
the protection or benefit of creditors.
37. Recording. Tenant shall not record this Lease or any memorandum
hereof without Landlord's prior consent.
38. Authorization To Sign Lease. If Tenant is a corporation, each
individual executing this Lease on behalf of Tenant represents and warrants that
he/she is duly authorized to execute and deliver this Lease on behalf of Tenant
in accordance with a duly adopted resolution
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of Tenant's Board of Directors, and that this Lease is binding upon Tenant in
accordance with its terms, and Tenant shall, concurrently with its execution of
this Lease, deliver to Landlord upon its request a certified copy of a
resolution of its Board of Directors authorizing the execution of this Lease. If
Tenant is a partnership or trust, each individual executing this Lease on behalf
of Tenant represents and warrants that he/she is duly authorized to execute and
deliver this Lease on behalf of Tenant in accordance with the terms of such
entity's partnership agreement or trust agreement, respectively, and that this
Lease is binding upon Tenant in accordance with its terms, and Tenant shall,
concurrently with its execution of this Lease, deliver to Landlord upon its
request such certificates or written assurances from the partnership or trust as
Landlord may request authorizing the execution of this Lease. If Tenant consists
of more than one legal entity, the foregoing representations, warranties, and
covenants shall apply to any such entity that is a corporation or partnership,
as the case may be. Each individual signing this Lease on behalf of Tenant shall
personally indemnify, defend, and hold harmless Landlord from and against any
claim arising out of any actual or alleged breach or inaccuracy of any of the
foregoing representations and warranties or any loss suffered by reason thereof.
39. Broker Participation. In consideration for brokerage services
rendered to Landlord in this transaction, Landlord shall pay its licensed real
estate broker named in Subsection 1.1(j) a commission as set forth in a separate
agreement between Landlord and said broker. Tenant's broker, if any is named in
Subsection 1.1(j), will be paid its commission from a portion of the commission
paid to Landlord's Broker, as set forth in a separate agreement between
Landlord's Broker and Tenant's Broker. Except as otherwise set forth in the
preceding sentence, each party agrees to indemnify, defend, and hold harmless
the other party from any claim or loss arising out of any actual or alleged
dealings of the indemnifying party with any real estate broker, agents or finder
in connection with this transaction.
40. Survival Of Certain Rights And Obligations. The respective parties'
remedies, payment obligations, indemnities, waivers and releases under this
Lease, with respect to Tenant's use or possession of the Premises during the
Term and any holdover period, and with respect any cost or expense incurred
during or with respect to the Term or any holdover period, shall survive the
termination of this Lease.
41. Parking. Landlord shall have the right, by written notice to Tenant,
to designate specific areas of the Facility for employee parking. If Landlord
designates an employee parking area, then automobiles of Tenant, its employees,
and agents shall not park within the parking area except in areas delineated by
Landlord as "employee parking." Subject to the foregoing, Tenant shall be
entitled to use, in common with other tenants and Landlord, the number of
undesignated vehicle parking spaces allocated to Tenant in Subsection 1.1(k).
Tenant's use of such parking spaces shall be subject to payment by Tenant of
such standard monthly parking rates, if any, as may be charged from time to time
to persons other than the officers and employees of Landlord and its affiliates,
and subject to such rules and regulations as may be established or altered from
time to time by Landlord or its manager of such parking facilities. At
Landlord's request, Tenant (or its designated employees with parking privileges)
shall enter into parking licenses or lease agreements or other arrangements then
in use by Landlord (or Landlord's operator of the parking facilities) with
respect to such monthly parking. Tenant agrees not to overburden the parking
facilities and agrees to cooperate with Landlord and other tenants in the use of
parking facilities. Landlord reserves the right, in its absolute discretion, to
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determine whether parking facilities are becoming crowded and, in such event, to
allocate and assign parking spaces among Tenant and other tenants. Upon request,
Tenant shall provide Landlord with the license plate numbers of all vehicles
used at the Facility by Tenant's employees. In the event that, pursuant to any
modification or amendment to this standard form lease, Tenant is at any time
given any right to the exclusive use of any designated parking stalls or
facilities, Landlord shall nevertheless have the right from time to time to
substitute other designated parking stalls or facilities therefor, so long as
such substitute stalls or facilities are, in Landlord's judgment, reasonably
comparable. If Tenant parks more vehicles in the Facility's parking area than
are permitted under this Section, Landlord shall have the right, without
limitation to Landlord's other remedies under this Lease, to collect from Tenant
a daily charge, to be determined by Landlord, for each such additional vehicle.
42. Severability. Should any provision of this Lease be illegal, void,
invalid, inoperative, or unenforceable, no other provision of this Lease shall
be affected thereby, and the remainder of this Lease shall be effective as
though such illegal, void, invalid, inoperative, or unenforceable provision had
not been included herein.
43. Certain Rights Reserved By Landlord. Landlord hereby expressly
reserves the rights set forth in the Subsections of this Section 43. Such rights
shall be exercisable (a) without notice, (b) without liability to Tenant for
damage or injury to property, persons, or business, (c) without effecting a
constructive or actual eviction of Tenant or disturbance of Tenant's use,
possession, or enjoyment of its Premises, and (d) without giving rise to any
claim for setoff or abatement of rent. The enumeration of such rights of
Landlord in the following Subsections is not intended to limit any other rights
of Landlord, whether expressed or implied, at law or under other provisions of
this Lease.
43.1 Landlord shall have the right to decorate and make repairs,
alterations, additions, changes, and/or improvements, whether structural or
otherwise, in and about the Building and elsewhere in the Facility, including,
without limitation, construction of additional buildings or other new
improvements and changes in the location, size, shape, and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, sidewalks, and walkways. For
such purposes Landlord may enter upon the Premises and, during the continuance
of any such work, temporarily close doors, entryways, public space and corridors
in the Building or elsewhere in the Facility, to interrupt or temporarily
suspend building services and facilities and to change the arrangement and
location of entrances, or passageways, doors and doorways, corridors, elevators,
stairs, toilets, or other public parts of the Building or Facility, all without
abatement of rent and without affecting any of Tenant's obligations hereunder,
except as otherwise expressly provided in this Lease (e.g., Subsections 21.2 and
23.6).
43.2 Landlord shall have the right to designate additional land
outside the current boundaries of the Facility to be a part of the Common Areas.
43.3 Landlord shall have the right to take all such reasonable
measures as Landlord may deem advisable for the security of the Building or the
Facility and their occupants, including, without limitation, the search or any
person entering or leaving the Building, the evacuation of the Building (or any
part thereof) for cause, suspected cause, or for drill purposes,
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the temporary denial of access to the Building (or any part thereof), and the
closing of the Building after normal business hours and on Sundays and holidays,
subject, however, to Tenant's right to admittance, when the Building is so
closed, under such reasonable regulations as Landlord may prescribe from time to
time.
44. Waiver Of Jury Trial. EACH PARTY HEREBY WAIVES THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT
MATTER OF THIS LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY
MADE BY TENANT AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON
ACTING ON BEHALF OF LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT
FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO
BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD
THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. TENANT FURTHER ACKNOWLEDGES
THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER
PROVISION AND AS EVIDENCE OF THIS FACT SIGNS ITS INITIALS.
/s/ P. G. L. TENANT'S INITIALS
--------------
45. Interpretation. The words "Landlord" and "Tenant" as used herein
shall include the plural as well as the singular and, when appropriate, shall
refer to action taken by or on behalf of Landlord or Tenant by their respective
employees, agents, or authorized representatives. Words in masculine gender
include the feminine and neuter. The titles of the Sections, Subsections, and
other provisions of this Lease are for convenience only and they shall not in
any way limit or amplify the terms or provisions of this Lease. All provisions,
whether covenants or conditions, on the part of Tenant shall be deemed to be
both covenants and conditions. In the event of variation or discrepancy, the
duplicate original of this Lease (including Exhibits, if any) held by Landlord
shall control. This Lease shall in all respects be governed by and construed and
enforced in accordance with the Laws of the State where the Facility is located,
and any litigation concerning this Lease between the parties hereto shall be
initiated in the county where the Facility is located.
46. Cooperation With Government Sponsored Programs. Tenant hereby
covenants and agrees, at its sole cost and expense, to participate in and
cooperate with the requirements of any and all government promulgated or
sponsored programs adopted for the Building or the Facility concerning
transportation system management, child care facilities, recycling, energy or
water conservation, safety, or the like.
47. Parties To Act Reasonably And In Good Faith. Except in those
instances where this Lease provides for a contrary standard, whenever in this
Lease the consent or approval of the Landlord or Tenant is required, such
consent or approval shall not be unreasonably withheld or delayed (except,
however, with respect to any Landlord consent, for matters which could possibly
have an adverse effect on the Building's plumbing, heating, mechanical, life
safety,
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ventilation, air conditioning, or electrical systems, which could affect the
structural integrity of the Building, or which could affect the exterior
appearance of the Building, Landlord may withhold such consent or approval in
its sole discretion but shall act in good faith). Except in those instances
where a contrary standard or right is set forth in this Lease, whenever the
Landlord or Tenant is granted a right to take action, exercise discretion, or
make an allocation, judgment, or other determination, such party shall act
reasonably and in good faith and take no action that might result in the
frustration of the reasonable expectations of a sophisticated tenant and a
sophisticated landlord concerning the benefits to be enjoyed under this Lease.
48. Offer. Preparation of this Lease by Landlord or Landlord's agent and
submission of same to Tenant shall not be deemed an offer to lease and neither
party shall act in reliance on said Lease being thereafter signed. This Lease
shall become binding upon Landlord and Tenant only when fully executed by both
Landlord and Tenant; provided, however, that in the event Landlord or Landlord's
agent permits Tenant to take occupancy of all or any portion of the Premises
without Landlord first having executed this Lease, then in the event that
Landlord elects not to execute this Lease, Tenant's occupancy of the Premises
shall automatically be deemed to be a tenancy-at-will, subject to all the terms,
provisions, and conditions of this Lease, except those terms, provisions, and
conditions pertaining to the Term. Any such tenancy-at-will may be terminated by
Landlord or Tenant upon five (3) days' prior notice to the other party.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first set forth above, acknowledging that each party has carefully read each and
every provision of this Lease, that each party has freely entered into this
Lease of its own free will and volition, and that the terms, conditions, and
provisions of this Lease are commercially reasonable as of said date.
Landlord: CASIOPEA VENTURE CORPORATION
By: BIRTCHER PROPERTY SERVICES, its authorized agent
By: /s/ Jonathan J. Feucht Date: 2/8/96
---------------------------------------- ------------
Jonathan J. Feucht
Tenant: VIRAGE, INC.
By: /s/ Paul Lego Date: 2/5/96
---------------------------------------- ------------
Paul Lego
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LEASE RIDER NO. 1
This Lease Rider is attached to and made a part of that certain Standard
Form Lease dated January 31, 1996, by and between Casiopea Venture Corporation,
as ("Landlord,") and Virage, Inc., as ("Tenant,") for the Premises known as 177
Bovet Road, Suite 520, San Mateo, California.
The capitalized terms used and not otherwise defined herein shall have
the same definitions as set forth in the Lease. The provisions of this Lease
Rider shall supersede any inconsistent or conflicting provisions of the Lease.
1. Option To Extend Term.
1.1 Grant of Option. Landlord hereby grants to Tenant the option
(the "Option") to extend the Term of the Lease for an additional consecutive
term of five (5) years (the "Extension"), on the same terms and conditions as
set forth in the Lease, except the Monthly Rent shall be the amount determined
as set forth below. The Option shall be exercised only by written notice
delivered to Landlord at least one hundred eighty (180) days before the
expiration of the initial Term of the Lease. If Tenant fails to deliver to
Landlord written notice of the exercise of the Option within the time period
prescribed above, the Option shall be exercisable by Tenant on the express
conditions that (i) at the time of the exercise of the Option, and thereafter at
all times prior to the commencement of the Extension, an Event of Default shall
not have occurred and be continuing under the Lease, and (ii) Tenant has not
been ten (10) or more days late in the payment of Rent more than a total of
three (3) times during the Term of the Lease. If Tenant properly exercises the
Option, "Term," as used herein and in the Lease, shall be deemed to include the
Extension, unless specified otherwise herein or in the Lease.
1.2 Personal Option. The Option is personal to Tenant. If Tenant
subleases or assigns or otherwise transfers any interest under the Lease prior
to the exercise of the Option, the Option shall lapse. If Tenant subleases or
assigns or otherwise transfers any interest of Tenant under the Lease after the
exercise of the Option but prior to the commencement of the Extension, the
Option shall lapse and the Term of the Lease shall expire as if the Option were
not exercised.
2. Calculation of Monthly Rent.
2.1 Initial Monthly Rent. The Monthly Rent during the extension
shall be increased, as of the commencement of the Extension (the "Rental
Adjustment Date") to the "Fair Market Value" of the Premises, determined in the
following manner: Not later than one hundred (100) days prior to the Rental
Adjustment Date, Landlord and Tenant shall meet in an effort to negotiate, in
good faith, the Fair Market Value of the Premises as of the Rental Adjustment
Date. If Landlord and Tenant have not agreed upon the Fair Market Value of the
Premises at least ninety (90) days prior to the Rental Adjustment Date, the Fair
Market Value shall be determined by the following appraisal method:
2.1.1 If Landlord and Tenant are not able to agree upon
the Fair Market Value of the Premises within the time period described above,
then Landlord and Tenant shall attempt to agree in good faith upon a single
appraiser not later than seventy-five (75) days prior
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to the Rental Adjustment Date. If Landlord and Tenant are unable to agree upon a
single appraiser within such time period, then Landlord and Tenant shall each
appoint an appraiser not later than sixty-five (65) days prior to the Rental
Adjustment Date, and Landlord and Tenant shall each give written notice to the
other of such appointment at the time of such appointment. Within ten (10) days
thereafter, the two appointed appraisers shall appoint a third appraiser. If
either Landlord or Tenant fails to appoint its appraiser and to give written
notice thereof to the other party within the prescribed time period, the single
appraiser appointed shall determine the Fair Market Value of the Premises. If
both parties fail to appoint appraiser within the prescribed time periods, then
the first appraiser thereafter selected by a party (such selection to be by
written notice thereof to such appraiser and the other party) shall determine
the Fair Market Value of the Premises. Each party shall bear the cost of its own
appraiser and the parties shall share equally the cost of the single or third
appraiser if applicable. All appraisers shall have at least five (5) years'
experience in the appraisal of commercial/industrial real property in the area
in which the Premises are located and shall be members of professional
organization such as MAI or its equivalent.
2.1.2 For the purposes of such appraisal, the term "Fair
Market Value" shall mean the price that a ready and willing tenant would pay, as
of the Rental Adjustment Date, as monthly rent, to a ready and willing Landlord
of property comparable to the Premises if such property were exposed for Lease
on the open market for a reasonable period of time and taking into account all
of the purposes for which such property may be used. If a single appraiser is
chosen, then such appraiser shall determine the Fair Market Value of the
Premises. Otherwise, the Fair Market Value of the Premises shall be the
arithmetic average of the two (2) of the three (3) appraisals which are closest
in amount, and the third appraisal shall be disregarded. Landlord and Tenant
shall instruct the appraisers to complete their determination of the Fair Market
Value not later than thirty (30) days prior to the Rental Adjustment Date. If
the Fair Market Value is not determined prior to the Rental Adjustment Date,
then Tenant shall continue to pay to Landlord the Monthly Rent applicable to the
Premises immediately prior to the Rental Adjustment Date until the Fair Market
Value is determined. When the Fair Market Value of the Premises is determined,
Landlord shall deliver notice thereof to Tenant, and Tenant shall pay to
Landlord, within ten (10) days after receipt of such notice, the difference
between the Monthly Rent actually paid by Tenant to Landlord for the period
after the Rental Adjustment Date and the new Monthly Rent determined hereunder
effective as of the Rental Adjustment Date. In no event shall the Monthly Rent
be reduced below the Monthly Rent applicable to the Premises immediately prior
to the Rental Adjustment Date.
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<PAGE> 49
LEASE RIDER NO. 2
This Lease Rider is attached to and made a part of that certain Standard
Form Lease dated January 31, 1996, by and between Casiopea Venture Corporation,
as ("Landlord,") and Virage, Inc., as ("Tenant,") for the Premises known as 177
Bovet Road, Suite 520, San Mateo, California.
The capitalized terms used and not otherwise defined herein shall have
the same definitions as set forth in the Lease. The provisions of this Lease
Rider shall supersede any inconsistent or conflicting provisions of the Lease.
1. First Opportunity To Lease Additional Space. Provided Tenant is not
in default and has performed all of its obligations hereunder and subject to,
but only to, existing rights held by existing tenants, Tenant shall have the
on-going first opportunity to lease such other contiguous space in the Building
that is currently leased provided such contiguous space becomes available for
leasing during the Lease Term ("First Opportunity") at the then prevailing fair
market rental rates and upon such other terms and conditions as are then being
offered by Landlord to the general public for such space. Upon notification in
writing by Landlord that such space is available, Tenant shall have ten (10)
business days in which to elect in writing so to lease such space, in which
event negotiations will the lease for same shall commence not more than thirty
(30) days from Tenant's notification of its intent to lease such space. In the
event Tenant declines or fails to elect so to lease such space, then the First
Opportunity hereby granted shall automatically terminate and shall thereafter be
null and void as to such space. It is understood that this First Opportunity
shall not be construed to prevent any tenant in the Building from extending or
renewing its lease.
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<PAGE> 50
LEASE RIDER NO. 3
This Lease Rider is attached to and made a part of that certain Standard
Form Lease dated January 31, 1996, by and between Casiopea Venture Corporation,
as ("Landlord,") and Virage, Inc., as ("Tenant,") for the Premises known as 177
Bovet Road, Suite 520, San Mateo, California. Except as otherwise set forth in
this Rider, all terms used in this Rider shall have the same meaning as when
used in the foregoing portion of the Lease. To the extent of any inconsistencies
between the foregoing provisions of the Lease and the provisions of this Rider,
the former are hereby amended.
ARTICLE 1: LETTER OF CREDIT
1. Landlord Costs. Landlord and Tenant acknowledge and agree that the
Landlord is investing at least Sixty-Five Thousand Dollars ($65,000.00) towards
constructing improvements to the Premises and broker's commissions ("Landlord
Costs").
2. Obligation To Pay For Landlord's Costs. In the event of a termination
of this Lease prior to the expiration of its Term, due to any Default by Tenant,
Tenant shall pay to Landlord, within five (5) days after the effective date of
such termination (the "Termination Date"), Sixty-Five Thousand Dollars
($65,000.00) paid by Landlord for Landlord's Costs, prorated by the remaining
term of the Lease.
3. Security Of Payment Of Landlord's Costs.
a. Contemporaneously with the execution of this Lease, Tenant
shall cause to be delivered to Landlord, as security for Tenant's obligation to
pay Landlord's Costs as set forth in Section 1 of this Rider, in addition to
Monthly Rent for Month 1 and Month 24 and funds otherwise deposited with the
Landlord as Tenant's Security Deposit pursuant to the terms of this Lease, an
irrevocable straight Letter of Credit issued by Wells Fargo Bank of Silicon
Valley Bank in the amount of Sixty-Five Thousand Dollars ($65,000.00). Said
Letter of Credit shall include the following language:
(i) Upon Landlord's written certification to Issuer:
(a) Stating that the Lease has been terminated by
reason of events other than Landlord's default, and the effective date of such
termination ("Termination Date"); and
(b) stating that there is due and owing from Tenant
to Landlord, that amount which is equal to Landlord's Costs'.
Issuer shall thereupon pay to Landlord an amount equal to the entire
Unpaid Balance of Landlord's Costs thereon from the Termination Date, as
certified to the Issuer by Landlord.
b. Provided tenant has not defaulted in the performance of any of
its obligations under the Lease; at any time during the second year of the Term,
Tenant may reduce the face amount of the Letter of Credit to Fifty-Two Thousand
Dollars ($52,000.00); and at any time during the third year of the Term, Tenant
may reduce the face amount of the Letter of
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Credit to Thirty-Nine Thousand Dollars ($39,000.00). After the third lease year
the Letter of Credit requirement will be waived by the Landlord if:
(a) Tenant has not been in default anytime during
the previous three years; and
(b) Tenant has successfully sold its initial public
offering of common stock.
If any letter of credit issued by reason of the provisions of this Rider
should expire sooner than the Expiration Date of the Lease, then in such case,
not later than fifteen (15) days prior to the expiration date of the
then-existing Letter of Credit, Tenant shall replace said Letter of Credit with
a new Letter of Credit meeting the requirements specified this Rider.
Tenant: VIRAGE, INC.
By: /s/ Paul Lego Date: 2/5/96
---------------------------------------- ------------
Paul Lego
Landlord: CASIOPEA VENTURE CORPORATION
By: /s/ Jonathan J. Feucht Date: 2/8/96
---------------------------------------- ------------
Jonathan J. Feucht
2
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EXHIBIT A-1
Site Plan or Legal Description of the Facility
1
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EXHIBIT A-2
Floor Plan of the Premises
1
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EXHIBIT B
WORK LETTER
This Exhibit "B" is attached to and made a part of that certain Lease
dated January 31, 1996 by and between CASIOPEA VENTURE CORPORATION,
("Landlord"), and Virage, Inc. ("Tenant") for the Premises known as Bovet Office
Centre, 177 Bovet Road, Suite 520, San Mateo, California 94404
1. APPLICATION OF EXHIBIT
Capitalized terms used and not otherwise defined herein shall
have the same definitions as set forth in the Lease. The provisions of this Work
Letter shall apply to the planning and completion of leasehold improvements
requested by Tenant (the "Tenant Improvements") for the fitting out of the
initial Premises, as more fully set forth herein.
2. LANDLORD AND TENANT PRE-CONSTRUCTION OBLIGATIONS
a) Preliminary Space Plans. Attached to this Work Letter as
Schedule "1" are preliminary space plans for the Tenant Improvements ("the
Preliminary Space Plans"), which include without limitations sketches and/or
drawings showing locations of doors, partitioning, electrical fixtures, outlets
and switches, plumbing fixtures and other requirements, mutually agreed upon by
Landlord and Tenant and determined by Tenant as required for its use of the
Premises. Tenant acknowledges that the Preliminary Space Plans have been
prepared by Landlord's Architect after consultation and cooperation between
Tenant and Landlord's Architect regarding the proposed Tenant Improvements and
Tenant's requirements and that the Preliminary Space Plans are complete with
respect thereto. Landlord and Landlord's Architect shall be entitled, in all
respects, to rely upon all information supplied by Tenant regarding the Tenant
Improvements.
b) Working Drawings. Within twenty-one (21) days following full
execution of this Lease by both Landlord and Tenant, Landlord's Architect shall
prepare working drawings ("the Working Drawings") for the Tenant Improvements
based upon the approved Preliminary Space Plans. The Working Drawings shall
include architectural drawings for the Tenant Improvements based on the
Preliminary Space Plans. Notwithstanding the Preliminary Space Plans, in all
cases the Working Drawings (i) shall be subject to Landlord's final approval,
which approval shall not be unreasonably withheld, (ii) shall not be in conflict
with building codes for the City or County or with insurance requirements for a
fire resistive Class A office building, and (iii) shall be in a form
satisfactory to appropriate governmental authorities responsible for issuing
permits and licenses required for construction.
c) Approval of Working Drawings. Landlord or Landlord's Architect
shall submit the Working Drawings to Tenant for Tenant's review to confirm
compliance with the Preliminary Space Plan, and Tenant shall notify Landlord and
Landlord's Architect within five (5) business days, after delivery thereof of
any requested revisions. Within five (5) days after receipt of Tenant's notice,
Landlord's Architect shall make all approved revisions to the Working Drawings
and submit two copies thereof to Tenant for its final review and approval,
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which approval shall be given within three (3) business days thereafter.
Concurrently with the above review and approval process, Landlord may submit all
plans and specifications to City or other governmental agencies in an attempt to
expedite City approval and issuance of all necessary permits and Licenses to
construct the Tenant Improvements as shown on the Working Drawings. Any changes
which are required by City or other governmental agencies shall be immediately
submitted to Landlord for Landlord's review and reasonable approval, and
Landlord shall promptly notify Tenant of such changes.
d) Schedule of Critical Dates. Set forth below is a schedule of
certain critical dates relating to Landlord's and Tenant's respective
obligations for the design and construction of the Tenant Improvements. Such
dates and the respective obligations of Landlord and Tenant are more fully
described elsewhere in the Work Letter. The purpose of the following schedule is
to provide a reference for Landlord and Tenant and to make certain the Final
Approval Date occurs as set forth herein. Following the Final Approval Date,
Tenant shall be deemed to have released Landlord to commence construction of the
Tenant Improvements as set forth in Section 4 below.
<TABLE>
<CAPTION>
Reference Date Due Responsible Party
--------- -------- -----------------
<S> <C> <C>
A. "Preliminary Space Contemporaneously with Lease Tenant & Landlord
Plan Approval" execution
B. "Working Drawings Twenty-one (21) days after full Landlord
Completion" execution of the Lease
C. "Working Drawing Five (5) business days after Landlord
Review" Tenant submits Working Drawings
to Tenant
D. "Working Drawing Five (5) business days after
Revisions" Tenant Landlord returns Working
Drawings to Landlord
E. "Final Approval Date" Three business days after Tenant
Landlord submits revised
Working Drawings to Tenant
</TABLE>
3. BUILDING PERMIT
After the Final Approval Date has occurred, Landlord shall, if
Landlord has not already done so, submit the Working Drawings to the appropriate
governmental body or bodies for final plan checking and a building permit.
Landlord, with Tenant's cooperation, shall cause to be made any change in the
Working Drawings necessary to obtain the building permit; provided, however,
after the Final Approval Date, no changes shall be made to the Working Drawings
without the prior written approval of both Landlord and Tenant, and then only
after agreement by tenant to pay any excess costs resulting from such changes.
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4. CONSTRUCTION OF TENANT IMPROVEMENT'S
After the Final Approval Date has occurred and a building permit
for the work has been issued, Landlord shall, through a construction contract
("Construction Contract") with a reputable, licensed contractor selected by
Landlord ("Contractor"), cause the construction of the Tenant Improvements to be
carried out in substantial conformance with the Working Drawings in a good and
workmanlike manner using first class materials. The costs associated with the
construction of the Tenant Improvements shall be paid as set forth in Section 5
and 6 of this Work Letter. Landlord shall see that the construction complies
with all applicable building, fire, health, and sanitary codes and regulations,
the satisfaction of which shall be evidenced by a certificate of occupancy for
the Premises. Landlord or Contractor shall maintain a comprehensive general
liability insurance policy with a limit of not less than One Million Dollars
($1,000,000.00) to insure against bodily injury and property damage during the
construction work prior to the Lease Commencement Date.
5. TENANT IMPROVEMENT ALLOWANCE
Landlord shall provide Tenant with a Tenant Improvement Allowance
towards the cost of the design, purchase and construction of the Tenant
Improvements, including without limitation design, engineering and consulting
fees (collectively, the "Tenant Improvement Costs"). The Tenant Improvement
Allowance shall be used for payment of the following Tenant Improvement Costs:
(i) Preparation by Landlord's Architect of the Preliminary Space
Plans and the Working Drawings as provided in Section 2 of this Work Letter,
including without limitation all fees charged by City (including without
limitation fees for building permits and plan checks) in connection with the
Tenant Improvements work in the Premises;
(ii) Construction work for completion of the Tenant Improvements
as reflected in the Construction Contract;
(iii) All contractor's charges, general conditions, performance
bond premiums and construction fees; and
(iv) Tenant Improvements as shown on the approved Preliminary
Space Plans dated January 9, 1996, attached hereto as Schedule "A-2".
In the event that Tenant does request modifications, changes or
alterations of the Tenant Improvements from what is shown on said approved
Preliminary Space Plans, or causes any Tenant Delays as defined in Section 7 or
this Work Letter, then all associated costs shall be borne by Tenant. If Tenant
does seek to modify, change or alter the Tenant Improvements from the approved
Preliminary Space Plans, or does cause a Tenant Delay, Tenant shall pay to
Landlord any excess costs resulting therefrom in accordance with Section 6 of
this Work Letter.
6. CHANGE ORDERS
Tenant may from time to time request and obtain change orders
before or during the course of construction provided that: (i) each such request
shall be reasonable, shall be in
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writing and signed by or on behalf of Tenant, and shall not result in any
structural change in the Building, as reasonably determined by Landlord, (ii)
all additional charges and costs, including without limitation architectural and
engineering costs, construction and material costs, and processing costs of any
governmental entity shall be the sole and exclusive obligation of Tenant, and
(iii) any resulting delay in the completion of the Tenant Improvements shall be
deemed a Tenant Delay and in no event shall extend the Commencement Date of the
Lease. Upon Tenant's request for a change order, Landlord shall as soon as
reasonably possible submit to Tenant a written estimate of the increased or
decreased cost and anticipated delay if any, attributable to such requested
change. Within three (3) business days of the date such estimated cost
adjustments and delays are delivered to Tenant, Tenant shall advise Landlord
whether it wishes to proceed with the change order, and if Tenant elects to
proceed with the change order, Tenant shall remit, concurrently with Tenant's
notice to proceed, the amount of the increased costs, if any, attributable to
such change order. Unless Tenant includes in its initial change order request
that the work in process at the time such request is made be halted pending
approval and execution of a change order, Landlord shall not be obligated to
stop construction of the Tenant Improvements, whether or not the change order
relates to the work then in process or about to be started.
7. TENANT DELAYS
In no event shall the Commencement Date of the Lease be extended
or delayed due or attributable to delays due to the fault of Tenant ("Tenant
Delays"). Tenant Delays shall include, but are not limited to, delays caused by
or resulting from any one or more of the following:
a) Tenant's failure to timely review and reasonably approve the
Working Drawings or to furnish information to Landlord or Landlord's Architect
for the preparation by Landlord or Landlord's Architect of the Working Drawings;
b) Tenant's request for or use of special materials, finishes or
installations which are not readily available, provided that Landlord shall
notify Tenant in writing that the particular material, finish, or installation
is not readily available promptly upon Landlord's discovery of same;
c) Change orders requested by Tenant;
d) Interference by Tenant or by Tenant's Agents with Landlord's
construction activities;
e) Tenant's failure to approve any other item or perform any
other obligation in accordance with and by the dates specified herein or in the
Construction Contract;
f) Tenant's requested changes in the Preliminary Space Plans,
Working Drawings or any other plans and specifications after the approval
thereof by Tenant or submission thereof by Tenant to Landlord;
g) Tenant's failure to approve written estimates of costs in
accordance with this Work Letter; and
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h) Tenant's obtaining or failure to obtain any necessary
governmental approvals or permits for Tenant's intended use of the Premises.
If the Commencement Date of the lease is delayed by any Tenant delays,
whether or not within the control of Tenant, then the Commencement Date of the
Lease and the payment of Rent shall be accelerated by the number of days of such
delay. Landlord shall give Tenant written notice within a reasonable time of any
circumstance that Landlord believes constitute a Tenant Delay.
8. TRADE FIXTURES AND EQUIPMENT
Tenant acknowledges and agrees that Tenant is solely responsible
for obtaining, delivering and installing in the Premises all necessary and
desired furniture, trade fixtures, equipment and other similar items, and that
Landlord shall have no responsibility whatsoever with regard thereto. Tenant
further acknowledges and agrees that neither the Commencement Date of the Lease
nor the payment of Rent shall be delayed for any period of time whatsoever due
to any delay in the furnishing of the Premises with such items.
9. FAILURE OF TENANT TO COMPLY
Any failure of Tenant to comply with any of the provisions
contained in this Work Letter within the times for compliance herein set forth
shall be deemed a default under the Lease. In addition to the remedies provided
to Landlord in this Work Letter upon the occurrence of such a default by Tenant,
Landlord shall have all remedies available at law or equity to a landlord
against a defaulting tenant pursuant to a written lease, including but not
limited to those set forth in the Lease.
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EXHIBIT C
Rules and Regulations
ATTACHED TO AND MADE A PART OF THIS LEASE
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RULES AND REGULATIONS
OF
BOVET OFFICE CENTRE
1. Building Hours. Normal hours for the operation of the building HVAC
systems shall be 8:00 a.m. to 6:00 p.m., Monday through Friday, excluding
generally observed Federal holidays and the Friday following Thanksgiving. HVAC
service for additional hours shall be available at Landlord's then standard
hourly rates (two-hour minimum). Any tenant requiring service during nonstandard
hours, weekends, or holidays shall submit its request for additional HVAC
service on Landlord's standard form to the management office prior to 3:00 p.m.
on the same business day, or 3:00 p.m. on the preceding business day, in the
case of holiday and weekend service.
2. On weekends and holidays observed by the Office Centre, and between
the hours of 6:00 p.m. and 8:00 a.m., Monday through Friday, access to any
building may be refused unless the person seeking access is known to the person
charged with responsibility for the safety and protection of such building, or
such person seeking access has a building key or is properly identified. In no
case shall Landlord be liable for any loss or damage for any error with respect
to any person's admission to or exclusion from any building. Landlord reserves
the right to lock the building entry doors on weekends and holidays and from
8:00 p.m. until 7:45 a.m. on business days and during such other hours as
Landlord deems necessary for the safety and protection of the building or its
tenants or contents. Further, in case of invasion, mob, riot, public excitement,
or other commotion and at such times as Landlord deems necessary for the safety
and protection of any building, its tenants, or the property located therein,
Landlord may prohibit and prevent access to such building by all persons by any
reasonable means Landlord deems appropriate.
3. Securing the Premises. Each tenant shall see that the exterior doors
of its premises are closed and securely locked when not in use and at all times
described in the first sentence of Rule and Regulation No. 2 above. Each tenant
shall keep its corridor doors closed except for normal ingress and egress to and
from its premises. Each tenant shall exercise extraordinary care and caution
that all water faucets or water apparatus are entirely shut off each day before
its premises are left unoccupied and that all electricity or gas shall likewise
be carefully shut off so as to prevent waste of such utility or possible
property damage or injury to Landlord's janitor or other employees or
representatives or to other occupants of the building. No tenant shall tamper
with or attempt to adjust temperature control thermostats in its premises or
elsewhere in any building. Landlord shall adjust thermostats as required to
maintain the building standard temperatures.
4. Signs. Except as provided or required by Landlord in accordance with
the office Centre's building standards, no tenant shall inscribe, display,
print, paint, or affix any sign, notice, placard, picture, advertisement, or
name on or to any part of the building or exterior of such tenant's premises or
to door thereof without the prior written consent of Landlord. Landlord shall
have the right, without notice and at the expense of any tenant who violates the
foregoing restriction, to remove any such sign, notice, placard, picture,
advertisement, or name that does not comply herewith.
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5. Use of Bovet Office Centre's Name. No tenant shall, without
Landlord's prior written consent, use the name of the Office Centre in
connection with any promotion or advertising of the tenant's business, except as
such tenant's address.
6. Building Directories. The building directories shall be used
primarily for display of the name and location of tenants. Landlord reserves the
right to exclude any other names therefrom, to limit the number of names
associated with tenants to be placed thereon, and to charge for names associated
with tenants to be placed thereon at rates generally applicable to all tenants.
7. Building Address. Landlord, without notice and without liability to
any tenant, may at any time change the name or the street address of any
building or any premises therein.
8. Window Coverings. Except as provided or required by Landlord in
accordance with the Office Centre's building standards, no draperies, curtains,
blinds, shades, screens, awnings, hangings, decorations, or other devices shall
be attached to, hung at, placed in, or used in connection with any window or
exterior door of any tenant's premises. Any articles placed or kept on the
window sills or next to the sills so as to be visible from the exterior of the
building shall be immediately and permanently removed upon Landlord's written
request. No doors, windows, light fixtures, or any lights or skylights that
reflect or admit light into halls or other places of any building shall be
covered or obstructed.
9. Wall Decorations. Except as expressly approved in writing by
Landlord, no tenant shall mark, drive nails, screw, or drill into any woodwork
or any brick or masonry walls or in any way deface any building or any premises
for any purpose whatsoever, except that tenants may drive nails or screws into
sheetrock or plaster walls as necessary for supporting pictures, paintings, and
other similar decorative items, provided that the weight thereof does not exceed
fifteen (15) pounds.
10. Ceiling Clearance. No tenant shall stock, pile, store, or place any
objects closer than 18 inches to the ceiling of its premises. All costs of
relocating or adding sprinkler heads (if any) due to walls or objects in a
tenant area that project closer than 18 inches to the ceiling, shall be at such
tenant's cost.
11. Floor Coverings. No tenant shall affix any floor covering in any
manner except as approved by Landlord.
12. Corrosion Damage; Chair Mats. Each tenant shall be responsible for
any damage to carpeting and flooring as a result of rust or corrosion of such
tenant's file cabinets, pot holders, roller chairs, or other metal objects.
Chair mats shall be placed under all non-stationary chairs.
13. Telecommunication Devices. No tenant shall install any radio or
television antenna, loudspeaker, earth station, or any other device on the
exterior walls or the roof of any building without Landlord's prior written
approval. No tenant shall interfere with radio or television broadcasting or
reception from or in any building in the Office Centre.
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14. Telephone and Electric Wires. No boring or cutting for telephone or
electric wires shall be allowed without the written consent of Landlord and any
such wires shall be introduced at the place and in the manner required by
Landlord. The location of each tenant's call boxes, telephones, speakers, fire
extinguishers, and all other office equipment affixed to its premises shall be
subject to the approval of Landlord. Each tenant shall pay all expenses incurred
in connection with the installation of its equipment, including any telephone
and electricity distribution equipment.
15. Burglar Alarms. No burglar alarm system may be installed without
Landlord's prior written approval of such system, which approval shall not be
unreasonably withheld.
16. Extension Cords. Landlord reserves the right to restrict the use of
any electrical extension cord. At no time shall more than two electrical devices
be connected to any one duplex outlet. Multiple adapters are prohibited. Any
extension cord used shall be a two-wire cord with ground, and shall be sized
according to the power draw on the circuit.
17. Use of Passageways and Roof. No tenant shall obstruct, or sweep or
throw dirt or any other substance into, or temporarily or permanently store or
dispose of any trash, garbage, waste, or refuse in, any sidewalk, hall, passage,
balcony, exit, entrance, elevator, or stairway of any building or other area of
the Office Centre or use the same for any purpose other than for ingress to and
egress from such tenant's premises. The halls, passages, exits, entrances,
elevators, stairways, and balconies of each building in the Office Centre are
not for the use of the general public, and Landlord in all cases reserves the
right to control the same and prevent access thereto by any person whose
presence, in the judgment of Landlord, is or may be prejudicial to the safety,
character, reputation, or interests of such building or its tenants; provided
however, that Landlord shall not prevent such access to persons with whom
tenants deal in the ordinary course of business unless such persons are engaged
in illegal or disruptive activities. No person shall go upon or use the roof of
any building unless expressly so authorized by Landlord.
18. Deliveries and Use of Elevators. No mail, furniture, packages,
supplies, equipment, merchandise, or deliveries of any kind shall be received in
any building or carried up or down in the elevators except between such hours
and in such elevators as shall be designated by Landlord. All routine deliveries
to any tenant's premises shall be made through the elevators designated for
freight usage. Passenger elevators shall be used only for the movement of
persons, except as otherwise approved in writing by Landlord.
19. Moving and Installation of Equipment. Furniture, freight, and
equipment of every kind shall be moved into or out of buildings only at such
times and in such manner as Landlord shall designate. All hand trucks used
anywhere in any building shall be equipped with rubber tires and side guards.
Landlord may prescribe and limit the weight, size, or position of any equipment
to be used by tenants, other than standard office desks, chairs, tables, and
portable office machines. Safes and other heavy equipment, if any, approved by
Landlord shall stand on wood strips of such thickness as Landlord deems
necessary to distribute properly the weight thereof. If moving or maintaining
any property of a tenant causes any damage to the premises or any other portion
of the building, the damage shall be repaired at such tenant's expense. All
removals, or the carrying in or out of any building or moving within any
building, of any safe, freight, furniture, fixtures, or bulky matter of any
description shall only take place during such
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hours as Landlord may determine from time to time. The moving of all such items
shall only be made upon previous written notice to Landlord and under its
supervision, and the persons employed by any tenant for such work must be
acceptable to Landlord. Landlord reserves the right to inspect all safes,
furniture, fixtures, freight, and other bulky matter to be brought into any
building and to exclude therefrom any such item that violates any of these rules
and regulations or the lease of the tenant responsible for such item.
20. Trash Disposal. No trash, garbage, waste, or refuse shall be stored
or disposed of in any common area of the Office Centre, except in the dumpsters
or trash containers provided by Landlord for that purpose. All cardboard and
wooden boxes shall be broken down and flattened before the nightly janitorial
crew will dispose of them. Tenants shall only use such dumpsters and trash
containers for disposal of nonhazardous trash or waste generated at the Office
Centre in connection with the ordinary conduct of such tenants' business at the
Office Centre in accordance with the terms and conditions of their respective
leases. Any tenant desiring Landlord's services for removal or disposal of
additional quantities of nonhazardous trash or waste generated by such tenant at
the Office Centre shall so notify Landlord, and Landlord shall endeavor to
provide such service at its then standard charges.
21. Tenant's Authorized Representative. Each tenant shall by written
notice to Landlord appoint a person to act as such tenant's Authorized
Representative. All tenant requests to Landlord or its management for services
shall be made through the Authorized Representatives. Each tenant's Authorized
Representative shall also serve as the tenant contact in the event of building
emergencies, interruptions of services, or security problems.
22. Services. Except as may otherwise be agreed to in writing by
Landlord, no tenant shall hire, employ, or contract with any person or firm for
janitorial, maintenance, or other like service to be provided to such tenant's
premises, and no person shall be permitted to enter any building for such
purpose. Tenants shall not cause any unnecessary labor by carelessness or
indifference to the preservation of good order and cleanliness in their premises
or any other area of their building or the Office Centre. Landlord shall not be
responsible to any tenant for loss of property in its premises or elsewhere in
the Office Centre, however occurring, or for any damage to the property of any
tenant caused by the employees or independent contractors of Landlord or by any
other person. Janitor service shall not be furnished when rooms are occupied
during the regular hours when janitor service is provided. Regular janitor
service provided by Landlord shall include ordinary dusting and cleaning, but
shall not include cleaning of carpets or rugs (except normal vacuuming) or
moving of furniture, file cabinets, or equipment. Window cleaning shall be done
only at the times determined by Landlord, in accordance with its normal business
practice, for such services.
23. Landlord's Employees. Special requirements of tenants shall be
attended to only upon application to Landlord at its office in the Office
Centre. Employees of Landlord shall not perform any work for tenants outside
such employees' regular duties unless under special instructions from Landlord,
and no employee of Landlord shall be required to admit any person (tenant or
otherwise) to any premises in any building.
24. Preparation for Maintenance/Repairs/Alterations. In the event
Landlord shall elect, or be required, to perform any maintenance, repairs,
alterations, improvements, or
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installations on a tenant's premises, such tenant shall, upon Landlord's
request, move any file cabinets, furniture, or equipment as required by
Landlord's workers in order for them to obtain full, unobstructed access to the
area where their work is to be performed.
25. Locks and Keys Furnished by Landlord. Landlord shall at its expense
provide a lockset and two keys for each corridor door entering the tenant's
premises. No tenant shall make or cause to be made any copies of such keys,
except through Landlord, who shall make additional keys available upon request
at Landlord's then standard charges. Landlord shall endeavor to provide such
additional keys within five (5) working days after the tenant's request. Upon a
tenant's written request, Landlord shall rekey, any locksets, or install
additional locksets, on corridor or interior doors of such tenant's premises,
and such tenant shall pay Landlord for such service at Landlord's then standard
charge therefor. Landlord shall endeavor to rekey or install such locksets (if
available locally) within five (5) working days after the tenant's request
therefor. In emergencies, a temporary lockset may be installed, and the same
shall be replaced as soon as the permanent lockset is available. No tenant shall
rekey or install, or cause to be rekeyed or installed, any lockset on any door
except in the foregoing manner. All such locksets and keys shall be keyed to the
building master lock system. Notwithstanding the foregoing, no tenant shall be
required to provide Landlord with keys to such tenant's safes or vaults or to
those areas of its premises appropriately designated by such tenant in writing
to Landlord as "Restricted Areas."
26. Return of Keys. All door keys and locksets furnished to any tenant
shall remain the property of Landlord. Upon termination of occupancy of its
premises, each tenant shall deliver to Landlord all keys furnished by Landlord,
and any reproductions thereof made by or at the direction of such tenant. In the
event of loss of any keys so furnished, the affected tenant shall immediately
report the loss to Landlord and such tenant shall reimburse Landlord, at
Landlord's then standard rate, for (a) the cost of replacing such keys or (b)
should Landlord decide that rekeying the locks is necessary for the security of
such premises, the cost (including labor and materials) of rekeying all locks
keyed to such lost keys. Upon termination of occupancy of its premises, each
tenant shall also deliver to Landlord all keys to any other locks remaining in
the premises and shall give Landlord written notice of the combinations of any
locks to any safes, cabinets, vaults, or doors to "Restricted Areas", if the
same are not removed by such tenant.
27. Hazardous Substances. The following rule concerns "Hazardous
Substances", which term shall mean any kerosene, gasoline, oils, solvents, paint
thinner, acids, caustics, insecticides, pesticides, herbicides, corrosives,
flammable explosives, asbestos, PCBs, vinyl chloride, cyanide solutions, urea
formaldehyde, waste chemicals, sludges, radioactive materials, infectious or
medical waste, or other substance or material that, after release into the
environment and upon exposure, ingestion, inhalation, or assimilation, either
directly from the environment or indirectly by ingestion through food chains,
will or may reasonably be anticipated to cause death, disease, behavior
abnormalities, cancer, reproductive harm, or genetic abnormalities. No tenant
shall cause or permit any Hazardous Substance to be brought upon or kept, used,
or generated in or about its premises or any other area of its building or the
Office Centre unless (a) such Hazardous Substance is necessary for the tenant's
business (and such business is a permitted use under its lease) and (b) the
tenant first obtains the written consent of Landlord if such Hazardous Substance
is other than an ordinary consumer product that is used at
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the premises in the same manner as an ordinary consumer use and is present in
quantities that are not substantially greater quantities than may be present in
an ordinary household and that would not require reporting under any federal,
state, or local law or regulation if such quantities were released into the
environment. Any tenant who at any time becomes aware, or has reasonable cause
to believe, that any Hazardous Substance, other than those permitted under these
rules and regulations, has come to be located in, on, or beneath its premises or
any other area of its building or the Office Centre, such tenant shall,
immediately upon discovering such presence or suspected presence of such
Hazardous Substance, give Landlord written notice, in reasonable detail, of such
condition.
28. Nuisance. No tenant shall, in or about its premises, (a) use or keep
or permit to be used or kept any foul or noxious gas or substance, (b) engage in
or permit any activities or uses offensive or objectionable to Landlord or other
tenants or occupants by reason of noise, odors, or vibrations, (c) interfere in
any way with other tenants or persons having business in any building in the
Office Centre, or (d) without Landlord's prior written consent, bring or keep,
or permit to be brought or kept, any pets or animal life form, other than human,
except seeing eye dogs when in the company of their masters.
29. Certain Other Prohibited Uses. No cooking shall be done or permitted
by tenants in their premises or elsewhere in the Building or on the grounds of
the Office Centre, except as otherwise specifically consented to in writing by
Landlord. No premises shall be used for the storage of merchandise (except
storage incidental to a use expressly permitted under tenant's lease), washing
clothes, lodging, sleeping or any improper, objectionable, or immoral purpose.
No tenant shall, without Landlord's prior written consent, use any method of
heating or air-conditioning other than that supplied by Landlord.
30. No Smoking. Smoking of cigarettes, cigars, and pipes is prohibited
in the buildings. All cigarettes, cigars, and pipes shall be extinguished before
entering any building.
31. Intoxication. Landlord may exclude or expel from the Office Centre
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 material
violation of any of the rules or regulations of the Office Centre.
32. No Soliciting. Canvassing, soliciting, peddling, and distribution of
written material in any building or in the parking lots or grounds of the Office
Centre are prohibited, and each tenant shall cooperate to prevent the same.
33. No Loitering. No one shall loiter in any entrances, exits,
stairways, elevators, or corridors, or, except as otherwise consented to in
writing by Landlord, in any way obstruct any sidewalk, driveway, lobby,
stairway, or elevator.
34. No Shopping Carts. No shopping carts may be brought onto the grounds
of the Office Centre or into any building.
35. No Vehicles in Premises. No bicycles or vehicles of any kind shall
be brought into or kept in or about any tenant's premises or other area of any
building. Please contact the Property Management Office for keys to the enclosed
bicycle rack.
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36. Christmas Trees. Live/Cut Christmas trees, wreaths, etc. are allowed
in the buildings. The local fire department dictates that they be fireproofed.
Keep the fireproof tag throughout the season.
37. Vending Machines. No vending, arcade, game, or food or beverage
dispensing machine of any description shall be installed, maintained, or
operated in any tenant's premises or elsewhere in any building without the prior
written consent of Landlord.
38. Toilet Fixtures. No toilet room, toilet, urinal, wash bowl, or other
apparatus shall be used for any purpose other than that for which it was
constructed and no foreign substance of any kind whatsoever shall be thrown or
placed therein. The expense of any breakage, stoppage, or damage resulting from
the violation of this rule shall be borne by the tenants who, or whose employees
or invitees, cause such breakage, stoppage, or damage.
39. Parking Rules and Regulations.
a. Landlord reserves the right to designate the use of parking
spaces at the Office Centre, and parking shall be prohibited except in areas
specifically marked for parking. All parked vehicles shall be parked within (and
never across) the striped lanes designated for such purpose, and no portion of
any parked vehicle may block any driveway. Parking spaces marked as reserved for
visitors, handicapped persons, or a specific occupant of the Office Centre shall
only be used by such persons for whom the spaces are reserved.
b. Areas marked as "loading" zones shall be used solely for purposes
of loading and unloading of equipment, personal property, or materials used at
the Office Centre. Any vehicles being loaded or unloaded shall be properly
parked in a parking space or stopped in such a marked "loading" zone. No vehicle
stopped in a "loading" zone may be left unattended.
c. Only passenger vehicles may be parked at the office Centre. The
parking of trucks, trailers, recreational vehicles, and boats is specifically
prohibited. Landlord may, in its sole discretion, designate separate areas for
bicycles and motorcycles.
d. No "For Sale" or other advertising signs or signs referring to
the Office Centre may be placed on or about any vehicle parked at the office
Centre.
e. No vehicles may be parked overnight at the Office Centre without
Landlord's prior written consent.
f. No vehicle that exceeds thirty (30) feet in length may enter the
Office Centre for any purpose.
g. While driving in the driveways and parking lots, drivers shall
comply with all directional signs and arrows and shall not exceed the speed
limit of 5 miles per hour.
h. Washing, waxing, cleaning, and servicing of vehicles in the
Office Centre are prohibited.
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<PAGE> 67
i. Upon Landlord's request to any tenant, such tenant shall provide
Landlord with a list of license plate numbers of all automobiles used by its
employees and agents who are authorized to park at the Office Centre.
j. Landlord reserves the right to have any vehicle that violates any
provision of these parking rules and regulations towed at the vehicle owner's
expense.
k. Parking stickers or any other device or form of identification
supplied by Landlord shall remain the property of Landlord. Such parking
identification device shall be displayed as requested and may not be mutilated
in any manner. Such devices shall not be transferable, and any device in the
possession of an unauthorized holder shall be void. There shall be a replacement
charge to the tenant, at Landlord's then standard rates (currently $25), for
loss of any such device. Loss or theft of any such device shall be reported to
Landlord immediately. Any parking identification devices found on or used for an
unauthorized car may be confiscated and the illegal holder shall be subject to
prosecution. Lost or stolen devices previously reported and then found shall be
reported found to Landlord immediately.
40. Responsibility for Employees and Guests. Each tenant shall be
responsible for the observance of all the rules and regulations by such tenant's
employees, agents, clients, customers, contractors, invitees, visitors, and
guests.
41. Enforcement of Rules. Each tenant shall be liable to Landlord and to
each other tenant of the Office Centre for any loss, cost, expense, damage, or
liability, including attorneys' fees, caused or occasioned by the failure of
such first named tenant to comply with these rules and regulations, but Landlord
shall have no liability for such failure or for failing or being unable to
enforce compliance therewith by any tenant and such failure by Landlord or
non-compliance by any other tenant shall not be a ground for abatement of rent
or termination of any lease.
42. Collection of Charges. Landlord' s right to charge particular
tenants for certain costs and expenses pursuant to these rules and regulations
shall not impose any obligation upon Landlord to impose or collect such charges
from any such particular tenant, and in the event Landlord, for whatever reason,
is not reimbursed by any tenant for such costs and expenses, the same may be
included in the calculation of building operating expenses for purposes of
determining each tenant's percentage share of increases therein in accordance
with the provisions of its lease.
43. Waivers. Landlord may waive any one or more of these rules and
regulations for the benefit of any particular tenant or tenants, but no such
waiver by Landlord shall constitute a waiver of such rule or regulation in favor
of any other tenant.
44. Changes to Rules. Landlord reserves the right to rescind any of
these rules and regulations and to make such changes therein, and add such other
and further rules and regulations, as Landlord in its reasonable judgment shall,
from time to time, deem appropriate. Such changed or additional rules and
regulations shall be binding upon each tenant upon Landlord's giving such tenant
written notice thereof.
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<PAGE> 68
EXHIBIT D
Utilities and Service
ATTACHED TO AND MADE A PART OF THIS LEASE
The furnishing of building services and utilities to Tenant shall be
accomplished in accordance with and subject to the terms and conditions set
forth in this Exhibit D and elsewhere in the Lease. Landlord reserves the right
to adopt from time to time such reasonable modifications and additions hereto as
Landlord may deem appropriate.
1. Subject to the full performance by Tenant of all of Tenant's
obligations under the Lease, Landlord shall provide the standard building
services and utilities set forth in this Paragraph 1. Landlord shall:
a. Provide to the Premises heating, ventilation, and air
conditioning ("HVAC") in accordance with the terms and provisions set forth in
the Lease.
b. Provide electric current to the Premises, for purposes consistent
with the Permitted Uses specified in Section 1.1(g) of the Lease and in
accordance with the terms and provisions set forth in the Lease.
c. Provide at all times reasonably necessary amounts of hot and cold
water for restrooms furnished by Landlord.
d. Provide janitorial services to the Common Areas and to any
exterior window coverings. Landlord shall not be responsible or liable for any
act or omission or commission on the part of the persons employed to perform
said janitorial services, and said janitorial services shall be performed at
Landlord's direction without interference by Tenant or Tenant's employees.
e. Provide trash removal services from the trash disposal areas
located in the Facility. Landlord shall only be responsible for the removal and
disposal of properly containerized, nonhazardous, ordinary trash or waste in
quantities ordinary and customary for the Permitted Uses, as reasonably
determined by Landlord.
f. When reasonably necessary, provide appropriate vermin and pest
control services to the Common Areas.
2. Landlord shall have the exclusive right to make any replacement of
electric light bulbs, tubes and ballasts in the Premises throughout the Term.
The Landlord may, at Landlord's sole discretion, adopt a system of revamping and
reballasting periodically on a group basis in accordance with good practice.
3. Landlord shall not provide in the Premises any reception outlets or
television or radio antennas for television or radio broadcast or reception, and
Tenant shall not install any such equipment without the prior consent of
Landlord which can be withheld in Landlord's sole and absolute discretion.
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4. Tenant acknowledges and understands that at the commencement of the
Term, if this is a new Building, portions of the Building and the Property and
the Building's HVAC, security (if any), electrical and plumbing systems may not
be fully completed, adjusted, and running smoothly and that Tenant will suffer
certain annoyances and inconveniences. These annoyances and inconveniences shall
not give rise to any rent abatement or reduction or create any other claim by
Tenant against the Landlord.
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<PAGE> 70
EXHIBIT E
Sample Acknowledgment of Commencement of Term
ATTACHED TO AND MADE A PART OF THIS LEASE
ACKNOWLEDGMENT OF COMMENCEMENT OF TERM
THIS ACKNOWLEDGMENT is made as of ________________________, 19___ by and
between _____________________________ ("Landlord") and ______________________
("Tenant").
RECITALS
A. Pursuant to a written lease dated as of _________________, 2___ (the
"Lease"), Tenant leases from Landlord certain premises commonly known as
Suite/Unit(s) ___________ of the _________________-story building located at
________________ __________________________ in the City of ________________,
State of __________________ (the "Premises"), as more particularly described in
the Lease.
B. Subject to and upon the terms and conditions set forth in this
Acknowledgment, the parties desire to confirm the term of the Lease.
ACCORDINGLY, the parties agree as follows:
AGREEMENT
1. The parties to this Acknowledgment hereby agree to confirm the
establishment of the commencement and expiration dates of the term of the Lease,
and the rental commencement date as follows:
a. the date of ____________________, 2____ shall be the commencement
date of the term of the Lease;
b. the date of ____________________, 2____ shall be the scheduled
expiration date of the term of the Lease;
c. the period commencing on ____________________, 2____, and ending
on ____________________, 2____ shall be the period to which Tenant's rent
payment of $__________ made pursuant to Subsections 1.1(e)(2) and 5.1 (prepaid
rent) of the Lease (receipt of which amount is hereby acknowledged, by
Landlord), shall be applied;
d. subject to the provisions of the Lease concerning the recapture
of "free rent" upon any early termination of the Lease, no scheduled monthly
rent shall be payable for the months of ___________; and
e. the date of ____________________, 2____ is the next date on which
scheduled monthly rent shall be paid by Tenant, which payment shall be in the
amount of
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<PAGE> 71
$_____________ and shall cover the period commencing on ____________________,
2____ and ending on ____________________, 2____. Thereafter, scheduled monthly
rent shall be payable as provided in the Lease, except as follows [if no
modifications, write "none"]:
- ----------------------------------------------------------------
2. Tenant hereby confirms the following:
a. that it has accepted possession of the Premises pursuant to the
terms of the Lease;
b. that the improvements and space required to be furnished by
Landlord according to the Lease have been furnished;
c. that other than this Acknowledgment there has been no
modification, alteration, or amendment to the Lease, except as follows [if none,
write "none"]:
- ----------------------------------------------------------------
d. that there are no offsets or credits against rentals, nor has any
security deposit been paid, except as provided by the Lease;
e. that Tenant has not made any assignment of the Lease or any
sublease of all or any portion of the Premises; and
f. that the Lease, as confirmed, modified, and amended by this
Acknowledgment, is in full force and effect and represents the entire agreement
between Landlord and Tenant concerning the Premises and the matters covered by
the Lease.
3. This Acknowledgment, and each and all of the provisions hereof, shall
inure to the benefit of, or bind, as the case may require, the parties hereto,
and their respective heirs, successors, and assigns subject to the restrictions
upon assignment and subletting contained in the Lease.
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<PAGE> 72
EXHIBIT F
ADJUSTMENT TO MONTHLY RENT
Fixed Adjustment
This Exhibit is attached to and made a part of that certain Standard
Form Lease dated January 31, 1996, by and between Casiopea Venture Corporation
c/o Birtcher Property Services as "Landlord", and Virage, Enc., as "Tenant", for
the Premises known as Bovet Office Centre, 177 Bovet Road, Suite 520, San Mateo,
California.
The capitalized terms used and not otherwise defined in this Exhibit
shall have the same definitions as set forth in the Lease. The provisions of
this Exhibit shall supersede any inconsistent or conflicting provisions of this
Lease.
The Monthly Rent shall be adjusted, as of the commencement of the dates
set forth below, in accordance with the following schedule:
Months During Term Monthly Rent
1-30 $10,213.20
31-60 $10,780.60
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<PAGE> 73
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is entered into and made as
of this Twentieth clay of March 1997, by and between Casiopea Venture
Corporation, ("Landlord"), and Virage, Inc. ("Tenant"), with respect to the
following facts:
I. RECITALS
A. Whereas, Landlord and Tenant have heretofore entered into a certain
Lease, dated January 17, 1996 (the "Lease") under which Landlord leased to
Tenant the Premises containing 5,674 rentable square feet commonly known as
Suite 520, 177 Bovet Road, San Mateo, California (the "Original Space") and
B. Subject to and upon the terms and conditions set forth below,
Landlord and Tenant desire to modify the Lease to expand the Premises to include
the adjacent office space, Suite 575, 177 Bovet Road, (the "Expansion Space")
consisting of approximately 4,134 rentable square feet and the additional office
space, Suite 303, 155 Bovet Road, (the "Additional Space") consisting of
approximately 2,997 rentable square feet as shown on Exhibit "A" attached
hereto.
II. MODIFICATIONS
Landlord and Tenant hereby agree that the Lease shall be modified and/or
supplemented as follows:
1. Premises.
A. Section 1.1(c) 4 of the Lease entitled "Premises", is amended to
include the adjacent Suite 575 comprising of 4,134 rentable square feet (the
"Expansion Space") which when added to the Premises will contain approximately
9,808 rentable square feet.
B. Section 1.1(c) 4 of the Lease entitled "Premises", is further
amended to include Suite 303 at 155 Bovet Road comprising of 2,997 rentable
square feet (the "Additional Space").
C. The total Premises will include the "Original Space", the
"Expansion Space" and the "Additional Space" ("Total Premises") which when added
will contain approximately 12,805 rentable square feet.
2. Term.
A. Section 1.1(d) of the Lease is hereby amended to extend the
Original Term of the Lease for a period 13 months commencing on April 1, 2001
and expiring on April 30, 2002 (the "Extended Term").
B. The Term of the Lease for the "Expansion Space", Suite 575, 177
Bovet Road, shall commence on November 1, 1997 and expire on April 30, 2002.
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<PAGE> 74
The "Expansion Space" as provided in this First Amendment to Lease is
specifically contingent upon Landlord obtaining possession of the "Expansion
Space" from the Tenant in Suite 575, Paul Revere and by Paul Revere vacating the
Premises or relinquishing 4,134 rentable square feet to accommodate Tenant's
expansion pursuant to this First Amendment.
Landlord advises Tenant that Paul Revere has no options to renew their
Lease. Landlord shall not offer to Paul Revere a renewal of their Lease for
Suite 575. Landlord further acknowledges that other tenants with rights have
been offered the Expansion Space in accordance with the terms of their Lease and
have until April 9, 1997 to waive the offer.
However, Tenant acknowledges and agrees that Paul Revere may not comply
with the terms of their Lease and vacate the Premises on or before the Lease
expiration date. In the event that Paul Revere does not vacate the Premises
within thirty (30) days after expiration of the Lease, Landlord will use
commercially reasonable efforts to make other comparable space available in 177
for Tenant.
Should any of the above prerequisites or alternatives not occur or be
available by February 1, 1998 and for reasons beyond the commercially reasonable
efforts of Landlord, this paragraph of the First Amendment to Lease shall be
void,
C. The Term of the Lease for the "Additional Space", Suite 303 as
provided in the First Amendment will be for a period of five (5) years
commencing on June 1, 1997 or upon substantial completion of the tenant
improvements and expiring on May 31, 2002.
Landlord further acknowledges that other tenants with rights have been
offered the Expansion Space in accordance with the terms of their Lease and have
until April 9, 1997 to waive the offer.
3. Rent.
A. Section 1.1(e) of the Lease is amended such that during the Extended
Term for the "Original Space", notwithstanding any provision of the Lease,
Tenant shall pay to Landlord , scheduled monthly rent of Fourteen Thousand Four
Hundred Sixty-Eight Dollars and 70/00 ($14,468.70) per month, subject to further
adjustment as provided below:
<TABLE>
<CAPTION>
From Through Monthly Rent
- ------------- ------------ ---------- -------------
<S> <C> <C> <C>
April 1, 2001 May 31, 2001 $14,468.70 $2.55 RSF/FSG
June 1, 2001 May 31, 2002 $14,752.40 $2.60 RSF/FSG
</TABLE>
B. Commencing on November 1, 1997, the scheduled monthly rent for the
"Expansion Space", Suite 575, provided for in Exhibit "F" of the Lease shall be
increased further to add an additional sum (the "Suite 575 Rent") which shall be
in the amount of $9,921.60, subject to further adjustment as provided below:
<TABLE>
<CAPTION>
From Through Monthly Rent
- ------------- ------------ ---------- -------------
<S> <C> <C> <C>
November 1, 1997 May 31, 1998 $ 9,921.60 $2.40 RSF/FSG
June 1, 1998 May 31, 1999 $10,128.30 $2.45 RSF/FSG
June 1, 1999 May 31, 2000 $10,335.00 $2.50 RSF/FSG
June 1, 2000 May 31, 2001 $10,541.70 $2.55 RSF/FSG
June 1, 2001 May 31, 2002 $10,748.40 $2.60 RSF/FSG
</TABLE>
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<PAGE> 75
C. Commencing on June 1, 1997, the scheduled monthly rent for the
"Additional Space", Suite 303, 155 Bovet Road, shall be Seven Thousand One
Hundred Ninety-Two and 80/00 ($7,192.80) per month, subject to further
adjustment as provided below:
<TABLE>
<CAPTION>
From Through Monthly Rent
- ------------- ------------ ---------- -------------
<S> <C> <C> <C>
June 1, 1997 May 31, 1998 $ 7,192.80 $2.40 RSF/FSG
June 1, 1998 May 31, 1999 $ 7,342.65 $2.45 RSF/FSG
June 1, 1999 May 31, 2000 $ 7,492.50 $2.50 RSF/FSG
June 1, 2000 May 31, 2001 $ 7,642.35 $2.55 RSF/FSG
June 1, 2001 May 31, 2002 $ 7,792.20 $2.60 RSF/FSG
</TABLE>
4. Tenant's Percentage Share.
A. Section 1.1(h) of the Lease is hereby amended such that the
Tenant's Percentage Share for the "Original Space" and "Expansion Space" shall
be 10.67% effective as of the "Expansion Space" Commencement Date.
B. Tenant Percentage Share for the "Additional Space" is 2.3%.
5. Base Years.
A. Section 1.1(i) of the Lease is hereby amended such that the Base
Expense Year for Operating Expenses for the "Total Premises" shall be calendar
year 1997, and shall be effective as of January 1, 1997.
B. Section 1.1(i) of the Lease is hereby amended such that the Base
Tax Year for the "Total Premises" shall be the fiscal tax year commencing July
1, 1996 and ending June 30, 1997 and shall be effective as of January 1, 1997.
6. Security Deposit.
A. Section 1.1(f) of the Lease is hereby amended such that the
Security Deposit shall be $25,500.80. Landlord currently holds $10,213.20 as a
security deposit, leaving a balance due in the amount of $15,287.60, which
amount shall be paid to Landlord upon execution of the First Amendment.
B. Security Deposit for the "Additional Space", Suite 303, 155 Bovet
Road, shall be $7,792.20 and shall be paid to Landlord upon execution of the
First Amendment.
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<PAGE> 76
7. Vehicle Parking Spaces.
The number of undesignated Vehicle Parking Spaces shall be increased
to 44. Such increase shall take effect as of the "Expansion Space" and
"Additional Space" commencement dates.
8. Tenant Improvement Work.
A. Landlord to install, at Landlord's expense, tenant improvements
within the "Expansion Space", in accordance with Tenant's proposed space plan,
Exhibit "B" and the Work Letter, Exhibit "C", provided however, Landlord's
construction costs shall not exceed $28,938.00/$7.00 RSF. Any and all costs in
excess of the Allowance required to complete the construction of the Tenant
Improvements shall be the sole and exclusive obligation and responsibility of
Tenant.
B. Landlord to install, at Landlord's expense, tenant improvements
within the "Additional Space", in accordance with Tenant's proposed space plan
and the Work Letter, Exhibit "D", provided however, Landlord's construction
costs shall not exceed $49,450.00/$16.50 RSF. Any and all costs in excess of the
Allowance required to complete the construction of the Tenant Improvements shall
be the sole and exclusive obligation and responsibility of Tenant.
III. GENERAL
A. Effect of Amendment; Ratification. Except to the extent the Lease
is modified by this Amendment, the terms and provisions of the Lease shall
remain unmodified and in full force and effect. In the event of conflict between
the terms of the Lease and the terms of this Amendment, the terms of the
Amendment shall prevail.
B. Attorney's Fees. The provisions of the Lease respecting payment
of attorney's fee shall also apply to this Amendment.
C. Counterparts. If this Amendment is executed in counterparts, each
counterpart shall be deemed in original.
D. Authority to Execute Amendment. Each individual executing this
amendment on behalf of a partnership or corporation represents that lie or she
is duly authorized to execute and deliver this Amendment on behalf of tile
partnership and/or corporation and agrees to deliver evidence of his or her
authority to Landlord upon request by Landlord.
E. Governing Law. This Amendment and any enforcement of the
agreements and modifications set forth above shall be governed by and construed
in accordance with tile laws of the State of California.
F. Broker Participation. In consideration for brokerage services
rendered to Landlord in this transaction, Landlord shall pay its licensed real
estate broker named in Subsection 1.1(j) a commission as set forth in a separate
agreement between Landlord and said broker. Tenant's broker, if any is named in
Subsection 1.1(j), will be paid its commission from a
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<PAGE> 77
portion of the commission paid to Landlord's Broker, as set forth in a separate
agreement between Landlord's Broker and Tenant's Broker. Except as otherwise set
forth in the preceding sentence, each party agrees to indemnify, defend, and
hold harmless the other party from any claim or loss arising out of any actual
or alleged dealings of the indemnifying party with any real estate broker,
agents or finder in connection with this transaction.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date and year first above written.
Tenant: Landlord:
VIRAGE, INC. CASIOPEA VENTURE CORPORATION a
California corporation
By: Birtcher Property Services,
its managing agent
By: /s/ Paul Lego By: /s/ Jonathan J. Feucht
------------------------------ ----------------------------------
Its: CEO Its: Assistant Secretary
----------------------------- ---------------------------------
Date: 4/10/97 Date: 4/27/97
---------------------------- --------------------------------
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<PAGE> 78
EXHIBIT "A"
6
<PAGE> 79
EXHIBIT "B"
7
<PAGE> 80
EXHIBIT "C"
Schedule of Tenant Improvements
ATTACHED TO AND MADE A PART OF THIS LEASE
1. "Expansion Space", Suite 575
Carpet, paint, replace defective ceiling tiles, demo two offices and
remove demising walls.
All work to be performed during normal working business hours except
that efforts will be taken to minimize noise and inconvenience insofar as this
can be done without effecting cost.
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<PAGE> 81
EXHIBIT "D"
WORK LETTER - "ADDITIONAL SPACE", 155 BOVET ROAD, SUITE 303
This Exhibit "B" is attached to and made a part of that certain Lease
dated January 31, 1996, by and between Casiopea Venture Corporation,
("Landlord"), and Virage, Inc. ("Tenant") for the Premises known as Bovet Office
Centre, 177 Bovet Road, Suite 520, San Mateo, California 94402
1. APPLICATION OF EXHIBIT
Capitalized terms used and not otherwise defined herein shall have
the same definitions as set forth in the Amendment. The provisions of this Work
Letter shall apply to the planning and completion of leasehold improvements
requested by Tenant (the "Tenant Improvements") for the fitting out of the
"Additional Space", as more full set forth herein.
2. LANDLORD AND TENANT PRE-CONSTRUCTION OBLIGATIONS
a) Preliminary Space Plans. Attached to this Work Letter as Exhibit
"B" are preliminary space plans for the Tenant Improvements ("the Preliminary
Space Plans"), which include without limitation, sketches and/or drawings
showing locations of doors, partitioning, electrical fixtures, outlets and
switches, plumbing fixtures and other requirements, mutually agreed upon by
Landlord and Tenant and determined by Tenant as required for its use of the
Premises. Tenant acknowledges that the Preliminary Space Plans have been
prepared by Landlord's Architect after consultation and cooperation between
Tenant and Landlord's Architect regarding the proposed Tenant Improvements and
Tenant's requirements and that the Preliminary Space Plans are complete with
respect thereto. Landlord and Landlord's Architect shall be entitled, in all
respects, to rely upon all information supplied by Tenant regarding the Tenant
Improvements.
b) Working Drawings. Within twenty-one (21) days following full
execution of this Amendment by both Landlord and Tenant, Landlord's Architect
shall prepare working drawings ("the Working Drawings") for the Tenant
Improvements based upon the approved Preliminary Space Plans. The Working
Drawings shall include architectural drawings for the Tenant Improvements based
on the Preliminary Space Plans. Notwithstanding the Preliminary Space Plans, in
all cases the Working Drawings (i) shall be subject to Landlord's final
approval, which approval shall not be unreasonably withheld, (ii) shall not be
in conflict with building codes for the City or County or with insurance
requirements for a fire resistive Class A office building, and (iii) shall be in
a form satisfactory to appropriate governmental authorities responsible for
issuing permits and licenses required for construction.
c) Approval of Working Drawings. Landlord or Landlord's Architect
shall submit the Working Drawings to Tenant for Tenant's review to confirm
compliance with the Preliminary Space Plan, and Tenant shall notify Landlord and
Landlord's Architect within five (5) business days, after delivery thereof of
any requested revisions. Within five (5) days after receipt of tenant's notice,
Landlord's Architect shall make all approved revisions to the Working Drawings
and submit two copies thereof to Tenant for its final review and approval, which
<PAGE> 82
approval shall be given within three (3) business days thereafter. Concurrently
with the above review and approval process, Landlord may submit all plans and
specifications to City or other governmental agencies in an attempt to expedite
City approval and issuance of all necessary permits and Licenses to construct
the Tenant Improvements as shown on the Working Drawings. Any changes which are
required by City or other governmental agencies shall be immediately submitted
to Landlord for Landlord's review and reasonable approval, and Landlord shall
promptly notify Tenant of such changes.
d) Schedule of Critical Dates. Set forth below is a schedule of
certain critical dates relating to Landlord's and Tenant's respective
obligations for the design and construction of the Tenant Improvements. Such
dates and the respective obligations of Landlord and Tenant are more fully
described elsewhere in the Work Letter. The purpose of the following schedule is
to provide a reference for Landlord and Tenant and to make certain the Final
Approval Date occurs as set forth herein. Following the Final Approval Date,
Tenant shall be deemed to have released Landlord to commence construction of the
Tenant Improvements as set forth in Section 4 below.
<TABLE>
<CAPTION>
Reference Date Due Responsible Party
- --------- -------- -----------------
<S> <C> <C>
A. "Preliminary Space Plan Approval" Contemporaneously with Lease Tenant & Landlord
execution
B. "Working Drawings Completion" Twenty-one (21) days after full Landlord
execution of the Lease
C. "Working Drawing Review" Five (5) business days after Tenant
Landlord submits Working
Drawings to Tenant
D. "Working Drawing Revisions" Five (5) business days after Landlord
Tenant returns Working Drawings
to Landlord
E. "Final Approval Date" Three business days after Tenant
Landlord submits revised
Working Drawings to Tenant
</TABLE>
3. BUILDING PERMIT
After the Final Approval Date has occurred, Landlord shall, if
Landlord has not already done so, submit the Working Drawings to the appropriate
governmental body or bodies for final plan checking and a building permit.
Landlord, with Tenant's cooperation, shall cause to be made any change in the
Working Drawings necessary to obtain the building permit; provided, however,
after the Final Approval Date, no changes shall be made to the Working Drawings
without the prior written approval of both Landlord and Tenant, and then only
after agreement by tenant to pay any excess costs resulting from such changes.
4. CONSTRUCTION OF TENANT IMPROVEMENTS
After the Final Approval Date has occurred and a building permit for
the work has been issued, Landlord shall, through a construction contract
("Construction Contract") with a
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<PAGE> 83
reputable, licensed contractor selected by Landlord ("Contractor"), cause the
construction of the Tenant Improvements to be carried out in substantial
conformance with the Working Drawings in a good and workmanlike manner using
first-class materials. The costs associated with the construction of the Tenant
Improvements shall be paid as set forth in Section 5 and 6 of this Work Letter.
Landlord shall see that the construction complies with all applicable building,
fire, health, and sanitary codes and regulations, the satisfaction of which
shall be evidenced by a certificate of occupancy for the Premises. Landlord or
Contractor shall maintain a comprehensive general liability insurance policy
with a limit of not less than One Million Dollars ($1,000,000.00) to insure
against bodily injury and property damage during the construction work prior to
the Lease Commencement Date.
5. TENANT IMPROVEMENT ALLOWANCE
Landlord shall provide Tenant with a Tenant Improvement Allowance
towards the cost of the design, purchase and construction of the Tenant
Improvements, including without limitation design, engineering and consulting
fees (collectively, the "Tenant Improvement Costs"). The Tenant Improvement
Allowance shall be used for payment of the following Tenant Improvement Costs:
(i) Preparation by Landlord's Architect of the Preliminary Space
Plans and the Working Drawings as provided in Section 2 of this Work Letter,
including without limitation all fees charged by City (including without
limitation fees for building permits and plan checks) in connection with the
Tenant Improvements work in the Premises;
(ii) Construction work for completion of the Tenant Improvements as
reflected in the Construction Contract;
(iii) All contractor's charges, general conditions, performance bond
premiums and construction fees; and
(iv) Tenant Improvements as shown on the approved Preliminary Space
Plans dated March 17, 1997, attached hereto as Exhibit "B". Tenant Improvements
to included carpet, paint, ceiling and light fixtures to current building
standard and the building of a storage room by tile entry door.
In the event that Tenant does request modifications, changes or
alterations of the Tenant Improvements from what is shown on said approved
Preliminary Space Plans, or causes any Tenant Delays as defined in Section 7 or
this Work Letter, then all associated costs shall be home by Tenant. If Tenant
does seek to modify change or after the Tenant Improvements from the approved
Preliminary Space Plans, or does cause a Tenant Delay, Tenant shall pay to
Landlord any excess costs resulting therefrom in accordance with Section 6 of
this Work Letter.
6. CHANGE ORDERS
Tenant may from time to time request and obtain change orders before
or during the course of construction provided that: (i) each such request shall
be reasonable, shall be in writing and signed by or on behalf of tenant, and
shall not result in any structural change in the Building, as reasonably
determined by Landlord, (ii) all additional charges and costs, including
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<PAGE> 84
without limitation architectural and engineering costs, construction and
material costs, and processing costs of any governmental entity shall be the
sole and exclusive obligation of tenant, and (iii) any resulting delay in the
completion of the Tenant Improvements shall be deemed a Tenant Delay and in no
event shall extend the Commencement Date of the Lease. Upon Tenant's request for
a change order, Landlord shall as soon as reasonably possible submit to Tenant a
written estimate of the increased or decreased cost and anticipated delay if
any, attributable to such requested change. Within three (3) business days of
the date such estimated cost adjustments and delays are delivered to Tenant,
Tenant shall advise Landlord whether it wishes to proceed with the change order,
and if Tenant elects to proceed with the change order, Tenant shall remit,
concurrently with Tenant's notice to proceed, the amount of the increased costs,
if any, attributable to such change order. Unless Tenant includes in its initial
change order request that the work in process at the time such request is made
be halted pending approval and execution of a change order, Landlord shall not
be obligated to stop construction of the Tenant Improvements, whether or not the
change order relates to the work then in process or about to be started.
7. TENANT DELAYS
In no event shall the Commencement Date of the "Additional Space" be
extended or delayed due or attributable to delays due to the fault of Tenant
("Tenant Delays"). Tenant Delays shall include, but are not limited to, delays
caused by or resulting from any one or more of the following:
a) Tenant's failure to timely review and reasonably approve the
Working Drawings or to furnish information to Landlord or Landlord's Architect
for the preparation by Landlord or Landlord's Architect of the Working Drawings;
b) Tenant's request for or use of special materials, finishes or
installations which are not readily available, provided that Landlord shall
notify Tenant in writing that the particular material, finish, or installation
is not readily available promptly upon Landlord's discovery of same;
c) Change orders requested by Tenant;
d) Interference by Tenant or by Tenant's Agents with Landlord's
construction activities;
e) Tenant's failure to approve any other item or perform any other
obligation in accordance with and by the dates specified herein or in the
Construction Contract;
f) Tenant's requested changes in the Preliminary Space Plans,
Working Drawings or any other plans and specifications after the approval
thereof by Tenant or submission thereof by Tenant to Landlord;
g) Tenant's failure to approve written estimates of costs in
accordance with this Work Letter; and
4
<PAGE> 85
h) Tenant's obtaining or failure to obtain any necessary
governmental approvals or permits for Tenant's intended use of the Premises.
If the Commencement Date of the "Additional Space" is delayed by any
Tenant delays, whether or not within the control of Tenant, then the
Commencement Date of the "Additional Space" and the payment of rent shall be
accelerated by the number of days of such delay. Landlord shall give Tenant
written notice within a reasonable time of any circumstance that Landlord
believes constitute a Tenant Delay.
8. TRADE FIXTURES AND EQUIPMENT
Tenant acknowledges and agrees that Tenant is solely responsible for
obtaining, delivering and installing in the Premises all necessary and desired
furniture, trade fixtures, equipment and other similar items, and that Landlord
shall have no responsibility whatsoever with regard thereto. Tenant further
acknowledges and agrees that neither the Commencement Date of the "Additional
Space" nor the payment of rent shall be delayed for any period of time
whatsoever due to any delay in the furnishing of the Premises with such items.
9. FAILURE OF TENANT TO COMPLY
Any failure of tenant to comply with any of the provisions contained
in this Work Letter within the times for compliance herein set forth shall be
deemed a default tinder the Lease. In addition to the remedies provided to
Landlord in this Work Letter upon the occurrence of such a default by Tenant,
Landlord shall have all remedies available at law or equity to a landlord
against a defaulting tenant pursuant to a written lease, including but not
limited to those set forth in the Lease.
5
<PAGE> 86
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Amendment") is entered into and made as
of this Seventeenth day of October 1997, by and between Casiopea Venture
Corporation, ("Landlord"), and Virage, Inc. ("Tenant"), with respect to the
following facts:
I. RECITALS
A. Whereas, Landlord and Tenant have heretofore entered into a
certain Lease, dated January 17, 1996 (the "Lease") under which Landlord leased
to Tenant the Premises containing 5,674 rentable square feet commonly known as
Suite 520, 177 Bovet Road, San Mateo, California (the "Original Space"). Said
Lease, as previously amended and confirmed by the instrument dated March 20,
1997 (First Amendment), herein referred to as the "Lease".
B. Whereas, Landlord and Tenant desire to modify said Lease as
described below.
II. MODIFICATIONS
Landlord and Tenant hereby agree that the Lease shall be modified and/or
supplemented as follows:
1. Term.
The Term of the Lease for the "Expansion Space", Suite 575, 177
Bovet Road, shall commence on December 1, 1997 and expire on May 31, 2002.
2. Rent.
Commencing on December 1, 1997, the scheduled monthly rent for the
"Expansion Space", Suite 575, provided for in Exhibit "P" of the Lease shall be
increased further to add an additional sum (the "Suite 575 Rent") which shall be
in the amount of $9,921.60, subject to further adjustment as provided below:
<TABLE>
<CAPTION>
From Through Monthly Rent
- ---------------- ------------ ---------- -------------
<S> <C> <C> <C>
December 1, 1997 May 31, 1998 $ 9,921.60 $2.40 RSF/FSG
June 1, 1998 May 31, 1999 $10,128.30 $2.45 RSF/FSG
June 1, 1999 May 31, 2000 $10,335.00 $2.50 RSF/FSG
June 1, 2000 May 31, 2001 $10,541.70 $2.55 RSF/FSG
June 1, 2001 May 31, 2002 $10,748.40 $2.60 RSF/FSG
</TABLE>
III. GENERAL
A. Effect of Amendment; Ratification. Except to the extent the Lease is
modified by this Amendment, the terms and provisions of the Lease shall remain
unmodified and in full force and effect. In the event of conflict between the
terms of the Lease and the terms of this Amendment, the terms of the Amendment
shall prevail.
1
<PAGE> 87
B. Attorney's Fees. The provisions of the Lease respecting payment of
attorney's fees shall also apply to this Amendment.
C. Counterparts. If this Amendment is executed in counterparts, each
counterpart shall be deemed an original.
D. Authority to Execute Amendment. Each individual executing this
amendment on behalf of a partnership or corporation represents that he or she is
duly authorized to execute and deliver this Amendment on behalf of the
partnership and/or corporation and agrees to deliver evidence of his or her
authority to Landlord upon request by Landlord.
E. Governing Law. This Amendment and any enforcement of the agreements
and modifications set forth above shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date and year first above written.
Tenant: Landlord:
VIRAGE, INC. CASIOPEA VENTURE CORPORATION a
California corporation
By: Birtcher Property Services,
its managing agent
By: /s/ Paul Lego By: /s/ Jonathan J. Feucht
--------------------------------- ---------------------------------
Its: CEO Its: Assistant Secretary
--------------------------------- --------------------------------
Date: 10/27/97 Date: 11/7/97
--------------------------------- -------------------------------
2
<PAGE> 88
THIRD AMENDMENT TO LEASE
BY AND BETWEEN
CASIOPEA VENTURE CORPORATION, AS LANDLORD
AND
VIRAGE, INC., AS TENANT
This Third Amendment to Lease is entered into and made as of this 29TH
DAY of DECEMBER 1998, by and between CASIOPEA VENTURE CORPORATION ("LANDLORD")
and VIRAGE INC. ("TENANT"), with respect to the following facts:
A. Whereas, Landlord and Tenant have heretofore entered into that
certain lease, dated January 17, 1996, (the "Original Lease") under which
Landlord leased to Tenant that certain space containing 5,674 rentable square
feet commonly known as 177 Bovet Road, Suite 520 in San Mateo, California (the
"Initial Premises"), which was amended on March 20, 1997 (the "First Amendment")
for that certain space containing 4,134 rentable square feet commonly known as
177 Bovet Road, Suite 575 (the "Expansion Space") and 2,997 rentable square feet
commonly known as 155 Bovet Road, Suite 303 (the "Additional Space") in San
Mateo, California, and on October 17, 1997 (the "Second Amendment"),
collectively herein referred to as the "Lease", upon terms and conditions
described in said Lease;
B. Whereas, Landlord and Tenant desires to amend said Lease as described
below:
NOW THEREFORE, in consideration of the Premises, and of the rents
reserved and of the covenants and agreements herein set forth, it is agreed that
the Lease is hereby amended from and after the date hereof as follows:
1. Premises.
(a) Section 1.1(c) entitled "Premises" shall be modified to include
that certain space containing 5,461 rentable square feet commonly known as 177
Bovet Road, Suite 350 in San Mateo, California (the "Relocation Premises").
(b) Section 1.1(c) entitled "Premises" shall be reduced by that
certain space containing 2,997 rentable square feet commonly known as 155 Bovet
Road, Suite 303 in San Mateo, California (the "Terminated Premises").
(c) The Entire Premises will include the Initial Premises, the
Expansion Premises, and the Relocation Premises for a total of 15,269 rentable
square feet.
2. Term.
(a) Section 1.1(d) entitled "Term" for the Relocation Premises shall
commence on March 1, 1999, or upon substantial completion of the tenant
improvements, whichever is sooner (the "Relocation Commencement Date"), and
terminate on May 31, 2002 (the "Termination Date").
1
<PAGE> 89
(b) Section 1.1(d) entitled "Term" shall be modified such that the
termination date for the Terminated Premises shall be effective as of the
commencement date of the Relocation Premises.
3. Monthly Rent.
(a) Section 1.1 (e) entitled "Monthly Rent" for the Relocation
Premises shall be as follows:
<TABLE>
<CAPTION>
PERIOD RATE PSF/MO MONTHLY RENT
- -------------------------------------------------------------------------------------
<S> <C> <C>
Relocation Commencement Date-05/31/2000 $3.35 $18,294.35
06/01/2000-05/31/2001 $3.45 $18,840.45
06/01/2001-05/31/2002 $3.55 $19,386.55
</TABLE>
4. Section 1.1(f) entitled "Deposit" shall be $19,387.00 for the
Relocation Premises. Landlord currently holds Tenant's security deposit of
$7,792.00 for the Terminated Premises; such amount shall be transferred and
applied to the security deposit for the Relocation Premises, leaving a balance
due in the amount of $11,595.00, which amount shall be paid to the Landlord upon
execution of this Third Amendment.
5. Section 1.1(h) entitled "Tenant's Percentage Share" shall be amended
to 6.16% for the Initial Premises, 4.49% for the Expansion Premises, and 5.93%
for the Relocation Premises; or 16.58% for the Entire Premises.
6. Section 1.1(i) entitled "Base Years" for the Relocation Premises
shall be such that the Base Expense Year for Operating Expenses shall be
calendar year 1999, and the Base Tax Year shall be the fiscal tax year
1999-2000.
7. Section 1.1(k) entitled "Vehicle Parking Privileges Allocated to
Tenant" shall be amended to 51 parking stalls for the Entire Premises. During
the term of the Lease, Tenant shall have the option of obtaining additional
temporary monthly parking permits, on an as available basis, at a nominal fee of
$5.00 per additional monthly permit.
8. Tenant Improvements for Relocation Premises. In consideration for
this expansion and relocation, Landlord shall complete the tenant improvements
per the attached Preliminary Space Plan (attached hereto as Exhibit A),
including without limitation design, engineering, permitting and consulting fees
(collectively the "Tenant Improvement Costs"), however Landlord's contribution
towards such tenant improvements shall not exceed $5.00 per square foot or
$27,305.00 for the entire Relocation Premises. Landlord and Tenant acknowledge
that the tenant improvements contemplated in the Preliminary Space Plan will
exceed Landlord's contribution.
Tenant shall be responsible for the amount (Over Contribution Amount)
equal to the difference between (i) the amount of the cost proposal to complete
such improvements, and (ii) the amount of Landlord's contribution. Prior to the
commencement of construction, Tenant shall deliver to Landlord an amount equal
to 50% of the Over Contribution Amount; the remaining 50% shall be payable from
the Tenant to the Landlord upon final completion of the
2
<PAGE> 90
improvements. In the event that, any revisions, changes or substitutions shall
be made to the Tenant Improvements, 50% of any additional costs shall be paid by
Tenant to Landlord immediately upon Landlord's request as an addition to the
Over Contribution Amount, with the remaining 50% payable upon completion of the
improvements. The combination of Landlord and Tenant's contribution shall be
used for payment of the following Tenant Improvement Costs:
(a) Preparation by Landlord's Architect of the Construction Working
Drawings, including without limitation all fees charged by City (including
without limitation fees for building permits, and plan checks) in connection
with the Tenant Improvement work in the Premises:
(b) Demolition and construction work for completion of the Tenant
Improvements;
(c) All contractor's charges, general conditions, performance bonds
premiums and construction fees;
(d) Tenant Improvements as shown on the approved Preliminary Space
Plan attached hereto as Exhibit A;
(e) Excluding the cost of telecom or computer wiring (temporary and
permanent), furniture, furniture installation, power poles or whips which
connect to partition furniture, moving, storage and relocation expense; and
Construction management fee of 5%.
In the event that Tenant does request modifications, changes or
alterations of the Tenant Improvements from what is shown on said Preliminary
Space Plan, or causes any delay, then all associated costs shall be home by
Tenant. If Tenant does seek to modify, change or alter the Tenant Improvements
from the Preliminary Space Plan or does cause a delay, Tenant shall pay to
Landlord any excess costs resulting therefrom in accordance with this Section 8.
9. During the term of the Lease, Tenant shall have the option to install
a satellite dish or antennae on the roof, at a rate of $300.00 per month per
satellite dish / antennae, subject to Landlord's standard antennae license
agreement.
3
<PAGE> 91
Except as set forth above, all terms, provisions, covenants and
conditions of the Lease shall remain unchanged and in full force and effect, and
the same are hereby ratified and confirmed, as of the date first set forth
above.
LANDLORD TENANT
Casiopea Venture Corporation Virage, Inc.
By: Rim Pacific Management Inc. a California Corporation
Its: Authorized Agent
/s/ Jonathan J. Feucht /s/ Paul Lego
- ------------------------------------- ---------------------------------------
By: Jonathan J. Feucht By: Paul Lego
Its: Managing Director Its: President
Date: January 19, 1999 Date: January 15, 1999
/s/ Frank Pao
---------------------------------------
By: Frank Pao
Its: Secretary
Date: January 13, 1999
4
<PAGE> 92
FOURTH AMENDMENT TO LEASE
BY AND BETWEEN
CASIOPEA VENTURE CORPORATION, AS LANDLORD
AND
VIRAGE, INC., AS TENANT
This Third Amendment to Lease is entered into and made as of this 27TH
day of JULY, 1999, by and between CASIOPEA VENTURE CORPORATION ("LANDLORD") and
VIRAGE, INC. ("TENANT"), with respect to the following facts:
A. Whereas, Landlord and Tenant have heretofore entered into that
certain lease, dated January 17, 1996, (the "Original Lease") under which
Landlord leased to Tenant that certain space containing 5,674 rentable square
feet commonly known as 177 Bovet Road, Suite 520 in San Mateo, California (the
"Initial Premises"), which was amended on March 20, 1997 (the "First Amendment")
for that certain space containing 4,134 rentable square feet commonly known as
177 Bovet Road, Suite 575 (the "Expansion Space") and 2,997 rentable square feet
commonly known as 155 Bovet Road, Suite 303 (the "Additional Space") in San
Mateo, California, and on October 17, 1997 (the "Second Amendment"), and 5,461
rentable square feet commonly known as 177 Bovet Road, Suite 350 (the
"Relocation Premises") in San Mateo, California which was amended on December
29, 1998 (the "Third Amendment"), collectively herein referred to as the
"Lease", upon terms and conditions described in said Lease;
B. Whereas, Landlord and Tenant desires to amend said Lease as described
below:
NOW THEREFORE, in consideration of the Premises, and of the rents
reserved and of the covenants and agreements herein set forth, it is agreed that
the Lease is hereby amended from and after the date hereof as follows:
1. Premises.
(a) Section 1.1(c) entitled "Premises" shall be modified to include
that certain space containing 2,740 rentable square feet commonly known as 177
Bovet Road, Suite 550 in San Mateo, California (the "Second Expansion
Premises").
(b) The Entire Premises will include the Initial Premises, the
Expansion Premises, and the Relocation Premises, and the Second Expansion
Premises for a total of 18,009 rentable square feet.
2. Term.
(a) Section 1.1(d) entitled "Term" for the Second Expansion Premises
shall commence on October 1, 1999, or upon substantial completion of the tenant
improvements, whichever is sooner (the "Second Expansion Commencement Date"),
and terminate on May 31, 2002 (the "Termination Date").
1
<PAGE> 93
3. Monthly Rent.
(a) Section 1.1(e) entitled "Monthly Rent" for the Second
Expansion Premises shall be as follows:
<TABLE>
<CAPTION>
PERIOD RATE PSF/MO MONTHLY RENT
- -----------------------------------------------------------------------------------
<S> <C> <C>
Second Expansion
Commencement Date-05/31/2000 $3.35 $ 9,179.00
06/01/2000-05/31/2001 $3.45 $ 9,453.00
06/01/2001-05/31/2002 $3.55 $ 9,727.00
</TABLE>
4. Section 1.1(f) entitled "Deposit" shall be $9,727.00 for the Second
Expansion Premises.
5. Section 1.1(h) entitled "Tenant's Percentage Share" shall be amended
to 6.16% for the Initial Premises, 4.49% for the Expansion Premises, 5.93% for
the Relocation Premises, and 3% for the Second Expansion Premises or 19.580/o
for the Entire Premises.
6. Section 1.1(i) entitled "Base Years" for the Second Expansion
Premises shall be such that the Base Expense Year for Operating Expenses shall
be calendar year 1999, and the Base Tax Year shall be the fiscal tax year
1999-2000.
7. Section 1.1(k) entitled "Vehicle Parking Privileges Allocated to
Tenant" shall be amended to 60 parking stalls for the Entire Premises. During
the term of the Lease, Tenant shall have the option of obtaining additional
temporary monthly parking permits, on an as available basis, at a nominal fee of
$5.00 per additional monthly permit.
8. Tenant Improvements for Relocation Premises. In consideration for
this expansion, Landlord shall complete the tenant improvements per the attached
Preliminary Space Plan (attached hereto as Exhibit A), including without
limitation design, engineering, permitting and consulting fees (collectively the
"Tenant Improvement Costs"), however Landlord's contribution towards such tenant
improvements shall not exceed $3.00 per square foot or $8,220.00. Landlord and
Tenant acknowledge that the tenant improvements contemplated in the Preliminary
Space Plan will exceed Landlord's contribution.
Tenant shall be responsible for the amount (Over Contribution Amount)
equal to the difference between (i) the amount of the cost proposal to complete
such improvements, and (ii) the amount of Landlord's contribution. Prior to the
commencement of construction, Tenant shall deliver to Landlord an amount equal
to 50% of the Over Contribution Amount; the remaining 50% shall be payable from
the Tenant to the Landlord upon final completion of the improvements. In the
event that, any revisions, changes or substitutions shall be made to the Tenant
Improvements, 50% of any additional costs shall be paid by Tenant to Landlord
immediately upon Landlord's request as an addition to the Over Contribution
Amount, with the remaining 50% payable upon completion of the improvements. The
combination of Landlord and Tenant's contribution shall be used for payment of
the following Tenant Improvement Costs:
2
<PAGE> 94
(a) Preparation by Landlord's Architect of the Construction Working
Drawings, including without limitation all fees charged by City (including
without limitation fees for building permits, and plan checks) in connection
with the Tenant Improvement work in the Premises:
(b) Demolition and construction work for completion of the Tenant
Improvements;
(c) All contractor's charges, general conditions, performance bonds
premiums and construction fees;
(d) Tenant Improvements as shown on the approved Preliminary Space
Plan attached hereto as Exhibit A;
(e) Excluding the cost of telecom or computer wiring (temporary and
permanent), furniture, furniture installation, power poles or whips which
connect to partition furniture, moving, storage and relocation expense; and
(f) Construction management fee of 5%.
In the event that Tenant does request modifications, changes or
alterations of the Tenant Improvements from what is shown on said Preliminary
Space Plan, or causes any delay, then all associated costs shall be borne by
Tenant. If Tenant does seek to modify, change or alter the Tenant Improvements
from the Preliminary Space Plan or does cause a delay, Tenant shall pay to
Landlord any excess costs resulting therefrom in accordance with this Section 8.
Except as set forth above, all terms, provisions, covenants and
conditions of the Lease shall remain unchanged and in full force and effect, and
the same are hereby ratified and confirmed, as of the date first set forth
above.
LANDLORD TENANT
Casiopea Venture Corporation Virage, Inc.
By: Rim Pacific Management Inc. a California Corporation
Its: Authorized Agent
/s/ Jonathan J. Feucht /s/ Paul Lego
- --------------------------------------- -------------------------------------
By: Jonathan J. Feucht By: Paul Lego
Its: Managing Director Its: President
Date: September 10, 1999 Date: August 30, 1999
/s/ Frank Pao
-------------------------------------
By: Frank Pao
Its: Secretary
Date: August 30, 1999
3
<PAGE> 95
FIFTH AMENDMENT TO LEASE
BY AND BETWEEN
CASIOPEA VENTURE CORPORATION, AS LANDLORD
AND
VIRAGE, INC., AS TENANT
This Fifth Amendment to Lease is entered into and made as of this 22ND
day of NOVEMBER 1999, by and between CASIOPEA VENTURE CORPORATION ("LANDLORD")
and VIRAGE, INC. ("TENANT"), with respect to the following facts:
A. Whereas, Landlord and Tenant have heretofore entered into that
certain lease, dated January 17, 1996, (the "Original Lease") under which
Landlord leased to Tenant that certain space containing 5,674 rentable square
feet commonly known as 177 Bovet Road, Suite 520 in San Mateo, California (the
"Initial Premises"), which was amended on March 20, 1997 (the "First Amendment")
for that certain space containing 4,134 rentable square feet commonly known as
177 Bovet Road, Suite 575 (the "Expansion Space") and 2,997 rentable square feet
commonly known as 155 Bovet Road, Suite 303 (the "Additional Space") in San
Mateo, California, and on October 17, 1997 (the "Second Amendment"), and 5,461
rentable square feet commonly known as 177 Bovet Road, Suite 350 (the
"Relocation Premises") in San Mateo, California which was amended on December
29, 1998 (the "Third Amendment"), and for that certain space containing 2,740
rentable square feet commonly known as 177 Bovet. Road, Suite 550 (the "Second
Expansion Premises") in San Mateo, California which was amended on July 27, 1999
(the "Fourth Amendment"), collectively herein referred to as the "Lease", upon
terms and conditions described in said Lease;
B. Whereas, Landlord and Tenant desires to amend said Lease as described
below:
NOW THEREFORE, in consideration of the Premises, and of the rents
reserved and of the covenants and agreements herein set forth, it is agreed that
the Lease is hereby amended from and after the date hereof as follows:
1. Premises.
(a) Section 1.1(c) entitled "Premises" shall be modified to include
that certain space containing 2,661 rentable square feet commonly known as 177
Bovet Road, Suite 150 in San Mateo, California (the "Third Expansion Premises").
(b) The Entire Premises will include the Initial Premises, the
Expansion Premises, the Relocation Premises, the Second Expansion Premises, and
the Third Expansion Premises for a total of' 20,670 rentable square feet.
2. Term.
(a) Section 1.1(d) entitled "Term" for the Third Expansion Premises
shall commence on February 1, 2000, or upon substantial completion of the tenant
improvements, whichever is sooner (the "Third Expansion Commencement Date"), and
terminate on May 31, 2002 (the "Termination Date").
1
<PAGE> 96
3. Monthly Rent.
(a) Section 1.1(e) entitled "Monthly Rent" for the Third Expansion
Premises shall be as follows:
<TABLE>
<CAPTION>
PERIOD RATE PSF/MO MONTHLY RENT
- ------------------------------------------------------------------------------
<S> <C> <C>
02/01/2000 - 01/31/2001 $3.35 $ 8,914.35
02/01/2001 - 01/31/2002 $3.45 $ 9,180.45
02/01/2002 - 05/31/2002 $3.55 $ 9,446.55
</TABLE>
4. Section 1.1(f) entitled "Deposit" shall be $9,446.55 for the Third
Expansion Premises.
5. Section 1.1(h) entitled "Tenant's Percentage Share" shall be amended
to 6.16% for the Initial Premises, 4.49% for the Expansion Premises, 5.93% for
the Relocation Premises, 3% for the Second Expansion Premises, and 2.85% for the
Third Expansion Premises or 22.43% for the Entire Premises.
6. Section 1.1(i) entitled "Base Years" for the Third Expansion Premises
shall be such that the Base Expense Year for Operating Expenses shall be
calendar year 2000, and the Base Tax Year shall be the fiscal tax year
1999-2000.
7. Section 1.1(k) entitled "Vehicle Parking Privileges Allocated to
Tenant" shall be amended to 69 parking stalls for the Entire Premises. During
the term of the Lease, Tenant shall have the option of obtaining additional
temporary monthly parking permits, on an as available basis, at a nominal fee of
$5.00 per additional monthly permit.
8. Tenant Improvements for Relocation Premises. In consideration for
this expansion, Landlord shall complete the tenant improvements to be provided
after Tenant meets with the architectural firm of S. J. Sung on Wednesday,
November 24, 1999 including without limitation design, engineering, permitting
and consulting fees (collectively the "Tenant Improvement Costs"), however
Landlord's contribution towards such tenant improvements shall not exceed $3.50
per square foot or $9,313.50. Landlord and Tenant acknowledge that the tenant
improvements to be contemplated in the Preliminary Space Plan will exceed
Landlord's contribution. Landlord acknowledges that all costs associated with
recapturing the hallway will be at Landlord's sole cost.
Tenant shall be responsible for the amount (Over Contribution Amount)
equal to the difference between (i) the amount of the cost proposal to complete
such improvements, and (ii) the amount of Landlord's contribution. Prior to the
commencement of construction, Tenant shall deliver to Landlord an amount equal
to 50% of the Over Contribution Amount; the remaining 50% shall be payable from
the Tenant to the Landlord upon final completion of the improvements. In the
event that, any revisions, changes or substitutions shall be made to the Tenant
Improvements, 50% of any additional costs shall be paid by Tenant to Landlord
immediately upon Landlord's request as an addition to the Over Contribution
Amount, with the remaining 50% payable upon completion of the improvements. The
combination of Landlord and Tenant's contribution shall be used for payment of
the following Tenant Improvement Costs:
2
<PAGE> 97
(a) Preparation by Landlord's Architect of the Construction Working
Drawings, including without limitation all fees charged by City (including
without limitation fees for building permits, and plan checks) in connection
with the Tenant Improvement work in the Premises:
(b) Demolition and construction work for completion of the Tenant
Improvements;
(c) All contractor's charges, general conditions, performance bonds
premiums and construction fees;
(d) Excluding the cost of telecom or computer wiring (temporary and
permanent), furniture, furniture installation, power poles or whips which
connect to partition furniture, moving, storage and relocation expense; and
(e) Construction management fee of 5%.
In the event that Tenant does request modifications, changes or
alterations of the Tenant Improvements from what is shown on Preliminary Space
Plan to be provided, or causes any delay, then all associated costs shall be
home by Tenant. If Tenant does seek to modify, change or alter the Tenant
Improvements from the Preliminary Space Plan or does cause a delay, Tenant shall
pay to Landlord any excess costs resulting therefrom in accordance with this
Section 8.
Except as set forth above, all terms, provisions, covenants and
conditions of the Lease shall remain unchanged and in full force and effect, and
the same are hereby ratified and confirmed, as of the date first set forth
above.
LANDLORD TENANT
Casiopea Venture Corporation Virage, Inc.
By: Rim Pacific Management Inc. a California Corporation
Its: Authorized Agent
/s/ Jonathan J. Feucht /s/ Paul Lego
- --------------------------------------- -------------------------------------
By: Jonathan J. Feucht By: Paul Lego
Its: Managing Director Its: President
Date: November 29, 1999 Date:
-------------------------------
/s/ Frank Pao
-------------------------------------
By: Frank Pao
Its: Vice President of Business
Affairs and General Counsel
Date: November 23, 1999
3
<PAGE> 1
EXHIBIT 10.6
STANDARD FORM OF OFFICE LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
AGREEMENT OF LEASE, made as of this 15th day of November, 1999, between
1995 CAM LP, a New York Partnership, c/o Cammeby's International, 42 Broadway,
New York, New York 10004 party of the first part, hereinafter referred to as
OWNER, and Virage, Inc., California corporation having an office at 1120 6th
Ave. New York, New York party of the second part, hereinafter referred to as
TENANT,
WITNESSETH:
Owner hereby leases to Tenant and Tenant hereby hires from Owner Suite
502 in the Building known as 1995 Broadway, Borough of Manhattan, City of New
York for the term of 5 YEARS (or until such term shall sooner cease and expire
as hereinafter provided) to commence on the 1st day of April, TWO THOUSAND and
to end on the thirty-first day of March, TWO THOUSAND FIVE both dates inclusive.
Effective April 1, 2000, the basic annual rent payable by Tenant under
the lease shall be One Hundred Ninety Seven Thousand Six Hundred and 00/100
Dollars ($197,600) per annum for the period from April 1, 2000 through March 31,
2001; Two Hundred Three Thousand Five Hundred Twenty Eight and 00/100 Dollars
($203,528) per annum for the period from April 1, 2001 through March 31, 2002;
Two Hundred Nine Thousand Six Hundred Thirty Three and 84/100 Dollars
($209,633.84) per annum for the period from April 1, 2002 through March 31,
2003; Two Hundred Fifteen Thousand Nine Hundred Twenty Two and 85/100 Dollars
($215,922.85) per annum for the period from April 1, 2003 through March 31.
2004; Two Hundred Twenty Two Thousand Four Hundred and 53/100 Dollars
($222,400.53) per annum for the period from April 1, 2004 through March 31,
2005, all payable in equal monthly installments due on the first of each month,
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that the Tenant
shall pay the first monthly installments on the execution hereof (unless this
Lease be a renewal).
In the event that, at the commencement of the term of this Lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another Lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs. distributees,
executors, administrators, Legal representatives, successors and assigns, hereby
covenant as follows:
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1. RENT OCCUPANCY. Tenant shall pay the rent as above and as hereinafter
provided.
2. Tenant shall use and occupy Demised Premises for executive and
administrative offices in connection with Tenant's business and for no other
purpose.
3. TENANT ALTERATIONS. Tenant shall make no changes in or to the Demised
Premises of any nature without Owner's prior written consent. Subject to the
prior written consent of Owner, and to the provisions of this Article, Tenant at
Tenant's expense, may make alterations, installations, additions or improvements
which are nonstructural and which do not affect utility services or plumbing and
electrical lines, on or to the interior of the Demised Premises by using
contractors or mechanics first approved by Owner. Tenant shall, before making
any alterations, additions, installations or improvements, at its expense,
obtain all permits, approvals and certificates required by any government or
quasi-governmental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner and Tenant agrees to carry and will cause Tenant's
contractors and subcontractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may require. If any
mechanic's lien is filed against the Demised Premises, or the Building of which
the same forms a part, for work claimed to have been done for, or materials
furnished to, Tenant, whether or not done pursuant to this Article, the same
shall be discharged by Tenant within thirty days thereafter, at Tenant's
expense, by filing the bond required by law. All fixtures and all paneling,
partitions, railings and like installations, installed in the premises at any
time, either by Tenant or by Owner in Tenant's behalf, shelf, upon installation,
become the property of Owner and shall remain upon and be surrendered with the
Demised Premises unless Owner, by notice to Tenant no later than twenty days
prior to the date fixed as termination of this Lease, elects to relinquish
Owner's right thereto and to have them removed by Tenant, in which event the
same shall be removed from the premises by Tenant prior to the expiration of the
Lease, at Tenant's expense, Nothing in this Article shall be construed to give
Owner title to or to prevent Tenant's removal of trade fixtures, moveable office
furniture and equipment, but upon removal of any such from the premises or upon
removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense, repair and restore the premises to the condition
existing prior to installation and repair any damage to the Demised Premises or
the Building due to such removal. All property permitted or required to be
removed, by Tenant at the end of the term remaining In the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or may be removed from the premises by
Owner, at Tenant's expense.
4. MAINTENANCE AND REPAIRS. Tenant shall, throughout the term of this
Lease, take good care of the Demised Premises and the fixtures and appurtenances
therein. Tenant shall be responsible for all damage or injury to the Demised
Premises or any other part of the Building, the systems and equipment thereof,
whether requiring structural or nonstructural repairs caused by or resulting
from carelessness, omission, neglect or improper conduct of Tenant, Tenant's
subtenants, agents, employees, invitees or licenses, or which arise out of any
works labor, service or equipment done for or supplied to Tenant or any
subtenant or arising out of the installation, use or operation of the property
or equipment of Tenant or any subtenant. Tenant shall also repair all damage to
the Building and the Demised Premises caused by the moving Tenant's fixtures,
furniture and equipment. Tenant shall promptly make, at Tenant's expense, all
repairs
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in and to the Demised Premises for which Tenant is responsible, using only the
contractor for the trade or trades in question, selected from a list of at least
two contractors per trade submitted by Owner. Any other repairs in or to the
Building or the facilities and systems thereof for which Tenant is responsible
shall be performed by Owner at the Tenant's expense. Owner shall maintain in
good working order and repair the exterior and the structural portions of the
Building, including the structural portions of its Demised Premises, and the
public portions of the Building interior and the Building plumbing, electric,
heating and ventilating systems (to the extent such systems presently exist)
serving the Demised Premises. Tenant agrees to give prompt notice of any
defective condition in the premises for which Owner may be responsible
hereunder. There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Owner by reason of inconvenience, annoyance or
injury to business arising from Owner or others making repairs, alterations,
additions or improvements in or to any portion of the Building or the Demised
Premises or in and to the fixtures, appurtenances or equipment thereof. It is
specifically agreed that Tenant shall not be entitled to any setoff or reduction
of rent by reason of any failure of Owner to comply with the covenants of this
or any other Article of this Lease. Tenant agrees that Tenant's sole remedy at
law in such instance will be by way of an action for damages for breach of
contract. The provisions of this Article 4 shall not apply in the case of fire
or other casualty which are dealt within Article 9 hereof.
5. WINDOW CLEANING. Tenant will not clean nor require, permit, suffer or
allow any window in the Demised Premises to be cleaned from the outside in
violation of Section 202 of the Labor Law or any other applicable law or of the
Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
6. REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS. Prior to the
commencement of the Lease term, if Tenant is then in possession and at all times
thereafter, Tenant, at Tenant's sole cost and expense, shall promptly comply
with all present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all orders, rules and
regulations of the New York Board of Fire Underwriters, Insurance Services
Office, or any similar body which shall impose any violation, order or duty upon
Owner or Tenant with respect to the Demised Premises, whether or not arising out
of Tenant's use or manner of use thereof, (including Tenant's permitted use) or,
with respect to the Building if arising out of Tenant's use or manner of use of
the premises or the Building (including the use permitted under the Lease).
Nothing herein shall require Tenant to make structural repairs or alteration
unless Tenant has, by its manner of use of the Demised Premises or method of
operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant may, after securing
Owner to Owner's satisfaction against all damages, interest, penalties and
expenses, including, but not limited to, reasonable attorney's fees, by cash
deposit or by surety bond in an amount and in a company satisfactory to Owner,
contest and appeal any such laws, ordinances, orders rules, regulations or
requirements provided same is done with all reasonable promptness and provided
such appeal shall not subject Owner to prosecution for a criminal offense or
constitute a default under any Lease or mortgage under which Owner may be
obligated, or cause the Demised Premises or any part thereof to be condemned or
vacated. Tenant shall not do or permit any act or thing to be done in or to the
Demised Premises which is contrary to law, or which will invalidate or be in
conflict with public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner with respect to the
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Demised Premises or the Building of which the Demised Premises form a part, or
which shall or might subject Owner to any liability or responsibility to any
person or for property damage. Tenant shall not keep anything in the Demised
Premises except as now or hereafter permitted by the Fire Department, Board of
Fire Underwriters, Fire Insurance Rating Organization or other authority having
jurisdiction, and then only in such manner and such quantity so as not to
increase the rate for fire insurance applicable to the Building, nor use the
premises in a manner which will increase the insurance rate for the Building or
any property located therein over that in effect prior to the commencement of
Tenant's occupancy. Tenant shall pay all costs, expenses, fines, penalties, or
damages, which may be imposed upon Owner by reason of Tenant's failure to comply
with the provisions of this Article and if by reason of such failure the fire
insurance rate shall, at the beginning of this Lease or at any time thereafter,
be higher than it otherwise would be, then Tenant shall reimburse Owner, as
additional rent hereunder, for that portion of all fire insurance premiums
thereafter paid by Owner which shall have been charged because of such failure
by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a
schedule or "make-up" of rate for the Building or Demised Premises issued by the
New York Fire Insurance Exchange, or other body making fire insurance rates
applicable to said premises shall be conclusive evidence of the facts therein
stated and of the several items and charges in the fire insurance rates then
applicable to said premises. Tenant shall not place a load upon any floor of the
Demised Premises exceeding the floor load per square foot area which it was
designed to carry and which is allowed by law. Owner reserves the right to
prescribe the weight and position of all safes, business machines and mechanical
equipment. Such installations shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Owner's judgment, to absorb and
prevent vibration, noise and annoyance.
7. SUBORDINATION. This Lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which Demised Premises are a part and to all
renewals, modifications, consolidations. replacements and extensions of any such
underlying Leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any Lease or the real property
of which the Demised Premises are a part. In confirmation of such subordination,
Tenant shall execute promptly any certificate that Owner may request.
8. PROPERTY LOSS, DAMAGE, REIMBURSEMENT INDEMNITY. Owner or its agents
shall not be liable for any damage to property of Tenant or of others entrusted
to employees of the Building, nor for loss of or damage to any property of
Tenant by theft or otherwise, nor for any injury or damage to persons or
property resulting from any cause of whatsoever nature, unless caused by or due
to the negligence of Owner, its agents, servants or employees. Owner or its
agents will not be liable for any such damage caused by other tenants or persons
in, upon or about said Building or caused by operations in construction of any
private, public or quasi-public work.
If at any time any windows of the Demised Premises are temporarily
closed, darkened or bricked up (or permanently closed, darkened or bricked up,
if required by law) for any reason whatsoever including, but not limited to
Owner's own acts, Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatement or diminution of rent nor shall the same release Tenant from its
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obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be reimbursed by
insurance, including reasonable attorney's fees, paid, suffered or incurred as a
result of any breach by Tenant, Tenant's agents, contractors, employees.
invitees, or licensees, of any covenant or condition of this Lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees, or licensees. Tenant's liability under this
Lease extends to the acts and omissions of any subtenant, and any agent,
contractor, employee, invitee or licensee of any subtenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant. upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
9. DESTRUCTION, FIRE AND OTHER CASUALTY.
a. If the Demised Premises or any part thereof shall be damaged
by fire or other casualty, Tenant shall give immediate notice thereof to Owner
and this Lease shall continue in full force and effect except as hereinafter set
forth.
b. If the Demised Premises are partially damaged or rendered
partially unusable by fire or other casualty, the damages thereto shall be
repaired by and at the expense of Owner and the rent, until such repair shall be
substantially completed, shall be apportioned from the day following the
casualty according to the part of the premises which is usable.
c. If the Demised Premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the rent shall be proportionately paid
up to the time of the casualty and thenceforth shall cease until the date when
the premises shall have been repaired and restored by Owner, subject to Owner's
right to elect not to restore the same as hereinafter provided.
d. If the Demised Premises are rendered wholly unusable or
(whether or not the Demised Premises are damaged in whole or in part) if the
Building shall be so damaged that Owner shall decide to demolish it or to
rebuild it, then, in any of such events, Owner may elect to terminate this Lease
by written notice to Tenant, given within 90 days after such fire or casualty,
specifying a date for the expiration of the Lease, which date shall not be more
than 60 days after the giving of such notice, and upon the date specified in
such notice the term of this Lease shall expire as fully and completely as if
such date were the date set forth above for the termination of this Lease and
Tenant shall forthwith quit, surrender and vacate the premises without prejudice
however, to Owner's rights and remedies against Tenant under the Lease
provisions in effect prior to such termination, and any rent owing shall be paid
up to such date and any payments of rent made by Tenant which were on account of
any period subsequent to such date shall be returned to Tenant. Unless Owner
shall serve a termination notice as provided for herein, Owner shall make the
repairs and restorations under the conditions of (b) and (c) hereof, with all
reasonable expedition, subject to delays due to adjustment of insurance claims,
labor troubles and causes beyond Owner's control. After any such casualty,
Tenant shall cooperate with Owner's restoration by removing from the promises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's
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liability for rent shall resume five (5) days after written notice from Owner
that the premises are substantially ready for Tenant's occupancy.
e. Nothing contained hereinabove shall relieve Tenant from
liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any insurance in
its favor before making any claim against the other party for recovery for loss
or damage resulting from fire or other casualty, and to the extent that such
insurance is in force and collectible and to the extent permitted by law, Owner
and Tenant each hereby releases and waives all right of recovery against the
other of any one claiming through or under each of them by way of subrogation or
otherwise. The foregoing release and waiver shall be in force only if both
releasers' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. If, and to the extent that, such
waiver can be obtained only by the payment of additional premiums. then the
party benefiting from the waiver shall pay such premium with ten (10) days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver of subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto or replace
the same.
f. Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this Article shall govern and
control in lieu thereof.
10. EMINENT DOMAIN. If the whole or any part of the Demised Premises
shall be acquired or condemned by Eminent Domain for any public or quasi public
use or purpose. then and in that event, the term of this Lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said Lease and assigns to
Owner, Tenant's entire interest in any such award.
11. ASSIGNMENT, MORTGAGE, ETC. Tenant, for itself, its heirs,
distributees, executors, administrators, legal representatives, successors and
assigns, expressly covenants that it shall not assign, mortgage or encumber this
Agreement, nor underlet or suffer or permit the Demised Premises or any part
thereof to be used by others, without the prior written consent of Owner in each
instance. If this Lease be assigned, or if the Demised Premises or any part
thereof be underlet or occupied by anybody other than Tenant, Owner may, after
default by Tenant, collect rent from the assignee, undertenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, underletting, occupant or collection shall be deemed a waiver of
this covenant, or the acceptance of the assignee, undertenant or occupant as
tenant or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
12. ELECTRIC CURRENT. Rates and conditions in respect to submetering or
rent inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing feeders to the Building or the risers or wiring
installation and Tenant may not use any electrical
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equipment which, in Owner's opinion, reasonably exercised, will overload such
installations or interfere with the use thereof by other tenants of the
Building. The change at any time of the character of electric service shall in
no wise make Owner liable or responsible to Tenant, for any loss, damages, or
expenses which Tenant may sustain.
13. ACCESS TO PREMISES. Owner or Owner's agents shall have the right
(but shall not be obligated) to enter the Demised Premises in any emergency at
any time, and, at other reasonable times, to examine the same and to make such
repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to the Demised Premises or to any other portion of the
Building or which Owner may elect to perform. Tenant shall permit Owner to use
and maintain and replace pipes and conduits in and through the Demised Premises
and to erect new pipes and conduits therein provided they are concealed within
the walls, floor, or ceiling. Owner may, during the progress of any work in the
Demised Premises, take all necessary materials and equipment into said premises
without the same constituting an eviction nor shall the Tenant be entitled to
any abatement of rent while such work is in progress or to any damages by reason
of loss or interruption of business or otherwise. Throughout the term hereof
Owner shall have the right to enter the Demised Premises at reasonable hours for
the purpose of showing the same to prospective purchasers or mortgagees of the
Building, and during the last six months of the term for the purpose of showing
the same to prospective tenants. If Tenant is not present to open and permit an
entry into the premises, Owner or Owner's agents may enter the same whenever
such entry may be necessary or permissible by master key or forcibly and
provided reasonable care is exercised to safeguard Tenant's property. such entry
shall not render Owner or its agents liable therefor, nor in any event shall the
obligations of Tenant hereunder be affected. If during the last month of the
term Tenant shall have removed all or substantially all of Tenant's property
therefrom, Owner may immediately enter, alter, renovate or redecorate the
Demised Premises without limitation or abatement of rent, or incurring liability
to Tenant for any compensation and such act shall have no effect on this Lease
or Tenant's obligations hereunder.
14. VAULT, VAULT SPACE, AREA. No vaults, vault space or area, whether or
not enclosed or covered, nor within the property line of the Building is leased
hereunder. anything contained in or indicated on any sketch, blue print or plan,
or anything contained elsewhere in this Lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
Building. All vaults and vault space and all such areas not within the property
line of the Building, which Tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by tenant.
15. OCCUPANCY. Tenant will not at any time use or occupy the Demised
Premises in violation of the certificate of occupancy issued for the Building of
which the Demised Premises is a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to Owner's
work, if any. In any event, Owner makes no representation as to
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the condition of the premises and Tenant agrees to accept the same subject to
violations, whether or not of record.
16. BANKRUPTCY.
a. Anything elsewhere in the Lease to the contrary
notwithstanding, this Lease may be canceled by Owner by the sending of a written
notice to Tenant within a reasonable time after the happening of any one or more
of the following events: (1) the commencement of a case in bankruptcy or under
the laws of any state naming Tenant as the debtor; or (2) the making by Tenant
of an assignment or any other arrangement for the benefit of creditors under any
state statute. Neither Tenant nor any person claiming through or under Tenant,
or by reason of any statute or order of court, shall thereafter be entitled to
possession of the premises demised but shall forthwith quit and surrender the
premises. If this Lease shall be assigned in accordance with its terms, the
provisions of this article 16 shall be applicable only to the party then owning
Tenant's Interest in this Lessee.
b. It is stipulated and agreed that in the event of the
termination of this Lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this Lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the fair and reasonable rental value of the Demised Premises
for the same period. In the computation of such damages the difference between
any installment of rent become due hereunder after the date of termination and
the fair and reasonable rental value of the Demised Premises for the period for
which such installment as payable shall be discounted to the date of termination
at the rate of four percent (4%) per annum. If such premises or any part thereof
be re-let by the Owner for the unexpired term of said Lease, or any part
thereof, before presentation of proof of such liquidated damages to court
commission or tribunal, the amount of rent reserved upon such re-letting shall
be deemed to be the fair and reasonable rental value for the part or the whole
of the premises so re-let during the term of the re-letting. Nothing herein
contained shall limit or prejudice the right of the Owner to prove for and
obtain as liquidated damages by reason of such termination, an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
17. DEFAULT.
a. If Tenant defaults in fulfilling any of the covenants of this
Lease other than the covenants for the payment of rent or additional rent; or if
the Demised Premises becomes vacant or deserted; or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the Demised Premises shall be taken or occupied by someone other than Tenant; or
if this Lease be rejected under Section 235 of Title 11 of the U. S. Code
(bankruptcy code); or if Tenant shall fail to move into or take possession of
the premises within fifteen (15) days after the commencement of the term of this
Lease, then, in any one or more of such events, upon Owner serving a written
five (5) days notice upon Tenant specifying the nature of said default and upon
the expiration of said five (5) days, if Tenant shall have failed to comply with
or remedy such default, or if the said default or omission complained of shall
be of a nature
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that the same cannot be completely cured or remedied within said five (5) day
period, and if Tenant shall not have diligently commenced during such default
within such five (5) day period, and shall not thereafter with reasonable
diligence and in good faith, proceed to remedy or cure such default, the Owner
may serve a written three (3) days' notice of cancellation of this Lease upon
Tenant, and upon the expiration of said three (3) days this Lease and the term
thereunder shall end and expire as fully and completely as if the expiration of
such three (3) day period were the day herein definitely fixed for the end and
expiration of this Lease and the term thereof and Tenant shall then quit and
surrender the Demised Premises to Owner but Tenant shall remain liable as
hereinafter provided.
b. If the notice provided for in (1) hereof shall have been
given, and the term shall expire as aforesaid; or if Tenant shall make default
in the payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the Demised
Premises either by force or otherwise, and dispossess tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of Demised Premises and remove their effects and hold the premises as
if this Lease had not been made, and Tenant hereby waives the service of notice
of intention to reenter or to institute legal proceedings to that end. If Tenant
shall make default hereunder prior to the date fixed as the commencement of any
renewal or extension of this lease, Owner may cancel and terminate such renewal
or extension agreement by written notice.
18. REMEDIES OF OWNER AND WAIVER OF REDEMPTION. In case of any default,
re-entry, and/or dispossess by summary waiver proceedings or otherwise, (A) the
rent shall become due thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, (B) Owner may re-let the premises or any part or
parts thereof, either in the name of Owner or otherwise, for a term or terms,
which may at Owner's option be less than or exceed the period which would
otherwise have constituted the balance of the term of this Lease and may grant
concessions or free rent or charge a higher rental than that in this Lease and
/or (C) Tenant or the legal representatives of Tenant shall also pay Owner as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount, if any, of the rents
collected on account of the Lease or Leases of the Demised Premises for each
month of the period which would otherwise have constituted the balance of the
term of this Lease. The failure of Owner to re-let the premises or any part or
parts thereof shall not release or affect Tenant's liability for damages. In
computing such liquidated damages there shall be added to the said deficiency
such expenses as Owner may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising and for keeping the Demised
Premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this Lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency of any subsequent month by a similar proceeding. Owner,
in putting the Demised Premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements
and/or decorations in the Demised Premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the Demised
Premises, and the making of such alterations, repairs, replacement and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as
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aforesaid. Owner shall in no event be liable in any way. Whatsoever for failure
to re-let the Demised Premises or in the event that the Demised Premises are
re-let, for failure to collect the rent thereof under such re-letting, and in no
event shall Tenant be entitled to receive any excess, if any, of such net rents
collected over the sums payable by Tenant to Owner hereunder. In the event of a
breach or threatened breach by Tenant of any of the covenants or provisions
hereof, Owner shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary proceedings and other
remedies were not herein provided for. Mention in this lease of any particular
remedy, shall not preclude Owner from any other remedy, in law or in equity.
Tenant hereby expressly waives any and all rights of redemption granted by or
under any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Owner obtaining possession of
Demised Premises, by reason of the violation by Tenant of any of the covenants
and conditions of this Lease, or otherwise.
19. FEES AND EXPENSES. If Tenant shall default in the observance or
performance of any term or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms or provisions in any Article of this
Lease, then, unless otherwise provided elsewhere in this Lease, Owner may
immediately or at any time thereafter and without notice perform the obligation
of Tenant thereunder. If Owner, in connection with the foregoing or in
connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to attorney's fees, in instituting, prosecuting or
defending any action or proceeding, then Tenant will reimburse Owner for such
sums so paid or obligations incurred with interest and costs. The foregoing
expenses incurred by reason of Tenant's default shall be deemed to be additional
rent hereunder and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant therefor. If Tenant's Lease term
shall have expired at the time of making of such expenditures or incurring of
such obligations, such sums shall be recoverable by Owner as damages.
20. BUILDING ALTERATIONS AND MANAGEMENT. Owner shall have the right at
any time without the same constituting an eviction and without incurring
liability to Tenant therefor to change the arrangement and/or location of public
entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets
or other public parts of the Building and to change the name, number or
designation by which the Building may be known. There shall be no allowance to
Tenant for diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from Owner or
other Tenants making any repairs in the Building or any such alterations,
additions and improvements. Furthermore, Tenant shall not have any claim against
Owner by reason of Owner's imposition of such controls of the manner of access
to the Building of Tenant's social or business visitors as the Owner may deem
necessary for the security of the Building and its occupants.
21. NO REPRESENTATIONS BY OWNER. Neither Owner nor Owner's agents have
made any representations or promises with respect to the physical condition of
the Building, the land upon which it is erected or the Demised Premises, the
rents, Leases, expenses of operation or any other matter or thing affecting or
related to the premises except as herein expressly set forth and no rights,
easements or licenses are acquired by Tenant by implication or otherwise except
as expressly set forth in the provisions of this Lease. Tenant has inspected the
Building and the Demised Premises and Tenant is thoroughly acquainted with their
condition and agrees to take the same `as is' and acknowledges that the taking
of possession of the Demised Premises by
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Tenant shall be conclusive evidence that the said premises and the Building of
which the same form a part were in good and satisfactory condition at the time
such possession was so taken, except as to latent defects. All understandings
and agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
22. END OF TERM. Upon the expiration or other termination of the term of
this Lease, Tenant shall quit and surrender to Owner this Demised Premises,
broom clean, in good order and condition, ordinary wear and damages which Tenant
is not required to repair as provided elsewhere in this Lease excepted, and
Tenant shall remove all its property. Tenant's obligation to observe or perform
this covenant shall survive the expiration or other termination of this Lease.
If the last day of the term of this Lease or any renewal thereof, falls on
Sunday, this Lease shall expire at noon on the preceding Saturday unless it be a
legal holiday in which case it shall expire at noon on the preceding business
day.
23. QUIET ENJOYMENT. Owner covenants and agrees with Tenant that upon
Tenant paying the rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this Lease including, but not
limited to, Article 30 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
24. FAILURE TO GIVE POSSESSION. If Owner is unable to give possession of
the Demised Premises on the date of the commencement of the term hereof, because
of the holding over or retention of possession of any tenant, undertenant or
occupants or if the Demised Promises are located in a Building being
constructed, because such Building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured or for any other reason, Owner shall not be
subject to any liability for failure to give possession on said date and the
validity of the Lease shall not be impaired under such circumstances, nor shall
the same be construed in any wise to extend the term of this Lease, but the rent
payable hereunder shall be abated (provided Tenant is not responsible for
Owner's inability to obtain possession) until after Owner shall have given
Tenant written notice that the premises are substantially ready for Tenant's
occupancy. If permission is given to Tenant to enter into the possession of the
Demised Premises or to occupy premises other than the Demised Premises other
than the date specified as the commencement of the term of this Lease, Tenant
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants, conditions and provisions of this Lease, except as to the
covenant to pay rent. The provisions of this Article are intended to constitute
"an express provision to the contrary" within the meaning of Section 223-a of
the New York Real Property Law.
25. NO WAIVER. The failure of Owner to seek redress for violation of, or
to insist upon the strict performance of any covenant or condition of this Lease
or of any of the Rules or Regulations, set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original
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violation. The receipt by Owner of rent with knowledge of the breach of any
covenant of this Lease shall not be deemed a waiver of such breach and no
provision of this Lease shall be deemed to have been waived by Owner unless such
waiver be in writing signed by Owner. No payment by Tenant or receipt by Owner
of a lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent, nor shall any endorsement
or statement of any check or any letter accompanying any check or payment as
rent be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this Lease provided. No act or thing done by Owner
or Owner's agents during the term hereby demised shall be deemed an acceptance
of a surrender of said premises, and no agreement to accept such surrender shall
be valid unless in writing signed by Owner. No employee of Owner or Owner's
agent shall have any power to accept the keys of said premises prior to the
termination of the Lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the Lease or a surrender of the premises.
26. WAIVER OF TRIAL BY JURY. It is mutually agreed by and between Owner
and Tenant that the respective parties hereto shall and they hereby do waive
trial by jury in any action, proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the promises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding including a counterclaim
under Article 4.
27. INABILITY TO PERFORM. This Lease and the obligation of Tenant to pay
rent hereunder and perform all of the other covenants and agreements hereunder
on part of Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations under this
Lease or to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repair,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Owner is prevented or delayed from so
doing by reason of strike or labor troubles or any cause whatsoever including,
but not limited to, government preemption in connection with a National
Emergency or by reason of any rule, order or regulation of any department or
subdivision thereof of any government agency or by reason of the conditions of
supply and demand which have been or are affected by war or other emergency.
28. BILLS AND NOTICES. Except as otherwise in this Lease provided, a
bill, statement, notice or communication which Owner may desire or be required
to give to Tenant, shall be deemed sufficiently given or rendered if, in
writing, delivered to Tenant personally or sent by registered or certified mail
addressed to Tenant at the Building of which the Demised Premises form a part or
at the last known residence address or business address of Tenant or left at any
of the aforesaid premises addressed to Tenant, and the time of the rendition of
such bill or statement and of the giving of such notice or communication shall
be deemed to be the time when the same is delivered to Tenant, mailed or left at
the premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
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29. SERVICES PROVIDED BY OWNER. As long as Tenant is not in default
under any of the covenants of this Lease, Owner shall provide: (A) necessary
elevator facilities on business days from 8 A.M. to 6 P.M. and on Saturdays from
8 A.M. to 1 P.M. and have one elevator subject to call at all other times; (B)
heat to the Demised Premises when and as required by Law, on business days from
8 A.M. to 6 P.M. and on Saturdays from 8 A.M. to 1 P.M.; (C) water for ordinary
lavatory purposes, but if Tenant uses or consumes water for any other purposes
or in unusual quantities (of which fact Owner shall be the sole judge), Owner
may install a water meter at Tenant's expense which Tenant shall thereafter
maintain at Tenant's expense in good working order and repair to register such
water consumption and Tenant shall pay for water consumed as shown on said meter
as additional rent as and when bills are rendered: (D) cleaning service for the
Demised Premises on business days at Owner's expense provided that the same are
kept in order by Tenant. If, however, said premises are to be kept clean by
Tenant, it shall be done at Tenant's sole expense, in a manner satisfactory to
Owner and no one other than persons approved by Owner shall be permitted to
enter said premises or the Building of which they are a part for such purpose.
Tenant shall pay Owner the cost of removal of any Tenant's refuse and rubbish
from the Building; (E) if the Demised Premises is serviced by Owner's air
conditioning/cooling and ventilating system, air conditioning/cooling will be
furnished to Tenant from May 15th through September 30th on business days
(Mondays through Fridays, holidays excepted) from 8:00 A.M. to 6:00 P.M. and
ventilation will be furnished on business days during the aforesaid hours except
when air conditioning/cooling is being furnished as aforesaid. If Tenant
requires air conditioning/cooling or ventilation for more extended hours or on
Saturdays, Sundays or on holidays, as defined under Owner's contract with
Operating Engineers Local 94-94A, Owner will furnish the same at Tenant's
expense. RIDER to be added in respect to rates and conditions for such
additional service: (F) Owner reserves the right to stop services of the
heating, elevators, plumbing, air conditioning, power systems or cleaning or
other services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the judgment
of Owner for as long as may be reasonably required by reason thereof. If the
Building of which the Demised Premises are a part supplies manually operated
elevator service, Owner at any time may substitute automatic control elevator
service and upon ten days' written notice to Tenant, proceed with alterations
necessary therefor without in any wise affecting this Lease or the obligation of
Tenant hereunder. The same shall be done with a minimum of inconvenience to
Tenant and Owner shall pursue the alteration with due diligence.
30. CAPTIONS. The Captions are inserted only as a matter of convenience
and for reference and in no way define, limit or describe the scope of this
Lease nor the intent of any provisions thereof.
31. DEFINITIONS. The term "office", or "offices", whenever used in this
Lease, shall not be construed to mean premises used as a store or stores, for
the sale or display, at any time, of goods, wares or merchandise, of any kind,
or as a restaurant, shop, booth, bootblack or other stand, barber shop, or for
other similar purposes or for manufacturing. The term "Owner" means a Owner or
lessor, and as used in this Lease means only the Owner, or the mortgagee in
possession for the time being of the land and Building (or the Owner of a lease
of the Building or of the land and Building) of which the Demised Premises form
a part, so that in the event of a lease of said Building, or of the land and
Building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed
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and construed without further agreement between the parties or their successors,
in interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the Building has agreed to carry out any and all covenants and
obligations of Tenant, hereunder. The words "re-enter" and "re-entry" as used in
this Lease are not restricted to their technical legal meaning. The term
`business days' as used in this Lease exclude 33. Tenant and Tenant's servants,
employees, agents, visitors, and licensees shall observe faithfully, and comply
strictly with, the Rules and Regulations and such other and further reasonable
Rules and Regulations as Owner or Owner's agents may from time to time adopt.
Notice of any additional Rules or Regulations shall be given in such manner as
Owner may elect. In case Tenant disputes the reasonableness of any additional
Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within ten (10) days
after the giving of notice thereof. Nothing in this Lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
32. SECURITY. Tenant has deposited with Owner the sum of Thirty Five
Thousand Three Hundred Seventeen Dollars ($35,317) as security for the faithful
performance and observance by Tenant of the terms, provisions and conditions of
this Lease; it is agreed that in the event Tenant defaults in respect of any of
the terms, provisions and conditions of this Lease, including, but not limited
to, the payment of rent and additional rent. Owner may use, apply or retain the
whole or any part of the security so deposited to the extent required for the
payment of any rent and additional rent or any other sum as to which Tenant is
in default or for any sum which Owner may expand or may be required to expend by
reason of Tenant's default in respect of any of the terms, covenants and
conditions of this Lease, including but not limited to, any damages or
deficiency in the reletting of the premises, whether such damages or deficiency
accrued before or after summary proceedings or other re-entry by Owner. In the
event that Tenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this Lease, the security shall be
returned to Tenant after the date fixed as the end of the Lease and after
delivery of entire possession of the Demised Premises to Owner. In the event of
a safe of the land and Building or leasing of the Building, of which the Demised
Premises form a part, Owner shall have the right to transfer the security to
vendee or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of such security; and Tenant agrees to look to the new
Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
33. ESTOPPEL CERTIFICATE. Tenant, at any time, and from time to time,
upon at least 10 days' prior notice by Owner, shall execute, acknowledge and
deliver to Owner, and/or to any
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other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), stating the date to which the rent and additional
rent have been paid, and stating whether or not there exists any default by
Owner under this Lease and, if so, specifying each such default.
34. SUCCESSORS AND ASSIGNS. The covenants, conditions and agreements
contained in this Lease shall bind and inure to the benefit of Owner and Tenant
and their respective heirs, distributees, executors, administrators, successors,
and except as otherwise provided in this Lease, their assigns.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed
this Lease as of the day and year first above written.
Witness for Owner: OWNER
1995 CAM LP
/s/ Barry /s/
- ---------------------------------- ----------------------------------
General Partner
Witness for Tenant: TENANT:
VIRAGE, INC.
/s/ Christen L. Stockdale /s/ Frank Pao
- ---------------------------------- ----------------------------------
Mr. Frank Pao, V.P. of Business
Affairs & General Manager
35. DELETED.
36. TENANT'S WORK. It is understood and agreed that the Demised Premises
are hereby ]eased to the Tenant and that Tenant accepts and will accept the same
in their `as is' condition In all respects. Tenant covenants and agrees that it
will, at its entire cost and expense, and without any cost or expense to Owner
in any amount, perform such work, make such alterations and furnish and install
such equipment as may be necessary to fix the Demised Premises for the use and
occupancy thereof provided and permitted under Article 2 of this Lease (all of
the aforedescribed work, alterations, installations, etc., to be performed by
Tenant herein shall be referred to as "Tenant's Work"). To the foregoing end,
Tenant will be permitted to perform Tenant's Work subject, however, to the
following terms and conditions:
a. That all such Tenant's Work shall comply with all applicable
provisions of this Lease, including, but not limited to, Articles 3 and 6
hereof, and all applicable governmental rules and regulations and the rules and
regulations of any Board of Fire Underwriters or similar agency having
jurisdiction.
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b. That Tenant shall first submit to Owner for its approval plans
and specifications covering said Tenant's Work. Owner agrees not to unreasonably
withhold or delay its consent to such plans and specifications and to any
subsequent changes therein.
c. That Tenant and its contractors shall employ only labor in the
performance of such Tenant's Work, which shall be compatible with the other
labor in the Building; Tenant agrees to employ only first class workmanlike
contractors and labor as approved by Owner.
d. That Tenant and any contractor or contractors employed by the
Tenant to render services and furnish labor to the Demised Promises, shall be
covered by Worker's Compensation Insurance and a certificate thereof shall be
furnished to the Owner before commencement of any work by any contractor,
subcontractor, their agents, servants or employees.
e. That promptly following the completion of all of said Tenant's
Work, and as soon as reasonably feasible, the Tenant shall obtain and furnish to
Owner all appropriate certifications from all authorities having jurisdiction to
the effect that all such Tenant's Work has been performed and completed in
accordance with the filed plans, if any, and with all laws, rules. regulations
and orders of said authorities having jurisdiction.
f. That Tenant, at its expense, shall procure each and every
permit, license, franchise, or other authorization required for the performance
of such Tenant's Work.
g. That Tenant shall furnish to Owner a list of all Tenant's
contractors, subcontractors, material suppliers and laborers (collectively
referred to as "Tenant's Personnel"). Tenant shall be responsible for Tenant's
Personnel furnishing to Owner: (1) a partial release of lien simultaneously with
each payment by Tenant to Tenant's Personnel for any labor performed or
materials furnished; and (2) a final release of lien immediately upon a final
payment by Tenant to Tenant's Personnel for any labor performed or materials
furnished.
h. In the event a proposed alteration or improvement is estimated
to cost in excess of Five Thousand Dollars ($5,000), Tenant agrees that Tenant
shall either: (1) provide Owner with a completion and/or surety bond covering
such work which runs in favor of Owner (2) issue to Owner a hold harmless and
indemnification agreement relative to such proposed work, or (3) issue the
personal guaranty of Tenant hereunder, which guaranty shall place the entire
burden of payment for such alteration on himself, as well as hold Owner harmless
from and against any and all claims directly arising out of the work to be done
in the Demised Premises.
37. SECURITY. The security deposited pursuant to Article 34 of the Lease
shall be placed in an interest bearing account in the Jamaica Savings Bank, 1995
Broadway, New York, New York, subject to Owner's sole right to change the
depository at any time to any banking organization having a place of business in
the State of New York, interest earned to become additional security. It is also
understood and agreed that 1.0% per annum of the security funds shall be
retained by Owner as an administrative fee.
38. ELECTRICITY.
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a. Owner agrees to supply Tenant with such electric current as
Tenant shall reasonably require (consistent with the existing electrical
capacity contained in the Demised Premises) for Tenant's wiring facilities and
equipment within the Demised Premises as of the commencement of occupancy
thereof by Tenant, and in consideration thereof Tenant agrees that the basic
annual rent reserved in the within Lease shall be increased by the agreed upon
sum of Fourteen Thousand Three Hundred Dollars ($14,300) (the "Base Charge"),
retroactive to the date of possession which Base Charge increase to basic annual
rent shall in no event be subject to reduction but shall be subject to being
increased as hereinafter provided. Owner shall not be liable in any way to
Tenant for any failure or defect in the supply or character of electric energy
furnished to the Demised Premises by reason of any requirement, act or omission
of the public utility serving the Building with electricity or for any other
reason not attributable to Owner. Tenant shall furnish and install all lighting
tubes, lamps, bulbs and ballasts required in Demised Premises, at Tenant's
expense, or shall pay Owner's reasonable charges therefor on demand except with
respect to air conditioning supplied to tenants of this Building through a
centrally located air conditioning system which Owner may have agreed to supply
to Tenant at Owner's sole costs and expense as shall be specified, if
applicable, in a separate Article of this Lease. Tenant shall pay for the cost
of electricity consumed, including central air conditioning by any air
conditioning equipment located in the Demised Premises as well as any other air
conditioning equipment furnishing, in conjunction with the operation of,
conditioned air to the Demised Premises irrespective of whether any such
equipment is located in the Demised Premises or in any other portion of the
Building. The term "equipment" as used herein shall be deemed to include,
without limitation, all components and auxiliary equipment used in connection
with air conditioning equipment servicing the Demised Premises including
Tenant's pro rata share of the cost of the electrical operation of the cooling
tower(s) used in connection therewith if the air conditioning equipment is water
cooled.
b. After Tenant shall have entered into possession of the Demised
Premises, or any portion thereof, Owner, at anytime and from time to time during
the term of this Lease, shall have the right to have surveys made by Owner's
electrical consultant of the electrical consumption within the Demised Premises
and the determination of said electrical consultant shall determine whether the
Base Charge for electricity (as same may have been increased by previous surveys
and determinations made by Owner's electrical consultant) is less than the then
electrical consumption charge determined by Owner's electric consultant to be
properly payable by Tenant as a result of the then current survey determination
made by said electrical consultant and if the Base Charge shall be less than the
electrical consumption charge so determined by Owner's consultant to be
applicable to Tenant's consumption of electricity then, effective as of the date
of occupancy in the case of the first survey and effective as of the date of the
making of the second and subsequent surveys the Base Charge increase to basic
annual rent (as same may have been previously increased pursuant to the
provisions hereof) shall be further increased by an amount equal to the
difference between: (1) the Base Charge increase (plus any previous increases to
the Base Charge increase in accordance with the provisions hereof); and (2) the
then electrical consumption charge determined to be applicable by Owner's
consultant.
Survey made by Owner's electrical consultant shall be based upon the use
of such electric current between the hours of 8 A.M. to 6 P.M. on Mondays
through Fridays, and 8 A-M, to 1 P.M. on Saturdays and such other days and hours
when Tenant uses electricity for lighting and for the operations of the
machinery, appliances and equipment used by Tenant in the Demised
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Premises. In addition, if cleaning services are provided by Owner, such survey
shall include Owner's normal cleaning hours of up to five hours per day for
lighting within the Demised Premises and for electrical equipment normally used
in such cleaning.
The cost of the first survey made by Owner's electrical consultant shall
be borne by Owner. With respect to subsequent surveys, if Owner's consultant
shall determine that there has been an increase in Tenant's use of electrical
current then, in addition to the other requirements and obligations imposed on
Tenant in this Article, Tenant shall pay the fees of the electrical consultant
making such survey. The findings of such electrical consultant shall be binding
and conclusive on Owner and Tenant.
c. Tenant's use of electric energy in the Demised Premises shall
not at any time exceed the capacity of any of the electrical conductors,
machinery and equipment in or otherwise serving the Demised Premises. In order
to insure that such capacity is not exceeded and to avert possible adverse
effect upon the Building electric service, Tenant shall not, without Owner's
prior written consent in each instance, connect any additional fixtures,
machinery, appliances or equipment to the Building electric distribution system
or make any alteration or addition to Tenant's machinery, appliances or
equipment or the electric system of the Demised Premises existing on the
commencement date of the term hereof. Should Owner grant such consent all
additional risers or other equipment required therefor shall be provided by
Owner and the cost thereof shall be paid by Tenant upon Owner's demand. As a
condition to granting such consent, Owner may require Tenant to agree to an
increase in the basic annual rent by an amount which will reflect the value of
the additional service to be furnished by Owner, that is, the potential
additional electrical current to be made available to Tenant based upon the
estimated additional capacity of such additional risers to other equipment. If
Owner and Tenant cannot agree thereon, such amount shall be determined by an
electrical engineer or consultant to be selected by Owner and paid by Tenant.
When the amount of such increase is so determined, the parties shall execute an
agreement supplementary hereto to reflect such increase in the amount of basic
annual rent stated in this Lease effective from the date such additional service
is made available to Tenant; but such increase shall be effective from such date
even if such supplementary agreement is not executed.
d. If the public utility rate schedule for the supply of electric
current to the Building or the utility company fuel adjustment charge or demand
charge shall be increased or decreased at any time after the date hereof, or if
there shall be a change in taxes or if additional taxes shall be imposed on the
sale or furnishing of such electric current, or if there shall be a change in
the space constituting the Demised Premises, or if Tenant's failure to maintain
its machinery and equipment in good order and repair causes greater consumption
of electrical current, or if Tenant uses electricity on days or hours other than
those specified in subparagraph (b) hereof, or if Tenant adds any machinery,
appliances or equipment, the basic annual rent herein reserved shall be
equitably adjusted to reflect any or all of the foregoing as may be applicable.
If Owner and Tenant cannot agree thereon, the amounts of such adjustment(s)
shall be determined, based on standard practices, by any electrical engineer or
consultant, to be selected by Owner and paid by Tenant and the findings of said
electrical engineer or consultant shall be binding and conclusive upon the
parties. When the amounts of such adjustment are so determined, the parties
shall execute an agreement supplementary hereto to reflect such adjustment in
the amount of the of the basic annual rent stated in this Lease effective from
the
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date of the increase or decrease of such usage as determined by such electrical
engineer, or consultant, or as the case may be, from the effective date of such
increase or decrease in the public utility rate schedule; but such adjustment
shall be effective from such date whether or not such a supplementary agreement
is executed.
e. Owner reserves the right to discontinue furnishing electric
current to Tenant in the Demised Premises at any time upon not less than thirty
(30) days' notice to Tenant. If Owner exercises such right of termination, this
Lease shall continue in full force and effect and shall be unaffected thereby,
except only that, from and after the effective date of such termination, Owner
shall not be obligated to furnish electric energy to Tenant and the basic annual
rent payable under this Lease shall be reduced by the amount of any previous
increases thereto an on account of electricity supplied pursuant to the
provisions of this Article. Owner, upon the expiration of the aforesaid notice
to Tenant, may discontinue furnishing the electric current; but, if, for any
reason, the supply of electric current by Owner to the Tenant shall thereafter
continue for any period of time, this shall be without waiver of the right of
Owner thereafter to terminate the same without further notice, and the Tenant
shall continue to pay the basic annual rent as increased pursuant to this
Article as herein provided until such time as the supply of current shall in
fact be discontinued. If Owner so discontinues furnishing electric energy to
Tenant, Tenant shall arrange to obtain electric energy directly from the public
utility company furnishing electric service to the Building. Such electric
energy may be furnished to Tenant by means of the then existing Building system
feeders, risers and writing to the extent that the same are, in Owner's sole
judgment, available, suitable and safe for such purposes. All meters and
additional panel boards, feeders, risers, wiring and other conductors and
equipment which may be required to obtain electric energy directly from such
public utility company shall be installed and maintained by Tenant at its
expense. In addition and notwithstanding anything to the contrary contained in
this Article, Owner at anytime during the term of this Lease on not less than
thirty (30) days' prior written notice to Tenant may require Tenant to purchase
electricity from Owner or from a meter company designated by Owner upon the
terms of such submetering clause that may then be currently used by Owner in the
Building of which the Demised Premises form a part. If Owner shall elect to have
Tenant purchase electricity directly from Owner or Owner's designated meter
company as aforesaid, then Owner at Owner's sole cost and expense (but with
Tenant's reasonable cooperation) shall perform all wiring as may be necessary to
have Tenant's electrical consumption measured by submeters provided by Owner at
Owner's sole cost and expense.
f. If any tax is imposed upon Owner with respect to electrical
energy furnished as a service to Tenant by any federal, state, municipal or
other authority, Tenant covenants and agrees that where permitted by law or
applicable regulations, Tenant's pro rata share of such taxes, shall be
reimbursed by Tenant to Owner within ten (10) days after being billed therefor.
39. OPERATING EXPENSE ESCALATION INDEX. Intentionally omitted.
40. REAL ESTATE TAX ESCALATION. In addition to the basic annual rent
hereinbefore reserved, Tenant covenants and agrees to pay to Owner as additional
rent, sums computed in accordance with the following provisions:
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a. "Taxes" shall mean all real estate taxes, assessments,
government levies, county taxes or any other governmental charge, general or
special, ordinary or extraordinary, unforeseen as well as foreseen of any kind
of nature whatsoever which are or may be assessed or imposed upon the Building
in which the Demised Premises are located, the land underlying same and the
sidewalks, plazas, streets and alleys in front of or adjacent thereto including
any tax, excise or fee measured by or payable with respect to any rent or
mortgage and levied against Owner and/or the land and or Building and/or against
the holder of any mortgage affecting said land or Building under the laws of the
United States, the State of New York, or any political subdivision thereof or by
the City of New York, as a substitute or addition in whole or in part for taxes
presently or hereafter imposed on the land and Building or resulting from or due
to any change in the method of taxation provided that any such substitute tax on
rent shall be considered as if the rent were the only income of Owner but
excluding any income, franchise, corporate, estate, inheritance, succession,
capital stock or transfer tax levied on Owner or the holder of any such
mortgage.
b. "Tax Year" shall mean every twelve month consecutive period
commencing each July 1 during the term of this Lease.
c. "Tenant's Proportionate Share" shall be deemed to be 5.97%.
d. "Basic Tax" shall mean the real estate taxes imposed on the
Building containing the Demised Promises and on the land on which the Building
is located for the fiscal year July 1, 2000 to June 30, 2001. If the Basic Tax
shall subsequently be adjusted, corrected or reduced, whether as the result of
protest, by means of agreement or as the result of legal proceedings, the Basic
Tax for the purpose of computing any additional rent payable pursuant to this
Article shall be the Basic Tax as so adjusted, corrected or reduced. Until the
Basic Tax is so adjusted, corrected, or reduced, if ever, Tenant shall pay
additional rent hereunder based upon unadjusted, uncorrected or unreduced Basic
Tax and upon such adjustment, correction or reduction occurring, and additional
rent paid by Tenant prior to the date of such occurrence shall be recomputed and
Tenant shall pay to Owner any additional rent found due by such recomputation
within ten (10) days after being billed thereof (which bill shall set forth in
reasonable detail the pertinent data causing and comprising such recomputation).
e. If the Taxes for any Tax Year shall be greater than the Basic
Tax, then Tenant shall pay to Owner as additional rent an amount equal to
Tenant's Proportionate Share of the increase over the Basic Tax if the
commencement date of this Lease shall occur during any Tax Year, or if the term
of this Lease shall expire or be terminated during any Tax Year, such amount
shall be prorated. Owner shall bill Tenant for any additional rent payable by
Tenant pursuant to this Article, such bill to be set forth in reasonable detail
the computation of additional rent hereunder which shall be payable by the
Tenant to the Owner in installments in the same manner that such Taxes are
payable by the Owner to the City of New York pursuant to law, commencing with
July 1, 2000.
f. If the Taxes for any Tax Year for which Tenant shall have paid
additional rent pursuant to this Article shall be adjusted, corrected or
reduced, whether as the result of protest of any tentative assessment, or by
means of agreement, or as the result of legal proceedings, the additional rent
becoming due in said Tax Year pursuant to this Article shall be
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determined on the basis of said corrected, adjusted or reduced Taxes. If Tenant
shall have paid any additional rent pursuant to this Article for such Tax Year
prior to any said adjustment, Owner shall credit or refund to Tenant any excess
amount thus paid as reflected by said adjusted Taxes less Tenant's pro rata
share of any cost, expense or fees (including experts' and attorneys' fees)
incurred by Owner in obtaining said tax adjustment. If said tax adjustment shall
occur prior to Tenant's payment of any said Taxes due hereunder additional rent,
Tenant shall pay, as further additional rent, a proportionate share of any cost,
expenses or fees (including experts' and attorneys' fees) incurred by Owner in
obtaining said tax adjustment, in an amount equal to the percentage of the
savings to Tenant that the total expenses shall bear percentage wise to the
total savings in Taxes thereby effected. Any payments, credits or refunds due
hereunder for any period of less than a full Tax Year at the commencement or end
of the term of this Lease, or because of any change in the area of the Demised
Premises shall be equitably prorated to reflect such event.
g. If the fiscal tax year or the method of tax payment shall
hereafter be changed, appropriate adjustment of the foregoing provisions shall
be made accordingly to reflect any such changes.
h. Tenant shall pay to Owner any occupancy tax, rent tax and any
other tax of similar nature or intent now in effect or hereafter enacted, if the
taxing authority shall enact law making same payable by Owner in the first
instance. Such tax shall be paid to Owner as additional rent upon demand.
41. ASSIGNMENT, SUBLETTING, MORTGAGING.
a. Tenant will not by operation of law or otherwise assign,
mortgage or encumber this Lease, nor sublet or permit the Demised Premises or
any part thereof to be used by others, without Owner's prior express written
consent in each instance. The consent by Owner to any assignment or subletting
shall not in any manner be construed to relieve Tenant from obtaining Owner's
express written consent to any other or further assignment or subletting nor
shall any such consent by Owner serve to relieve or release Tenant from its
obligations to fully and faithfully observe and perform all of the terms,
covenants and conditions of this Lease on Tenant's part to be observed and
performed.
b. If Tenant shall desire to assign or to sublet all or any
portion of the Demised Premises, Tenant shall give notice thereof to Owner and
in said notice shall set forth all pertinent business terms of the proposed
assignment or subletting as well as the name and address of the proposed
assignee or sublessee, information as to financial condition of such assignee or
Sublessee and proposed use which assignee or Sublessee desires to make of the
Demised Premises. Said notice shall bear the signature of the proposed sublessee
or assignee attesting to its accuracy. Tenant shall in addition, at Owner's
request, furnish such other further information as Owner may request concerning
such proposed assignment or subletting. After receipt of such notice from
Tenant, Owner shall have the following options to be exercised within sixty (60)
days from the later to occur of: the receipt of Tenant's notice, or if Owner
shall request additional information from Tenant, the receipt of such additional
information when furnished by Tenant:
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(1) In the event Tenant's notice is of Tenant's desire to
make an assignment or a subletting of all or substantially all of the Demised
Premises Owner shall have the option to cancel and terminate this Lease as of
the date proposed by Tenant for such assignment or subletting, which option
shall be exercised within the aforesaid sixty (60) day period and on which date
the term of this Lease shall cease and expire with the same force and effect as
if such date were originally provided herein as the expiration of the term
hereof.
(2) In the event Tenant's notice is of Tenant's desire to
make a subletting for less than all or substantially all of the Demised
Premises, Owner shall have the option, to be exercised within said sixty (60)
day period, of canceling and terminating this Lease only as to such portion of
the Demised Premises to take effect as of the proposed effective date thereof as
stated in Tenant's notice. In the event Owner exercises its option under this
subparagraph (2) the rent and all other charges payable hereunder shall be
equitably adjusted and apportioned.
c. If Owner does not exercise its right of cancellation under
either of the foregoing two options granted under subparagraph (b) hereof within
the time set forth therein, Tenant agrees to then use Glen Equities LTD. as its
exclusive rental agent, having the sole and exclusive right to lease, at agent's
then prevailing commission rates, and to promptly notify such renting agent of
its desire to assign or sublet its Lease, (notwithstanding the foregoing, Tenant
shall have the right to attempt to assign Tenant's interest in this Lease or
sublease all or portions of the Demised Premises to third parties procured by
Tenant or by outside brokers whom Tenant may wish to utilize provided, however
that such assignment shall be subject to the provisions of Article 11; the above
paragraph (b) Owner's options, as well as the following provisions of this
Article and further that in the event of such an assignment or subleasing Tenant
shall obtaining a proposed assignee or subleases, upon terms satisfactory to
Tenant, Tenant shall submit to Owner in writing: (i) the name of the proposed
assignee or subtenant; (ii) the terms and conditions of the proposed assignment
or subletting; (iii) the nature and character of the business and credit of the
proposed assignee or subtenant, and any other information reasonably requested
by the Owner.
Owner shall have the further option, to be exercised within thirty (30)
business days from submission of Tenant's request, to require Tenant to execute
an assignment or sublease to Owner or Owner's designee on the same terms and
conditions in Owner's own name, or the name of Owner's designee, with a right to
sublease to others without Tenant's consent being required for such or any
further sublettings. If Owner shall not exercise its foregoing further option
within the time set forth, its consent to any such proposed assignment or
subletting shall not be unreasonably withheld or unduly delayed, provided,
however, that Owner may withhold consent thereto if in the exercise of its sole
judgment it determines that:
(1) The financial condition and general reputation of the
proposed assignee or subtenant are not consistent with the extent of the
obligation undertaken by the proposed assignment or sublease.
(2) The proposed use of the Demised Premises is not
appropriate for the Building or in keeping with the character of the existing
tenancies or permitted by the Tenant's Lease (but the foregoing shall not be
deemed to enlarge the purposes for which the Demised Premises are permitted to
be used as set forth in this Lease).
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(3) The nature of the occupancy of the proposed assignee
or subtenant will cause an excessive density of employees or traffic or make
excessive demands on the Building's services or facilities or in any other way
will lesson the character of the Building.
(4) The Tenant proposes to assign or sublet to one who at
the time is a tenant or occupant of the premises in the Building of which the
Demised Premises are a part (or to a subsidiary or related entity of such a
tenant or occupant) or to one who at the time is a tenant or occupant of
promises in any other Building then managed by Glen Equities LTD.
(5) The Tenant proposes to assign or sublet all or a
portion of the Demised Premises at a rental rate less than the rental rate Owner
is then asking for other space in the Building. In the event Owner should
withhold or delay its consent to any proposed assignment or sublease, the sole
remedy of Tenant shall be to institute action for specific performance if Tenant
believes that such withholding or delaying of consent was unreasonable and
Tenant hereby expressly waives any claim for monetary damages by reason of such
withholding or delaying of consent by Owner.
d. Further, and as a condition of Owner's consent to any
assignment or subletting:
(1) That Tenant at the time of requesting Owner's consent
shall not be in default in the payment of any rent, additional rent, or other
sums or charges provided to be paid by tenant hereunder and further that Tenant
is not then in material default otherwise under this Lease;
(2) That each assignee of this Lease shall assume in
writing all of the terms, covenants and conditions of this Lease on the part of
the Tenant hereunder to be performed and observed.
(3) That an original or duplicate original of the
instrument of assignment and assumption or of the sublease agreement shall be
delivered to Owner within five (5) days following the making thereof: and
(4) That any instrument of sublease shall specifically
state that each sublease is subject to all of the terms, covenants and
conditions of this Lease. If Tenant shall duly comply with all of the foregoing
then, as aforesaid, Owner shall not unreasonably withhold or unduly delay its
consent to such assignment or subletting, provided further, however, and on
condition that at the time of requesting Owner's consent Tenant shall pay to
Glen Equities LTD). the sum of $250 as a processing fee for each assignment
and/or subletting.
e. It is agreed that if Owner shall not exercise any of its
foregoing options and shall consent to such assignment or subletting, and Tenant
shall thereupon assign this Lease or sublet all or any portion of the Demised
Premises, then and in that event Tenant shall pay to Owner, as additional rent,
(1) in the event of an assignment, the amount of all monies, if any, which the
assignee has agreed to and does pay to Tenant in consideration of the making of
such assignment less however all out-of-pocket costs actually incurred by Tenant
in connection with the making of such assignment, including but not limited to
any brokerage fees, advertising and alteration costs; and (2) in the event of a
subletting the amount, if any, by which the fixed basic
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rent and additional rent payable by the sublessee to Tenant shall exceed the
fixed basic rent plus additional rent allowable to that part of the Demised
Premises affected by such sublease, pursuant to any side agreement as
consideration (partial or otherwise) for Tenant making such subletting. Such
additional rent payments shall be made monthly within five (5) days after
receipt of the same by Tenant or within five (5) days after Tenant is credited
with the same by the assignee or subleasee. At the time of submitting the
proposed assignment or sublease to Owner, Tenant shall certify to Owner in
writing whether or not the assignee or sublessee has agreed to pay any monies to
Tenant in consideration of the making of the assignment or sublease other than
as specified and set forth in such instruments, and if so Tenant shall certify
the amounts and time of payment thereof in reasonable detail.
f. If this Lease shall be assigned, or if the Demised Premises or
any part thereof be sublet or occupied by any person or persons other than
Tenant, Owner may, after default by Tenant, collect rent from the assignee,
subtenant or occupant and apply the net amount collected (which may be treated
by Owner as rent or as use and occupancy) to the rent herein reserved but no
such assignment, subletting, occupancy or collection of rent shall be deemed a
waiver of the covenants in this Article, nor shall it be deemed acceptance of
the assignee, subtenant or occupant as a tenant, or a release of Tenant from the
full performance by Tenant of all the terms, conditions and covenants of this
Lease.
g. Each permitted assignee or transferee shall assume and be
deemed to have assumed this Lease and shall be and remain liable jointly and
covenants, conditions and agreements herein contained on Tenant's part to be
performed for the term of this Lease and any renewals and severally with Tenant
for the payment of the rent, additional rent and adjustment of rent, and for the
due performance of all the terms, modifications hereof. No assignment shall be
binding on Owner unless, as hereinbefore provided, such assignee or Tenant shall
deliver to Owner a duplicate original of the instrument of assignment which
contains a covenant of assumption by the assignee of all the obligations
aforesaid and shall obtain from Owner the aforesaid written consent prior
thereto. Any assignment, sublease or agreement permitting the use and occupancy
of the premises to which Owner shall not have expressly consented in writing
shall be deemed null and void and of no force and effect.
h. DELETED.
i. Notwithstanding anything to the contrary contained in this
Article, Tenant, without being subject to the options afforded Owner herein,
shall have the right to assign this Lease to any parent company, subsidiary,
affiliate or any resulting company into or with which Tenant is merged or
consolidated and to enter into a sublease of all or part of the Demised Premises
to any such parent company, subsidiary or affiliate, subject however to Tenant's
compliance with all of the provisions of subparagraph (d) hereof, upon which
occurring Owner shall give its consent to such assignment or subletting and
provided further that any such assignee or sublessee shall continue to use the
Demised Premises for the purposes set forth in Article 2 only, for the remainder
of the term of this Lease.
j. Notwithstanding anything to the contrary contained in this
Article, Tenant's right to assign this Lease or sublet all or a portion of the
Demised Premises, and the enforceability against Owner of Owner's consent to any
such assignment or subletting, shall be
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subject to Tenant's delivering to Owner, simultaneously with the execution of
any such assignment or sublease, a general release of liens against the Building
executed by any broker(s):
(1) with whom Tenant shall have worked in connection with
any such assignment or sublease or
(2) who are or who claim to be, in whole or in part,
responsible for any such assignment or sublease. Tenant further agrees to
promptly effect and timely pay for all costs of the removal of any broker's
liens which are placed on the Building at any time in connection with any such
assignment or subletting (or promptly make reimbursement to Owner in the event
Owner chooses to directly effect such removal). Tenant's failure to comply with
the provisions contained in this subparagraph (j) shall be deemed to be a
material default under this Lease entitling Owner to all of the remedies
provided for under this Lease for default, including but not limited to Owner's
right to terminate this Lease in this event thereof.
42. INSURANCE. Tenant, throughout the term hereof, shall maintain in
full force and effect for the benefit of and naming Owner, Owner's agents and
Tenant as parties insured therein, comprehensive general public liability
insurance, including without limitation, umbrella liability coverage against
claims for personal injury, death, or damage to property occurring in, on, or
about the Demised Premises, with limits of not less than $1,000,000 for personal
injury or death of one person and $2,000,000 arising out of one occurrence, and
$100,000 for property damage.
The insurance required hereunder shall be issued by an insurance company
licensed to do business in the State of New York prior to any entry by Tenant
into the Demised Premises, and thereafter, not less than ten (10) days prior to
the expiration of any expiring policy. Tenant shall furnish renewals thereof,
together with proof of payment of the premium therefor. If such insurance is
carried under a blanket policy, Tenant may deliver a certificate in lieu of the
original policy. Each policy or renewal shall contain a provision for notice to
Owner at least ten (10) days prior to the cancellation thereof.
Tenant shall indemnify Owner against and save Owner harmless to the
extent of $2,000,000 which may be provided by umbrella policy for any one
occurrence from any liability or claim by or on behalf of any person, firm or
governmental authority for injury, death, or damage arising from the use by
Tenant of the Demised Premises, the plazas, sidewalks, curbs, or vaults adjacent
thereto, the common areas of the Building, or from any work or thing whatsoever
done or omitted to be done by Tenant, its agents, contractors, servants,
employees, licensees, invitees, or customers, and from any breach or default by
Tenant under any of the terms or provisions of this Lease. If any action or
proceeding shall be brought against Owner in connection with any such claims
Tenant shall defend such action or proceeding, at Tenant's expense, by counsel
reasonably satisfactory to Owner. Tenant's insurance carrier's counsel shall be
deemed satisfactory.
43. ADDITIONAL RENT. All costs, charges and expenses which Tenant
assumes, agrees or is obligated to pay pursuant to this Lease shall be deemed
additional rent, and in the event of nonpayment, Owner shall have all of the
rights and remedies with respect thereto as is herein provided for In the case
of nonpayment of rent.
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44. MERCHANDISE, REFUSE, ETC. Tenant shall at no time leave any
merchandise, supplies, materials or refuse in the hallways or other common
portions of the Building or in any other area of the Building other than the
Demised Premises. Tenant covenants that all garbage and refuse shall be kept in
proper containers, securely covered, until removed from the Building so as to
prevent the escape of objectionable fumes and odors and the spread of vermin,
and Tenant further covenants that no refuse and/or garbage shall be permitted to
remain an the sidewalks adjacent to the Building.
45. ATTORNMENT. At the option of the Owner or any successor Owner or the
holder of any mortgage affecting the Demised Premises, Tenant agrees that
neither the cancellation nor termination of any ground or underlying lease to
which this Lease is now or may hereafter become subject or subordinate, nor any
foreclosure of a mortgage affecting said premises, nor the institution of any
suit, action, summary or other proceeding against the Owner herein or any
successor Owner, or any foreclosure proceedings brought by the holder of any
such mortgage, Tenant covenants and agrees to attorn to the Owner or to any
successor to the Owner's interest in the Demised Premises, or to such holder of
such mortgage or to the purchaser of the mortgaged premises in foreclosure.
46. WAIVER OF SUBROGATION. Owner and Tenant, respectively, hereby waive
the right of recovering from each other for any damage or loss occasioned by any
hazards compensated by insurance (excluding liability insurance), regardless of
whether said damage or loss resulted from the negligence of either party, their
employees, or otherwise and said parties do hereby waive the right to subrogate
any insurance carrier or other party to their respective rights of recovery
against each other in any event.
47. MECHANIC'S LIENS. Notwithstanding anything to the contrary contained
in this Lease, Tenant hereunder, its successor and assigns, warrants and
guarantees to the Owner named in the within Lease, its successor and assigns,
that if any mechanic's lien shall be filed against the Building of which Demised
Premises forms a part for work claimed to have been done for, or materials
furnished to Tenant, the same shall be discharged by Tenant, by either payment
or by bond at the sole cost of Tenant within twenty (20) days following the
filing of such mechanic's lien.
48. AIR CONDITIONING PERMITS. Anything contained herein to the contrary
notwithstanding it is expressly agreed that Tenant shall pay the cost of any and
all permits required by any branch or department of the Borough, County, City,
State or Federal Government in connection with any air conditioning presently or
hereinafter installed in the Demised Premises by either Owner or Tenant.
49. LIMITATION OF OWNER'S LIABILITY. If Owner or any successor in
interest of Owner be an individual, joint venture, tenancy in common,
co-partnership, unincorporated association, or other unincorporated aggregate of
individuals, then, anything elsewhere in this Lease to the contrary
notwithstanding, Tenant shall look solely to the estate and property of such
unincorporated Owner in the land and Building and, where expressly so provided
in this Lease to offset against the rents payable under this Lease, for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money by Owner in the event of any
default by Owner hereunder, and no other property or assets of such
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unincorporated Owner shall be subject to levy, execution or other enforcement
procedure for the satisfaction of Tenant's remedies.
50. ESTOPPEL CERTIFICATE. Tenant agrees, at any time, and from time to
time. upon not less than seven (7) days prior written notice from Owner to
execute, acknowledge and deliver to Owner, a statement in writing addressed to
Owner certifying that this Lease is unmodified and in full force and effect (or,
if there have been modifications, that the same is in full force and effect as
modified, that the same is in full force and effect as modified and stating the
modifications), stating the dates to which rent, additional rent and other
charges have been paid, and stating whether or not to the best knowledge of the
signer of such certificate, there exists any default in the performance of any
covenant, agreement, term, provision or condition contained in this Lease and,
if so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be relied
upon by Owner and by any mortgages or prospective mortgagee of any mortgage
affecting the Building or the Building and the land, and by any Owner under a
ground or underlying Lease affecting the land or Building, or both.
51. LATE PAYMENTS. If Tenant shall fail to pay any installment of rent
or additional rent when first due hereunder (irrespective of any grace period as
may be applicable thereto) and such failure to pay shall continue for more than
ten (10) days after such payment was first due, then interest at the rate of
five (5) cents for each dollar overdue will be charged to the Tenant and shall
accrue from and after the date on which any such sum was first due and payable
hereunder, and such interest shall be deemed to accrue as additional rent
hereunder and shall be paid to Owner upon demand made from time to time, but in
any event no later than the time of payment of the delinquent sum.
52. HOLDOVER. If Tenant shall hold possession of the Demised Premises
after the expiration of the term of this Lease or the prior termination of this
Lease, and the Lease is not renewed or a new Lease is not entered into between
the parties, the parties hereby agree that Tenant's occupancy of the Demised
Premises after the expiration of the term or prior termination of this Lease
shall be under a month-to-month tenancy commencing on the first day after the
expiration of the term or prior termination of this Lease and continuing until
such tenancy shall be terminated by Owner or Tenant and such possession shall
cease, which tenancy shall be upon all of the terms set forth in this Lease
except Tenant shall pay on the first day of each month of the holdover as basic
monthly rent, an amount equal to the higher of (a) an amount equal to three
times the sum of (1) the monthly installment of basic annual rent payable by
Tenant during the last year of the original term of this Lease (i.e., the year
immediately prior to the holdover period) and (2) all monthly installments of
additional rent payable by Tenant pursuant to the term of this Lease that would
have been billable monthly by Owner had the term of the Lease not expired; or
(b) an amount equal to the then market rental value for the Demised Premises as
shall be established by Owner giving notice to Tenant of Owner's good faith
estimate of such market rental value.
Tenant shall occupy the Demised Premises during the holdover period in
its "as is" condition as of the expiration of the term or prior termination of
this Lease and Owner shall not be required to perform any work, furnish any
materials or make any repairs within the Demised Promises during the holdover
period. Nothing contained in this Lease shall be construed as a
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consent by Owner to the possession by Tenant of the Demised Premises beyond the
expiration of the term or prior termination of this Lease, and Owner, upon said
expiration of the term or prior termination of this Lease shall be entitled to
the benefit of all legal remedies that may now be in force or may hereafter be
enacted relating to speedy repossession of the Demised Premises by Owner.
53. NO RESIDENTIAL USE OF DEMISED PREMISES. It is an express condition
of this Lease that the Demised Premises be used for commercial purposes only. In
no event may the Demised Premises be used for residential purposes and Tenant
covenants and agrees to use the Demised Premises only for the commercial
purposes specified in Article 2 hereof.
54. WAIVER OF COUNTERCLAIM. Tenant shall and hereby does waive its right
and agrees not to interpose any counterclaim or offset of whatever nature or
description in any proceeding or action which may be instituted by Owner against
Tenant to recover possession of the Demised Premises, for the collection of
rent, additional rent, other charges, or for damages, or in connection with any
matters or claims whatsoever arising out of or in any or in any way connected
with this Lease, the relationship of Owner and Tenant, or Tenant's use or
occupancy of said premises. This clause, as well as the `waiver of jury trial'
provisions of this Lease, shall survive the termination or any cancellation of
this Lease or the term hereof (nothing, however, contained in this clause shall
preclude Tenant from instituting a separate action against Owner with respect to
any claim that Tenant may have against Owner or from moving to consolidate such
action with any action or proceeding which may have been instituted by Owner, it
being understood. however, that Owner may impose any motion of consolidation).
55. ATTORNEY'S FEES. In case it shall be necessary for Owner to
institute any action or proceeding against Tenant for the nonpayment of rent or
for the violation of any of the covenants or provisions of this lease or for the
recovery of possession of the Demised Premises or should Owner be compelled to
intervene in any action or proceeding wherein Tenant is a party in order to
enforce or protect Owner's interest or rights hereunder, then and in any of such
events, if Owner shall be successful in such action or proceeding, Tenant shall
be obligated to pay to Owner reasonable attorney's fees, costs and disbursements
incurred for the institution and prosecution of any such action, proceeding or
intervention.
56. TENANT'S FAILURE TO TIMELY PAY RENT & ADDITIONAL RENT CONSTITUTES
MATERIAL BREACH OF LEASE OBLIGATIONS. Notwithstanding anything to the contrary
contained in this Lease, Tenant acknowledges and agrees that Tenant has agreed
to pay for the entire stated term of the Lease an aggregate amount equal to the
sum of (A) the annual rental rate herein elsewhere agreed to be paid by Tenant
for each year of the term of the Lease (plus a prorated amount for any period of
less than a full year) - (the "total aggregate basic rent'" plus (B) all
additional rent provided to be paid by Tenant hereunder for the full term of the
Lease.
Tenant further acknowledges and agrees that Tenant's obligations to pay
rent and additional rent under this Lease as and when provided to be paid
hereunder and before the expiration of any applicable grace period provided with
respect thereto is a material obligation. Tenant further acknowledges and agrees
that if Tenant shall fail to pay rent or additional rent as and when due
hereunder and before the expiration of any applicable grace period with respect
thereto so that Owner shall have instituted nonpayment dispossess proceedings
against Tenant on
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<PAGE> 29
account thereof twice at any time during the term of this Lease but a warrant of
eviction was not issued in said proceedings by any reason of the payment by
Tenant of past due rent or additional rent subsequent to the institution of such
proceedings and prior to the issuance of the warrant of eviction therein that on
any subsequent default by Tenant in the payment of rent and/or additional rent
when provided to be paid hereunder and before the expiration of any applicable
grace period with respect thereto, the total aggregate basic rent (less any
payments on account thereof made by Tenant prior to such default continuing
uncured beyond the expiration of any applicable grace period) shall immediately
become due and payable. Upon any such default continuing uncured beyond the
expiration of any applicable grace period occurring subsequent to the
institution by Owner of summary proceedings, Owner may render to Tenant a
statement of the balance of the total aggregate basic rent due and owing as well
as any additional rent due and owing to the date of such statement and if same
shall not be paid promptly by Tenant, i.e., within two (2) days after the
rendering of such statement, Owner in addition to all other rights granted to
Owner hereunder and without limitations may institute a dispossess summary
proceeding based upon such nonpayment by Tenant.
57. SUPERVISION OF TENANT'S INVITEES, EMPLOYEES, ETC. Tenant
acknowledges and agrees that the Building of which the Demised Premises form a
part is a first-class office building. Tenant further acknowledges that as an
inducement to Owner to enter into this Lease with Tenant, Tenant has and does
represent, covenant and agree that Tenant will take all necessary measures and
institute all procedures as may be found necessary to insure that Tenant's
clients, invitees, and personnel do not loiter or congregate in the public areas
of the Building (including but not limited to the corridors. elevators, lobbies,
lavatories, etc.) and that such clients, invitees and personnel will at all
times conduct themselves in a proper business-like manner when passing through
such public areas of the Building for purposes of access and egress to and from
the Demised Premises. Tenant further acknowledges and agrees that the use of the
Demised Premises by Tenant shall be limited to business days only (i.e., Mondays
through Fridays, Federal, State, City and Building Union holidays excepted) from
8 A.M. to 6 P.M. and on Saturdays from 8 A.M. to 1 P.M. and that Owner in
Owner's sole discretion may grant Tenant, upon not less than three (3) business
days prior written request by Tenant, a license to use the Demised Premises on
such days and hours other than as provided for above, agrees that any breach by
Tenant of its foregoing agreements and representations will materially injure
Owner who has intentions to rent space in the Building to major Tenants and who
does not wish to have other present tenants of the Building disturbed, annoyed
or inconvenienced. Accordingly, it is expressly agreed that any violation by
Tenant of its agreements, representations and obligations pursuant to this
article shall constitute a material default by Tenant under the terms of this
Lease entitling Owner to exercise any and all rights granted Owner pursuant to
Articles 17 and 18 of this Lease including without limitation the right to
terminate this Lease and recover possession of the Demised Premises by reason of
Tenant's default.
58. DEMISED PREMISES - "AS IS". It is understood and agreed that the
Demised Premises have been leased to Tenant and Tenant accepts the same in their
`As Is' condition in all respects as of the date Owner delivers possession of
the Demised Premises to Tenant.
59. COMPLIANCE WITH LOCAL LAW NOS. 573,10/80,10/81,16/84 AND 76/85.
Tenant acknowledges and agrees that it shall be Tenant's responsibility and
obligation to comply with
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<PAGE> 30
all requirements and controls imposed by Local Laws, 573, 10/80, 10/81, 16/84
and 76/85 of the City of New York, as well as with any and all other now or
hereafter existing laws. rules and regulations, as the same now or hereafter
exit or hereafter may be amended, of the City of New York, or of any
governmental or quasi governmental agency or department having jurisdiction over
the Building, with respect to the Demised Premises or any portion of the
Building including but not limited to the partitioning, layout, exit signs,
telephone communications, fire conduits, emergency lighting, all systems
mechanical or otherwise, elevators, exterior of the Building, toilets and all
public areas. Tenant further acknowledges and agrees that if Owner shall perform
Tenant's installation or alteration work for Tenant pursuant to any work letter
agreement or pursuant to Tenant's request, Owner's sole responsibility with
respect thereto shall be limited to the workmanlike manner of such installation
or alteration and Tenant shall be responsible for the legality of any such
installation or alteration, i.e., the drawing of plans in compliance with law
and the obtaining of all permits relating thereto, including but not limited to
all necessary approvals and signoffs, and compliance, by work or otherwise, with
all laws, requirements and controls in accordance with this Article. Any
modification(s) of any such installation or alteration made within the Demised
Premises or alteration of the Building required as a result of such installation
or alteration of the Building required as a result of such Installation or
alteration shall be solely the responsibility of Tenant, at Tenant's sole cost
and expense, and Owner shall have no obligation or duty with respect thereto.
The performance of any work, installations and alterations required under the
foregoing Local Laws , 5/73, 10180, 10/81, 16/84 and 76/85 and all other above
described now or hereafter existing laws, rules, regulations. etc., shall be
performed by Tenant in accordance with and subject to all applicable provisions
of this Lease (including but not limited to Articles 3 and 6 hereof) and of law.
With respect to any work to be performed under this article, Owner shall
have the option to perform such work on Tenant's behalf at Tenant's sole cost
and expense subject to Article 63 hereof, and with respect to work to be
performed to any portion of the Building other than the Demised Premises the
actual expenditure on Tenant's behalf shall be deemed to be total cost expended
to complete said work multiplied by Tenant's Proportionate Share defined in the
Real Estate Tax Escalation provision of this Lease (in the event this Lease does
not provide for a Tenant's Proportionate share, in lieu thereof and multiplier
shall be the percentage of the rentable square feet in the Building which are
located in the Demised Premises) subject to Article 63 hereof.
60. CESSATION OF SERVICES AFTER TERMINATION OF LEASE. Tenant expressly
covenants and agrees that if Tenant shall default in the payment of rent or
additional rent hereunder or otherwise materially defaults under this Lease and
Owner shall in accordance with the applicable provisions of this Lease elect to
terminate this Lease on account of any such default, whether such termination be
effected by notices given to Tenant pursuant to Article 17 hereof or whether
Owner elects, in its sole discretion, to terminate the Lease by instituting
appropriate legal action against Tenant (or if Tenant shall vacate the Demised
Premises), that Owner from and after the date of termination of this Lease (or
the date of vacating the Demised Premises by Tenant) shall have the right to
cease furnishing any services, including without limitation, the cessation of
the furnishing of electric current to the Demised Premises, if Owner is required
to furnish electricity pursuant to another provision of this Lease, without
cessation or the furnishing of any such services constituting a partial eviction
and Owner shall be entitled to recover from Tenant reasonable use and occupancy
for any period that Tenant shall holdover in
30
<PAGE> 31
the Demised Premises subsequent to the termination of this Lease in an
amount equal to the full basic annual rent and additional rent payable by Tenant
hereunder pursuant to Article 54 hereof, or in the case of Tenant's having
vacated the Demised Premises, Tenant shall be required to pay full rent and
additional rent hereunder as provided in this Lease, irrespective of the fact
that Owner may have ceased furnishing any services to the Demised Premises
vacated by Tenant.
61. OWNER'S OVERHEAD, SUPERVISION & APPROVAL CHARGES. Whenever Owner or
its agent shall install a water meter pursuant to Article 29 thereof, or shall
perform work or furnish services at Tenant's request or on behalf of Tenant
which are not otherwise specifically billable to Tenant as additional rent
pursuant to any other provision or separate agreement or shall perform work
which Tenant should have performed but failed to perform prior to the expiration
of any applicable grace period with respect thereto, or any contractor or vendor
performs construction or furnishes labor, material or services or alteration
work on behalf of Tenant, in addition to all other charges as may be required to
be paid by Tenant as elsewhere provided in this Lease, Tenant shall pay to 1995
CAM LP upon rendition of 1995 CAM LP's bill therefor, an amount equal to
twenty-one (21) percent of the amounts actually expended by Owner and/or Tenant
in connection with the performance of such work or installation of such meter
(representing a charge of ten (10) percent of such cost for 1995 CAM LP's
overhead plus ten (10) percent for supervision).
In addition, if pursuant to this Lease or any work letter or other
agreement entered into between Owner and Tenant, Tenant shall submit to Owner's
agent, 1995 CAM LP. plans or specifications for approval, Tenant shall pay to
1995 CAM LP upon being billed therefor the sum of $500. Said sum shall be
payable irrespective of whether or not approval of such plans and specifications
is granted or such plans and specifications are returned to Tenant with
objections thereto.
If any plan or specification submitted to 1995 CAM LP shall in 1995 CAM
LP's sole opinion, require the expert opinion of an architect, engineer or other
professional service in order for 1995 CAM LP to determine whether or not to
approve or withhold consent thereto, 1995 CAM LP may retain an architect
engineer or other professional service for such purpose and Tenant agrees to pay
to 1995 CAM LP an amount equal to the reasonable fee of such architect, engineer
or other professional service actually paid by 1995 CAM LP for reviewing such
plan or specification.
62. APPLICATION OF SECURITY. If. at any time during the term of this
Lease, Owner (in accordance with the applicable provisions of the Security
Deposit Article of this Lease) shall have applied all or a portion of the
security deposit by Tenant hereunder toward the curing of a default by Tenant
continuing uncured beyond the expiration of any applicable grace period then, it
shall be Tenant's obligation upon the notification by Owner of the application
of all or a portion of the security deposited by Tenant as the case may be, to
promptly deposit with Owner such sum of money as may be necessary to restore the
security deposit to the amount held by Owner prior to such application. Tenant's
failure to restore such security by payment of such sum to Owner within ten (10)
days after receipt of such notice of application by Owner, shall constitute a
material default under this Lease.
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<PAGE> 32
63. BROKER. Tenant covenants and represents that it has dealt with no
broker in connection with the within Lease transaction or the Demised Premises
other than Glen Equities Ltd. and Tenant agrees to hold Owner harmless from any
claims for commission or other fees made by any other broker claiming to have
dealt with Tenant in connection with this Lease transaction or the Demised
Premises. Tenant shall have no obligation to make payment to aforesaid broker(s)
on account of such commission or fees unless Tenant by separate agreement has
undertaken to do so.
64. RIDER PORTIONS PREVAIL. The rider portions of this Lease shall be
read in conjunction with the printed standard form of Lease annexed hereto. If
there should be any inconsistency or ambiguity between the terms of the rider
portions of this Lease and the standard form of Lease, then the rider portions
of this Lease shall prevail.
65. NO OTHER REPRESENTATIONS, CONSTRUCTION, GOVERNING LAW. Tenant
expressly acknowledges and agrees that Owner and its agents have not made and
are not making, and Tenant, in executing and delivering this Lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are expressly set forth in this Lease or in any other
written agreement which may be made between the parties concurrently with the
execution and delivery of this Lease and expressly refers to this Lease.
This Lease shall be governed in all respects by the laws of the State of
New York.
66. ACCORD AND SATISFACTION. No payment by Tenant or receipt by Owner of
a lesser amount than any installment or payment of rent due shall be deemed to
be other than on account of the amount due, and no endorsement or statement on
any check or payment of rent shall be deemed an accord and satisfaction. Owner
may accept such check or payment without prejudice to Owner's right to recover
the balance of such installment or payment of rent, or pursue any other remedies
available to Owner.
67. PROVISIONS SEVERABLE. If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each term
and provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
68. EXECUTION & DELIVERY OF LEASE. Submission by Owner of the within
Lease for review and execution by Tenant shall confer no rights nor impose any
obligations on either party unless and until both Owner and Tenant shall have
executed this Lease and duplicated originals thereof shall have been delivered
to the respective parties hereto.
69. TENANT REIMBURSEMENT. The Tenant agrees to accept the Space in its
"As Is" condition. Any work to be performed shall be at Tenant's sole cost and
expense. All such work shall be done in a first class workmanlike manner and in
compliance with all applicable laws, rules and regulations. In order to assist
the Tenant in effecting certain improvements in conjunction with the Tenant
letting the Space, the Owner within thirty (30) days after its receipt from
Tenant of paid bills for permanent buildings improvements, will reimburse the
Tenant in an
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<PAGE> 33
amount not to exceed Eighteen Thousand Two Hundred dollars ($18,200) in the
aggregate. Cost of improvements, as used herein shall mean Tenant's actual
out-of-pocket expenses for materials and labor.
70. UNCOLLECTIBLE CHECKS. It is hereby understood and agreed by Tenant
that in the event Owner receives a check from Tenant for the payment of basic
annual rent, additional rent and/or any other charge(s) due under this Lease,
and such check is uncollectible by Owner due to insufficient funds in Tenant's
account or for any other reason, Tenant shall pay to 1995 CAM LP a service
charge in the sum of $100, for Owner's expense in processing such uncollectible
check, as additional rent under this Lease together with Tenant's next monthly
rent installment due under this Lease. The provisions of this Article shall not
be deemed to limit Owner from enforcing any other rights Owner may have under
this Lease in the event of Owner's receipt of any such collectible check and
1995 CAM LP's right herein to collect a service charge, as provided above, shall
be in addition to all other rights of Owner contained in this Lease.
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed
this Lease as of the day and year first above written.
Witness for Owner: OWNER
1995 CAM LP
/s/ Barry /s/
- ---------------------------------- ----------------------------------
General Partner
Witness for Tenant: TENANT:
VIRAGE, INC.
/s/ Christen L. Stockdale /s/ Frank Pao
- ---------------------------------- ----------------------------------
Mr. Frank Pao, V.P. of Business
Affairs & General Manager
33
<PAGE> 34
GUARANTY
FOR VALUE RECEIVED. and in consideration for, and as an inducement to Owner
making the within Lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements, therein provided to be performed and
observed by Tenant, including the "Rules and Regulations" as therein provided,
without requiring any notice of nonpayment, nonperformance or nonobservance, or
proof, or notice, or demand, whereby to charge the undersigned therefor, all of
which the undersigned hereby expressly waives and expressly agrees that the
validity of this agreement and the obligations of the guarantor hereunder shall
in no wise be terminated, affected or impaired by reason of the assertion by
Owner against Tenant of any of the rights or remedies reserved to Owner pursuant
to the provisions of the within Lease. The undersigned further covenants and
agrees that this guaranty shall remain and continue in full force and effect as
to any renewal, modification or extension of this Lease and during any period
when Tenant is occupying the premises as a "statutory tenant". As a further
inducement to Owner to make this Lease and in consideration thereof, Owner and
the undersigned covenant and agree that in any action or proceeding brought by
either Owner or the undersigned against the other on any matters whatsoever
arising out of, under, or by virtue of the terms of this Lease or of this
guaranty that Owner and the undersigned shall and do hereby waive trial by jury.
DATED ______________, 199 ,
----------------------------------
GUARANTOR
----------------------------------
WITNESS
----------------------------------
GUARANTOR'S RESIDENCE
----------------------------------
BUSINESS ADDRESS
----------------------------------
FIRM NAME
34
<PAGE> 35
STATE OF NEW YORK, ) ss:
COUNTY OF )
On this ____day of ________, 19__ before me personally came
________________to me known to be the individual described in, and who executed
the foregoing Guaranty and acknowledge to me that he executed the same,
--------------------------------------
NOTARY
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<PAGE> 36
ADDENDUM
This document will act as an addendum to that certain Standard Form of
Office Lease dated November 22, 1999, by and between 1995 CAM LP, a New York
Partnership, c/o GLEN EQUITIES LTD, 551 Madison Avenue, New York, New York,
10022, party on the first part, hereinafter referred to as OWNER, and Virage,
Inc., a California corporation, having an office at 1120 6th Avenue, New York,
New York, party of the second part, hereinafter referred to as TENANT. This
addendum shall be read in conjunction with the Standard Form of Lease and rider
attached hereto. If there should be any inconsistency or ambiguity between the
terms of this addendum and the rider portions of this Lease and/or the Standard
Form of Lease, then the addendum shall control.
The parties hereby covenant and agree as follows:
1. Notwithstanding anything contained herein to the contrary, Owner
shall not unreasonably withhold its consent to any alterations, installations,
additions or improvements which are non-structural and which do not affect
utility services, plumbing or electrical systems in the Building.
2. Notwithstanding anything contained herein to the contrary, if due to
Owner's repairs necessitated by Owner's actions, Tenant is unable to use the
Demised Premises for the operation of Tenant's business therein for a period in
excess of twelve (12) consecutive business days, Tenant shall, in addition to
any rights Tenant may have, be entitled to the abatement of the basic annual
rent and additional rent from and after the expiration of said twelve (12)
consecutive business day period until the time that Tenant shall be able to
resume the conduct of its business in the Demised Premises.
3. The failure of Tenant to seek redress for a violation of, or to
insist upon the strict performance of any covenant or condition of this Lease
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of any original violation. The
continuing compliance of Tenant with the terms of this Lease with knowledge of
breach of any covenant of this Lease shall not be deemed a waiver of such breach
and no provision of this Lease shall be deemed to have been waived by Tenant
unless such waiver is signed in writing by Tenant.
4. Tenant shall not pay a separate fee for the removal of Tenant's
refuse and rubbish from the building which rubbish and refuse is of the nature
and kind disposed of in the ordinary course of business provided the same is
non-toxic and non-hazardous. Tenant recognizes and acknowledges that it may be
charged a fee and will promptly pay to Owner any such fee for the disposal of
bulky or excessive rubbish and refuse of the nature and kind disposed of outside
of the ordinary course of business.
5. Notwithstanding anything contained herein to the contrary, after
receipt of notice from Tenant of its intention to lease or sublease all or part
of the Demised Premises, Owner shall have thirty (30) days within which to
exercise its options set forth in Clause 43 of said Lease to provide its consent
or denial to Tenant's proposal to sublet part or all of the Demised Premises.
Through this Addendum, Owner specifically consents to Tenant's subletting of no
more than
<PAGE> 37
Thirty Percent (30%) of the Demised Premises to British Broadcasting
Corporation, pursuant to Clause 43 of the Standard Form of Office Lease.
6. In case it shall be necessary for Tenant to institute any action or
proceeding against Owner for the violation of any of the covenants and
provisions of this lease or for the recovery of possession of the Demised
Premises or should Tenant be compelled to intervene in any action or proceeding
wherein Owner is a party in order to enforce or protect Tenant's rights or
interests hereunder, then and in any of such events, if Tenant shall be
successful in such action or proceeding, Owner shall be obligated to pay
Tenant's reasonable attorney's fees, costs and disbursements incurred for the
institution and prosecution of any such action, proceeding or intervention.
7. Owner and Tenant hereby agree and covenant to act in good faith and
use their best efforts, without Owner incurring monetary expense, to work
jointly to obtain an agreement from British Broadcasting Corporation to
contribute monies to reimburse Tenant for expenses Tenant incurs in undertaking
improvements to the Demised Premises.
Witness for Owner: OWNER
1995 CAM LP
/s/ Barry /s/
- ---------------------------------- ----------------------------------
General Partner
Witness for Tenant: TENANT:
VIRAGE, INC.
/s/ Christen L. Stockdale /s/ Frank Pao
- ---------------------------------- ----------------------------------
Mr. Frank Pao, V.P. of Business
Affairs & General Manager
37
<PAGE> 1
EXHIBIT 10.7
LICENSE AGREEMENT
Kinetic Business Centre
Made the 27th day of September 1999 between the Licensor, Sub-Licensor
and the Licensee. This agreement replaces all existing License Agreements
between the Licensor, Sub-Licensor and the Licensee.
1. Particulars. In this Agreement the following expressions shall have
the following meanings:
1.1 The Licensor. Office Dynamics Limited, Kinetic Centre, Theobald
Street, Borehamwood, Herts., WD6 4PJ, whose registered office is at 47 Holywell
Hill, St. Albans, AL1 1HD.
1.2 The Sub-Licensor. Protege Property, a Division of Protege
Software Limited, Kinetic Centre, Theobald Street, Borehamwood, Herts., WD6 4PJ,
whose registered office is at 233-237 Old Marylebone Board, London, NW1 5QT.
1.3 The Licensee.
<TABLE>
<S> <C> <C>
Limited Company Title: Virage Europe Limited
Registered Office: 233-237 Old Marylebone Road
London, NW1 5QT
</TABLE>
1.4 The Property. The land and buildings known as Kinetic Business
Centre.
1.5 Designated Space. Suite No. 112, approximate square footage 300
or other office space comprising not less than the initial square feet taken
within the Property as the Sub-Licensor may in its absolute discretion designate
on one month's notice to the Licensee.
1.6 Access Ways. The roads, paths, entrance, halls, corridors and
staircases of the Property the use of which is necessary for obtaining access to
and egress from the Designated Space and Car Park or such of them as afford
reasonable access and egress as above and as the Licensor may from time to time
in its absolute discretion designate on seven days notice to the Licensee.
1.7 License Period. The period from the Commencement Date of this
Agreement until the date on which the Licensee's rights under Clause 2 are
determined in accordance with Clause 4.1.2.
1.8 License Fee. L.1,262.50 per month plus VAT, or other such amount
as the Sub-Licensor may determine in its absolute discretion on one calendar
month's notice to the Licensee payable by Standing Order one month in advance.
The first payment of the License Fee is L.1,262.50 plus VAT.
<PAGE> 2
1.9 Security Deposit. An amount equal to one month's license fee plus
VAT held as deposit by the Licensor against any breach of the Licensee's
undertakings, as security against any partition layout restoration, damage or
excessive wear and tear to the property and fixtures or fittings therein. This
deposit is refundable 30 days after the termination of the Agreement.
1.10 Commencement Date. October 1, 1999.
1.11 First Termination Date. March 31, 2000 being the earliest date
the Licensee may terminate the License Agreement having provided notice as
required under 4.1.2.
2. License. Subject to Clauses 3 and 4, the Licensor gives the Licensee
and its employees the right (in common with the Licensor and all others
authorized by the Licensor so far as is not inconsistent with the rights given)
to use for the License Period:
2.1 the Designated Space for the purposes of fully serviced offices
and
2.2 the car park for cars and light vans on a non-reserved basis. No
vehicles may be parked overnight without written permission from the Licensor.
Whilst supply meets demand, there will be no additional charge if a Licensee
uses extra spaces but if demand exceeds supply then the Licensor reserves the
right to levy an additional charge for spaces on giving 30 days written notice
to the Licensee. Any vehicular use of the car park is at the user's risk
including by the Licensee, its employees, sub-contractors, customers, suppliers
and visitors.
2.3 the kitchens for their designated purpose. Limited food
preparation may be carried out provided this does not inconvenience any other
Licensee.
2.4 the Access Ways and toilets in the Property.
3. Licensee's Undertakings. The Licensee agrees and undertakes:
3.1 To pay to the Sub-Licensor the License Fee plus VAT in advance on
the first business day of each month by standing order the first payment or a
due proportion of it to be made on the date of this Agreement by cheque.
3.2 To pay to the Sub-Licensor 0.25% per day of any outstanding
moneys if remaining unpaid by the 14th of the month up to a maximum of 50% of
the outstanding moneys in order to defray bank interest and to cover
administration time, related fees and expenses.
3.3 To lodge the Security Deposit with the Sub-Licensor.
3.4 Not to bring any furniture, equipment, goods or chattels on to
the Property without the consent of the Sub-Licensor save any as may be
necessary for the exercise of the rights given in Clause 2.1.
3.5 Not to obstruct the Access Ways or cause the same to become dirty
or untidy nor to leave any rubbish on them.
3.6 Not to display any signs or notices on any part of the Property.
2
<PAGE> 3
3.7 Not to use any part of the Property so as to cause any nuisance,
damage, disturbance, annoyance, inconvenience or interference to the Property or
any adjoining or neighboring property or to the owners, occupiers or users of
any part of the Property or any such adjoining or neighboring property.
3.8 Not to do any act, matter or thing which would or might vitiate
or increase in whole or in part any insurance effected in respect of the
Property from time to time and in particular not keep any volatile, hazardous or
inflammable materials within the Property.
3.9 Immediately to give to the Licensor details of the registration
numbers of the vehicles which will be parked on the car park and the names of
the owners and drivers of such vehicles and to notify the Licensor prior to any
change in such details.
3.10 To indemnify the Licensor and the Sub-Licensor and keep the
Licensor and Sub-Licensor indemnified against all losses, claims, demands,
actions, proceedings, damages, costs or expenses or other liability arising in
any way from this License, any breach of any of the Licensee's undertakings
contained in this Clause, or the exercise or purported exercise of any of the
rights given in Clause 2.
3.11 To observe such rules and regulations as the Licensor may make
and of which the Licensor shall notify the Licensee from time to time relating
to the Property.
3.12 Not to impede in any way the Licensor or its officers, servants
or agents in the exercise of the Licensor's rights of possession and control of
the Property and every part thereof.
3.13 Not to drill, mark or in any way damage the integrated ceiling,
partition and door system.
3.14 To acknowledge that there is a monetary value to attracting and
securing any new Licensee. In the event of the Licensee, or anyone directly
connected, providing alternative office space to any other Licensee, during or
within one year of the termination of the other Licensee's Agreement, then the
Licensee will reimburse to the Licensor the sum of L.2,000 plus VAT per
replacement Licensee as part costs of attracting and securing that replacement
Licensee.
3.15 To acknowledge that the Licensor has expended considerable time
effort and expense in hiring and training its staff and that the hiring of a
member of staff by the Licensee would save the Licensee considerable time and
expense in training and procurement and would cause the Licensor to expend
additional time and expense. Therefore during this Agreement and for six months
after the termination of this Agreement if the Licensee hires a member of the
Licensor's staff who was an employee of the Licensor at any time during the
Agreement or for six months after its termination the Licensee agrees to pay the
Licensor a replacement procurement fee of L.2,000 plus VAT or 25% of the gross
annual salary plus VAT last paid by the Licensor, whichever is the greater.
3.16 To enter into a Contract for Services with Kinetic Enterprises
for the exclusive supply and rental of all externally connected voice and data
lines, call services and associated equipment and standard office furniture.
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3.17 Not to install any fixed computer network, alarm systems,
aerials, voice and data cabling or any other form of fixed cabling without the
prior written consent of the Licensor.
3.18 To control the behavior of any children and pets visiting the
Property so that no inconvenience or disruption is caused to other Licensees and
the Licensor. The Licensor reserves the right to deny such visits if complaints
are received.
3.19 To act in a manner considered reasonable by the majority of
Licensees and in particular to avoid disruptive behavior and the public use of
bad language.
3.20 To advise the Licensor of any damage caused to fittings,
fixtures and equipment in the Designated Space within the same working day as
the damage is caused or observed. Damage alleged to be attributable to cleaners
will only be considered if notified in this way; otherwise the Licensee will be
held responsible.
3.21 At all times to observe and comply in all respects with the
provisions and requirements of all enactments so far as they relate to the
Designated Space.
3.22 To pay to the Licensor L.50 plus VAT towards the costs of custom
signage and the registrations required for a new Licensee. This sum will be
deducted from the security deposit upon termination of the Agreement.
3.23 To advise any employee or sub-contractor of the Licensee of the
conditions and undertaking of this License Agreement that affect their
obligations on occupation and use of the Property.
4. General.
4.1 The rights granted in Clause 2 shall cease and determine (without
prejudice to the Licensor's rights in respect of any breach of the undertakings
contained in Clause 3):
4.1.1 Immediately on notice given by the Licensor at any time
following any breach by the Licensee of any of its undertakings in Clause 3.
4.1.2 On not less than three calendar month's notice given by the
Sub-Licensor or the Licensee to the other party to expire on the last day of a
month, such notice in the case of notice given by the Licensee to the
Sub-Licensor and to the Licensor to expire not earlier than the First
Termination Date.
4.1.3 Immediately if the Licensee (being an individual) shall
become bankrupt or (being a company) shall enter into liquidation whether
compulsory or voluntary (save for the purpose of amalgamation or reconstruction
of a solvent company) or has an administration order made in respect of its
business or has a Receiver appointed of its undertaking or if the Licensee for
the time being shall enter into any arrangement or composition for the benefit
of the Licensee's creditors or shall suffer any distress or execution to be
levied on the Licensee's goods.
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4.2 Upon determination of the said rights the Sub-Licensor may
re-enter the Designated Space and without prejudice to the generality of the
foregoing change the locks to the door or doors of the Designated Space and
seize any goods therein and sell the same to discharge or in the reduction of
any payments that may be due by the Licensee to the Sub-Licensor under this
Agreement.
4.3 The benefit of this License is personal to the Licensee and not
assignable.
4.4 The Licensor and the Sub-Licensor shall not be responsible to the
Licensee or the employees, sub-contractors, customers, suppliers or visitors of
the Licensee for any loss, injury, damage, nuisance or inconvenience which may
be caused to the Licensee, any employees, sub-contractors, customers, suppliers
or visitors of the Licensor or any goods or property of the Licensee by reason
of any act, neglect or default of any other occupier of neighboring premises of
any employee or agent of the or Sub-Licensor or by reason of or arising out of
the repair state, of repair condition or any alteration to or to the user of the
Designated Space or by reason of the defective, working, stoppage, breakage or
failure of any lighting system, drain pipe, appliance, equipment or machinery.
4.5 All notices given by either party pursuant to the provisions of
this Agreement shall be in writing and shall be sufficiently served if delivered
by hand or sent by recorded delivery to the other party at its registered office
or last known address.
4.6 Where any party consists of two or more persons, agreements and
undertakings by and with such persons shall be deemed to be joint and several.
5. Licensors and Sub-Licensors Undertakings. The Licensor and
Sub-Licensor undertakes with the Licensee (subject to the Licensee carrying out
its undertakings hereunder) to provide the following services and facilities:
5.1 To provide and maintain the Designated Space.
5.2 A proprietary signing system displaying a list of occupying
companies at the Central Reception.
5.3 A proprietary signing system displaying the suite number and name
of the Licensee on the door to the Designated Space.
5.4 A cleaning service for the Designated Space and the Access Ways
and a facility for the removal of reasonable quantities of office waste from the
Designated Space.
5.5 Proper sanitary conditions in the Property.
5.6 To provide 2 keys for the main entrance and Designated Space.
Additional keys will be provided at the published cost. All keys have a security
deposit value of L.25 each in order to encourage their return when vacating the
Property.
5.7 A bell facility for the convenience of out of hours visitors to
the Property.
5.8 Water and CO2 fire extinguishers, fire alarm points and a fire
hose.
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5.9 During the winter months central heating.
5.10 Light and power.
5.11 Maintaining and keeping the Property in reasonable repair.
Provided always as follows:
5.12 In carrying our its undertakings hereunder the Licensor and
Sub-Licensor shall be entitled to employ such responsible agents, contractors
and other persons as they may think fit.
5.13 The Licensor and Sub-Licensor shall not be responsible for any
temporary delay or stoppage in connection with the carrying out of any of its
said undertakings or for any temporary omission to perform the same if such
temporary failure, delay, stoppage or omission shall be due to any circumstances
outside its control but the Licensor and Sub-Licensor shall nevertheless take
all reasonable steps to remedy or make good such failure, delay, stoppage or
omission as aforesaid as soon as reasonably possible.
AS WITNESS the hands of the parties hereto:
LICENSOR: SUB-LICENSOR
KINETIC BUSINESS CENTRE PROTEGE SOFTWARE LIMITED
By: /s/ Sharon Kent By: /s/ Larry Levy
-------------------------- --------------------------
Sharon Kent Larry Levy
Manager Director
LICENSEE:
VIRAGE EUROPE LIMITED
By: /s/ Mark Rattley
--------------------------
Mark Rattley
General Manager
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<PAGE> 1
EXHIBIT 10.8
SECURITY AND LOAN AGREEMENT
[(ACCOUNTS RECEIVABLE)
This Agreement is entered into between VIRAGE, INC., a Delaware
corporation (herein called "Borrower"), and IMPERIAL BANK (herein called
"Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as may be
determined by Bank up to, but not exceeding in the aggregate, unpaid principal
balance, the following Borrowing Base:
80.00% of Eligible Accounts
and in no event more than $1,500,000.00.
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account on demand following the
occurrence and during the continuance of an Event of Default (as defined in the
Promissory Note), and (b) on or before the tenth day of each month, interest on
the average daily unpaid balance of the Loan Account during the immediately
preceding month at the rate of One-quarter percent (0.250%) per annum less than
the rate of interest which Bank has announced as its prime lending rate ("Prime
Rate") which shall vary concurrently with any change in such Prime Rate.
Interest shall be computed at the above rate on the basis of the actual number
of days during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation be considered one year. The
amount of interest payable each month by Borrower shall not be less than a
minimum monthly charge of $ N/A. Bank is hereby authorized to charge Borrower's
deposit account(s) with Bank for all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by
Borrower in a form satisfactory to Bank and shall contain a certification
setting forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the
following meanings:
a. "Accounts" means any right to payment for goods sold or leased, or
to be sold or to be leased, or for services rendered or to be rendered no matter
how evidenced, including accounts receivable, contract rights, chattel paper,
instruments, purchase orders, notes, drafts, acceptances, general intangibles
and other forms of obligations and receivables.
b. "Collateral" means any and all personal property of Borrower which
is assigned or hereafter is assigned to Bank as security or in which Bank now
has or hereafter acquires a security interest.
<PAGE> 2
c. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within 90 days
from any invoice date, (2) all Accounts against which the account debtor or any
other person obligated to make payment thereon asserts any defense, offset,
counterclaim or other right to avoid or reduce the liability represented by the
Account to the extent of such defense, offset, counterclaim or other rights and
(3) any Accounts if the account debtor or any other person liable in connection
therewith is insolvent, subject to bankruptcy or receivership proceedings or has
made an assignment for the benefit of creditors or whose credit standing is
unacceptable to Bank and Bank has so notified Borrower. Eligible accounts shall
only include such accounts as Bank in its reasonable discretion shall determine
are eligible from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future
Accounts, including all proceeds due thereunder, all guaranties and security
therefor, and hereby grants to Bank a continuing security interest in all moneys
in the Collateral Account referred to in Section 6 hereof, as security for any
and all obligations of Borrower to Bank, whether now owing or hereafter incurred
and whether direct, indirect, absolute or contingent. So long as Borrower is
indebted to Bank or Bank is committed to extend credit to Borrower, Borrower
will execute and deliver to Bank such assignments, including Bank's standard
forms of Specific or General Assignment covering individual Accounts, notices,
financing statements, and other documents and papers as Bank may require in
order to affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors obligated
on the Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower will collect with diligence all Borrower's Accounts. Any
collection of Accounts by Borrower, whether in the form of cash, checks, notes,
or other instruments for the payment of money (properly endorsed or assigned
where required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall keep all such collections separate and apart from all other funds
and property so as to be capable of identification as the property of Bank and
deliver said collections daily to Bank in the identical form received. The
proceeds of such collections when received by Bank may be applied by Bank
directly to the payment of Borrower's Loan Account or any other obligation
secured hereby. Any credit given by Bank upon receipt of said proceeds shall be
conditional credit subject to collection. Returned items at Bank's option may be
charged to Borrower's general account. All collections of the Accounts shall be
set forth on an itemized schedule, showing the name of the account debtor, the
amount of each payment and such other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately notify
Bank of all cases involving returns, repossessions, and loss or damage of or to
merchandise represented by the Accounts and of any credits, adjustments or
disputes arising in connection with the goods or services represented by the
Accounts where the dollar value of such returns based on Accounts invoiced
exceed $75,000.00.
8. Borrower represents and warrants to Bank: (i) If Borrower is a
corporation, that Borrower is duly organized and existing in the State of its
incorporation and the execution,
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delivery and performance hereof are within Borrower's corporate powers, have
been duly authorized and are not in conflict with law or the terms of any
charter, by-law or other incorporation papers, or of any indenture, agreement or
undertaking to which Borrower is a party or by which Borrower is found or
affected; (ii) Borrower is, or at the time the collateral becomes subject to
Bank's security interest will be, the true and lawful owner of and has, or at
the time the Collateral becomes subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights therein
and Permitted Liens; (iii) Each Account is, or at the time the Account comes
into existence will be, a true and correct statement of a bona fide indebtedness
incurred by the debtor named therein in the amount of the Account for either
merchandise sold or delivered for being held subject to Borrower's delivery
instructions) to, or services rendered, performed and accepted by, the account
debtor; (iv) That there are or will be no defenses, counterclaims, or setoffs
which may be asserted against the Eligible Accounts; and (v) any and all
financial information, including information relating to the Collateral,
submitted by Borrower to Bank, whether previously or in the future, is or will
be true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and information as Bank may reasonably request and inform Bank
immediately upon the occurrence of a material adverse change thereon; (ii)
Furnish Bank, on such form and detail and at such times as Bank may require,
statements showing aging and reconciliation of the Accounts and collectibles
thereon; (iii) Permit representatives of Bank to inspect the Borrower's books
and records relating to the Collateral and make extracts therefrom at any
reasonable time and to arrange for verification of the Accounts, under
reasonable procedures (and in no event under Bank's own name) acceptable to
Bank, directly with the account debtors or otherwise at Borrower's expense; (iv)
Promptly notify Bank of any attachment or other legal process levied against any
of the Collateral and any information received by Borrower relative to the
Collateral, including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way materially affect the
value of the Collateral or the rights and remedies of Bank in respect thereto;
(v) Reimburse Bank upon demand for any and all legal costs, including reasonable
attorneys' fees, and other expense incurred in collecting any sums payable by
Borrower under Borrower's Loan Account or any other obligation secured hereby,
enforcing any term or provision of this Security Agreement or otherwise or in
the checking, handling and collection of the Collateral and the preparation and
enforcement of any agreement relating thereto; (vi) Notify Bank of each location
and of each office of Borrower at which records of Borrower relating to the
Accounts are kept; (vii) Provide, maintain and deliver to Bank policies insuring
the Collateral against loss or damage by such risks and in such amounts, forms
and companies as Bank may require and with loss payable only to Bank and such
other lenders of loans secured by the Collateral and to which Bank has
consented, and, in the event Bank takes possession of the Collateral, the
insurance policy or policies and any unearned or returned premium thereon shall
at the option of Bank become the sole property of Bank, such policies and the
proceeds of any other insurance covering or in any way relating to the
Collateral, whether now in existence or hereafter obtained, being hereby
assigned to Bank (in no event, however, may Bank terminate or reduce any
insurance coverage); (viii) In the event the unpaid balance of Borrower's Loan
Account shall exceed the maximum amount of outstanding loans to which Borrower
is entitled under Section 1 hereof, Borrower shall immediately pay to Bank, from
its own funds and not from the proceeds of Collateral, for credit to Borrower's
Loan Account the amount of such excess.
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10. Bank may at any time following the occurrence and during the
continuance of an Event of Default, without prior notice to Borrower, collect
the Accounts and may give notice of assignment to any and all account debtors,
and Borrower hereby make, constitute and appoint Bank its irrevocable, true and
lawful attorney with power following the occurrence and during the continuance
of an Event of Default to receive, open and dispose of all mail addressed to
Borrower, to endorse the name of Borrower upon any checks or other evidences of
payment that may come into the possession of Bank upon the Accounts to endorse
the name of the undersigned upon any document or instrument relating to the
Collateral; in its name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due upon the Accounts; to
compromise, prosecute or defend any action, claim or proceeding with respect
thereto; and to do any and all things necessary and proper to carry out the
purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured
hereby shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than Permitted Liens
other than to Bank, or execute any financing statements covering the Collateral
in favor of any secured party or person other than Bank and other than holders
of Permitted Liens.
12. Should: (i) An Event of Default occur in the payment of any
obligation, or breach be made in any warranty, statement, promise, term or
condition, contained herein or hereby secured; (ii) Any statement or
representation made for the purpose of obtaining credit hereunder prove
materially false; (iii) Bank deem the Collateral materially inadequate or in
relation to the outstanding obligations; (iv) Borrower become insolvent or make
an assignment for the benefit of creditors; or (v) Any proceeding be commenced
by or against Borrower under any bankruptcy, reorganization, arrangement,
readjustment of debt or moratorium law or statute; then in any such event, Bank
may, at its option and without demand first made and without notice to Borrower,
do any one or more of the following: (a) Terminate its obligation to make loans
to Borrower as provided in Section 1 hereof; (b) Declare all sums secured hereby
immediately due and payable; (c) Immediately take possession of the Collateral
wherever it may be found, using all necessary force so to do, or require
Borrower to assemble the Collateral and make it available to Bank at a place
designated by Bank which is reasonably convenient to Borrower and Bank, and
Borrower waives all claims for damages due to or arising from or connected with
any such taking; (d) Proceed in the foreclosure of Bank's security interest and
sale of the Collateral in any manner permitted by law, or provided for herein;
(e) Sell, lease or otherwise dispose of the Collateral at public or private
sale, with or without having the Collateral at the place of sale, and upon terms
and in such manner as Bank may determine, and Bank may purchase same at any such
sale; (f) Retain the Collateral in full satisfaction of the obligations secured
thereby; (g) Exercise any remedies of a secured party under the Uniform
Commercial Code. Prior to any such disposition, Bank may, at its option, cause
any of the Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor by Bank shall
be repaid by Borrower and secured hereby. Bank shall have the right to enforce
one or more remedies hereunder successively or concurrently, and any such action
shall not estop or prevent Bank from pursuing any further remedy which it may
have hereunder or by law. If a sufficient sum is not realized from any such
disposition of Collateral to pay all obligations secured by this Security
Agreement, Borrower hereby promises and agrees to pay Bank any deficiency.
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<PAGE> 5
13. If any writ of attachment, garnishment, execution or other legal
process be issued against any property of Borrower by the Federal or State
government or any department thereof, of if any assessment for taxes against
Borrower, other than real property, is made by the Federal or State government
or any department thereof and such action or legal process has a material
adverse effect on the ability of the Borrower to satisfy its obligations
hereunder, the obligation of Bank to make loans to Borrower as provided in
Section 1 hereof shall immediately terminate and the unpaid balance of the Loan
Account, all other obligations secured hereby and all other sums due hereunder
shall immediately become due and payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in connection
with the transactions contemplated herein at any time subsequent to four months
from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions
set forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
16. Should an Event of Default occur in the payment of principal or
interest when due, or in the performance or observance, when due, of any item,
covenant or condition of this Agreement, any deed of trust, security agreement
or other agreement (including amendments or extensions thereof) securing or
pertaining to this Agreement, at the option of the holder hereof and without
notice or demand, the entire balance of principal and accrued interest then
remaining unpaid shall (a) become immediately due and payable, and (b)
thereafter bear interest, until paid in full, at the increased rate of 5% per
year in excess of the rate provided for above, as it may vary from time to time.
17. If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent twenty (20) or more days,
Borrower agrees to pay Bank a late charge in the amount of 5% of the payment so
due and unpaid, in addition to the payment; but nothing in this paragraph is to
be construed as any obligation on the part of the Bank to accept payment of any
payment past due or less than the total unpaid principal balance after maturity.
All payments shall be applied first to any late charges owing, then to
interest and the remainder, if any, to principal.
18. Reference Provision.
a. Other than (i) non-judicial foreclosure and all matters in
connection therewith regarding security interests in real or personal property;
or (ii) the appointment of a receiver, or the exercise of other provisional
remedies (any and all of which may be initiated pursuant to applicable law),
each controversy, dispute or claim between the parties arising out of or
relating to this document ("Agreement"), which controversy, dispute or claim is
not settled in writing within thirty (30) days after the "Claim Date" (defined
as the date on which a party subject to the Agreement gives written notice to
all other parties that a controversy, dispute or
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<PAGE> 6
claim exists), will be settled by a reference proceeding in California in
accordance with the provisions of Section 638 et seq. of the California Code of
Civil Procedure, or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any controversy, dispute or claim
concerning this Agreement, including whether such controversy, dispute or claim
is subject to the reference proceeding and except as set forth above, the
parties waive their rights to initiate any legal proceedings against each other
in any court or jurisdiction other than the Superior Court in the County where
the Real Property, if any, is located or San Mateo County if none (the "Court").
The referee shall be a retired judge of the Court selected by mutual agreement
of the parties, and if they cannot so agree within forty-five (45) days after
the Claim Date, the referee shall be promptly selected by the Presiding Judge of
the Court (or his representative). The referee shall be appointed to sit as a
temporary judge, with all of the powers of a temporary judge, as authorized by
law, and upon selection should take and subscribe to the oath of office as
provided for in Rule 244 of the California Rules of Court (or any subsequently
enacted Rule). Each party shall have one peremptory challenge pursuant to CCP
Section 170.6. The referee shall (a) be requested to set the matter for hearing
within sixty (60) days of the Claim Date and (b) try any and all issues of law
or fact and report a statement of decision upon them, if possible, within ninety
(90) days of the Claim Date. Any decision rendered by the referee will be final,
binding and conclusive and judgment shall be entered pursuant to CCP Section 644
in any court in the State of California having jurisdiction. Any party may apply
for a reference proceeding at any time after thirty (30) days following notice
to any other party of the nature of the controversy, dispute or claim, by filing
a petition for a hearing and/or trial. All discovery permitted by this Agreement
shall be completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's refusal to provide requested discovery for any reason whatsoever,
including, without limitation, legal objections raised to such discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to "priority" in conducting discovery. Depositions may be taken by
either party upon seven (7) days written notice, and request for production of
documents shall be responded to within ten (10) days after service. All disputes
relating to discovery which cannot be resolved by the parties shall be submitted
to the referee whose decision shall be final and binding upon the parties.
Pending appointment of the referee as provided herein, the Superior Court is
empowered to issue temporary and/or provisional remedies, as appropriate.
b. Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of the
reference proceeding. All proceedings and hearings conducted before the referee,
except for trial, shall be conducted without a court reporter, except that when
any party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
c. The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding. The referee shall
be empowered to enter equitable as well as legal relief, to provide all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon
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the parties. The referee shall issue a single judgment at the close of the
reference proceeding which shall dispose of all of the claims of the parties
that are the subject of the reference. The parties hereto expressly reserve the
right to contest or appeal from the final judgment or any appealable order or
appealable judgment entered by the referee. The parties hereto expressly reserve
the right to findings of fact, conclusions of law, a written statement of
decision, and the right to move for a new trial or a different judgment, which
new trial, if granted, is also to be a reference proceeding under this
provision.
d. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, Section 1280 through Section 1294.2 of the
CCP as amended from time to time. The limitations with respect to discovery as
set forth hereinabove shall apply to any such arbitration proceeding.
19. Additional Provisions.
[X] If checked, the Addendum or Exhibit "A" attached (and all amendments
thereto and replacements therefor) is incorporated herein by this
reference.
Executed this 2nd day of November, 1998.
IMPERIAL BANK
By: /s/ Ronald T. Kundich
-----------------------------------
Title: Assistant Vice President
Virage, Inc., a Delaware corporation
---------------------------------------
(Name of Borrower)
By: /s/ Paul Lego
-----------------------------------
(Authorized Signature/and Title)
By:
-----------------------------------
(Authorized Signature/and Title)
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"EXHIBIT A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT
BETWEEN VIRAGE, INC. AND
IMPERIAL BANK
DATED: NOVEMBER 2, 1998
This Addendum is made and entered into as November 2, 1998, between VIRAGE, INC.
(Borrower") and IMPERIAL BANK ("Bank"). This Addendum amends and supplements the
Security and Loan Agreement executed this date hereof between Borrower and Bank.
In the event of any inconsistency between the terms herein and the terms of the
Security and Loan Agreement, the terms herein shall in all cases govern and
control. All capitalized terms herein, unless otherwise defined herein, shall
have the meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire November 1,
1999, subject to Bank's right to renew said commitment in its sole discretion.
Any such renewal of the commitment shall not be binding upon Bank unless it is
in writing and signed by an officer of the Bank.
2. Borrower represents and warrants that:
a. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority.
b. FINANCIAL CONDITION. The balance sheet of Borrower of September 30,
1998 and the related profit and loss statement on that date, a copy of which has
heretofore been delivered to Bank by Borrower, and all other statements and data
submitted in writing by Borrower to Bank in connection with this request for
credit are true and correct, and said balance sheet and profit and loss
statement truly present the financial condition of Borrower as of the date
thereof and the results of the operations of Borrower for the period covered
thereby, and have been prepared in accordance with generally accepted accounting
principles on a basis consistently maintained. Since such date, there have been
no materially adverse changes in the financial condition or business of
Borrower. Borrower has no knowledge of any liabilities, contingent or otherwise,
at such date not reflected in said balance sheet, and Borrower has not entered
into any special commitments or substantial contracts which are not reflected in
said balance sheet, other than in the ordinary and normal course of its
business, which may have a materially adverse effect upon its financial
condition, operations or business as now conducted.
c. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with valid trademarks, trade names, copyrights, patents and license rights of
others for which it has not licensed the rights.
<PAGE> 9
d. TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
e. YEAR 2000 PROBLEM. Borrower and its subsidiaries have reviewed the
areas within their operations and business which could be adversely affected by,
and have developed or are developing a program to address on a timely basis, the
Year 2000 Problem and have made related appropriate inquiry of material
suppliers and vendors, and based on such review and program, the Year 2000
Problem will not have a Material Adverse Effect upon its financial condition,
operations or business as now conducted. "Year 2000 Problem" means the
possibility that any computer applications or equipment used by Borrower may be
unable to recognize and properly perform date-sensitive functions involving
certain dates prior to and any dates on or after December 31, 1999.
3. Borrower agrees that so long as it is indebted to Bank, or so long as the
Bank has any obligation to extend credit to Borrower, it WILL NOT, without
Bank's WRITTEN CONSENT:
a. TYPE OF BUSINESS. MANAGEMENT. Make any substantial change in the
character of its business; or make any change in its executive management unless
Borrower has provided Bank with written notification.
b. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from Bank except obligations
now existing as shown in financial statement dated 09/30/98 (including those
being refinanced by Bank) and future subordinated debt and or lease financing
from Comdisco in an amount no greater than $2,500,000; or sell or transfer,
either with or without recourse, any accounts or notes receivable or any moneys
due to become due.
c. LIENS AND ENCUMBRANCES. Create, incur, assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than
Permitted Liens and liens in Bank's favor.
d. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business.
e. ACQUISITION OR SALE OF BUSINESS; Merger or Consolidation. Purchase or
otherwise acquire all or substantially all the assets or business of any person
or other entity; or liquidate or dissolve; or merge or consolidate (unless
Borrower has received Bank's consent thereto which consent shall not be
reasonably withheld); or commence any proceedings therefore; or sell any assets
except in the ordinary and normal course of its business as now constituted; or
sell, lease, assign or transfer any substantial part of its business or fixed
assets, or any property or other assets necessary for the continuance of its
business as now conducted, except for equipment leases.
2
<PAGE> 10
f. DIVIDENDS, STOCK PAYMENTS. Declare or pay any dividend (other than
dividends payable in common stock of Borrower) or make any other distribution on
any of its capital stock now outstanding or hereafter issued, or purchase,
redeem or retire any of such stock, other than redemptions of stock of departed
employees.
4. This Security and Loan Agreement extends to all obligations of Borrower to
Bank, whether outstanding on the date of the Security and Loan Agreement or in
the future. Should there be an Event of Default under the Security and Loan
Agreement, the Commercial Security Agreement, or under any note executed by
Borrower in favor of Bank, or under any other document executed by Borrower in
favor of Bank, all obligations, loans and liabilities of Borrower to Bank, due
or to become due, whether now existing or hereafter arising, shall at the option
of the Bank, become immediately due and payable without notice or demand, and
Bank shall thereupon have the right to exercise all of its default rights and
remedies.
5. In addition to the provisions in the Security and Loan Agreement, Eligible
Accounts shall only include such accounts as Bank in its reasonable discretion
shall determine are eligible from time to time. "Eligible Accounts " shall also
not include the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
b. Accounts with respect to which 50% or more of the account debtor's
total accounts or obligations outstanding to Borrower are more than 90 days past
due.
c. Salesmen's accounts for promotional purposes.
d. For Accounts representing more than 25% of total accounts receivables
, the balance in excess of the 25%. However, the Bank may deem, at its sole
discretion, the entire amount eligible .
e. Accounts with respect to international transactions, unless covered
by letters of credit issued or confirmed by a bank acceptable to the Bank. Only
those foreign companies that the Bank in its sole discretion considers well
known and rated will be considered eligible.
f. Credit balances greater than 90 days past due.
g. U.S. Government receivables , unless assigned to the Bank in form and
substance satisfactory to Bank.
h. Accounts more than 90 days from the invoice date .
i. All Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset, counterclaim, or
other right to avoid or reduce the liability represented by the Account to the
extent of such defense, offset, counterclaim or other reduction of the Accounts.
3
<PAGE> 11
j Any Account if the account debtor or any other person liable in
connection therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or whose
credit standing is unacceptable to Bank and Bank has so notified Borrower.
k. Accounts where the account debtor is a seller to Borrower, whereby a
potential offset (contra) exists to the extent of such potential offset.
l. Consignment or guaranteed sales.
m. Bill and hold accounts.
n. Collection accounts.
o. C.O.D. accounts.
p. Accounts representing billings for service or maintenance contracts
or for inventory or equipment on rent to the account debtor.
q. Deferred revenues.
r. Pre-billings.
6. All financial covenants and financial information referenced herein shall be
interpreted and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with previous years. Compliance with
financial covenants shall be calculated and monitored on a quarterly basis.
7. Borrower affirmatively covenants that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, or so long as the Bank has any
obligation to extend credit to Borrower, it WILL:
a. Have and maintain a Minimum Tangible Net Worth plus subordinated
debt, measured quarterly, of $2,000,000. Tangible Net Worth plus subordinated
debt is the financial statement net worth of the Borrower prepared according to
generally accepted accounting principles less intangible assets, plus long term
indebtedness fully subordinated to the debt due to Bank.
b. Have and maintain a ratio of Maximum Total Liabilities to Tangible
Net Worth plus subordinated debt, measured monthly, of 1.25 to 1.0. Total
Liabilities are all of the Borrower's liabilities and long term indebtedness
fully subordinated to the Bank less any deferred maintenance contract revenue.
Tangible Net Worth plus subordinated debt is the financial statement net worth
of the Borrower prepared according to generally accepted accounting principles
less intangible assets, plus long term indebtedness fully subordinated to the
debt due to Bank.
c. Have and maintain Minimum Quick Ratio, measured monthly, of 1.50:1.0.
Quick Ratio is defined as cash and cash equivalents plus accounts receivable
divided by current liabilities.
d. Maintain books and accounting practices satisfactory to Bank and
agrees to pay Bank for up to one collateral audits per year. Audit fees shall be
no greater than $1,500.00 per audit.
4
<PAGE> 12
e. Reimburse Bank for all reasonable out-of-pocket expenses (if any)
incurred by Bank in connection with its due diligence and closing of this
transaction. Out-of-pocket expenses shall be no greater than $2,500.00.
f. Maintain primary operating and depository accounts with Bank.
g. At least 20 days prior to the initial advance by Bank and within 20
days of each month-end thereafter (while such borrowings are outstanding),
deliver to Bank monthly aged listings of accounts receivable (to include
customer addresses and phone numbers) and accounts payable along with a
borrowing base certificate in form and substance acceptable to Bank.
h. Within 30 days after the end of each month, deliver to Bank a profit
and loss statement, a balance sheet and compliance certificate in form
satisfactory to Bank, all certified by an officer of Borrower.
i. Within 90 days after the end of Borrower's fiscal year, deliver to
Bank unqualified CPA audited financial statements (beginning with the fiscal
year ended March 31, 1999).
j. Deliver to Bank budgets, sales projections, operating plans, or other
financial exhibits which Bank may reasonably request.
k. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
l. INSURANCE. Maintain public liability, property damage and workers
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses. Borrower shall provide evidence of property
insurance in amounts and types acceptable to the Bank and Bank shall be named as
Loss Payee in a Lender's Loss Payable Endorsement form 438BFU or equivalent.
m. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and any of
its other liabilities at any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially
adverse effect upon its financial condition or the loss of any
right of redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice)
deemed by it adequate with respect thereto.
5
<PAGE> 13
n. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine its properties, books and records at all reasonable times.
8. FEES AND INTEREST:
a. The rate of interest applicable to the Loan Account shall be 0.25%
per year less than the rate of interest which Bank has announced as its prime
lending rate ("Prime Rate") which shall vary concurrently with any change in
such Prime Rate. No fee will be due upon execution of this document.
Interest shall be computed at the above rate on the basis of the actual number
of days during which the principal balance of the Loan Account is outstanding
divided by 360, which shall for interest computation purposes be considered one
year.
9. MISCELLANEOUS PROVISIONS. Failure or Indulgence Not Waiver. No failure or
delay on the part of your Bank or any holder or Notes Issued hereunder, in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof or of any other right,
power or privilege. All rights and remedies existing under this agreement or any
not issued in connection with a loan that your Bank may make hereunder, are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
10. Notwithstanding the provisions of the Security and Loan Agreement (Accounts
Receivable and/or Inventory), the following provision shall apply to all
obligations of the Borrower to the Bank: All sums received by Bank, whether from
Borrower or from Borrower's account debtors, shall be applied to the outstanding
loan balance immediately upon receipt thereof by the Bank. The Borrower will be
charged, on a monthly basis, for the uncollected balance fees.
11. NOTICE OF DEFAULT. Borrower shall promptly notify Bank in writing of the
occurrence of any event of default hereunder or any event which upon notice and
lapse of time would be an event of default.
12. PERMITTED LIENS. "Permitted Liens" means the following:
a. liens and security interests existing as of this date,
specifically the Comdisco Lease and the Sun Microsystems Lease;
b. liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good
faith by appropriate proceedings;
c. liens and security interests (a) upon or in any equipment (which
shall be deemed to include software) acquired or held by
Borrower to secure the purchase price of such equipment and in
an amount not greater than the purchase price thereof or (b)
existing on such equipment at the time of its acquisition,
provided that the lien and security interest is confined solely
to the property so acquired and improvements thereon, and the
proceeds of such equipment;
6
<PAGE> 14
d. liens consisting of leases or subleases and licenses and
sublicenses granted to others in the ordinary course of
Borrower's business not interfering in any material respect with
the business of Borrower and any interest or title of a lessor
or licensor under any lease or license, as applicable;
e. liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons or
entities imposed without action of such parties, provided that
the payment thereof is not yet required;
f. liens incurred or deposits made in the ordinary course of
Borrower's business in connection with worker's compensation,
unemployment insurance, social security and other like laws;
g. liens arising from judgements, decrees or attachments in
circumstances not constituting an Event of Default;
h. easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances affecting real property not interfering in any
material respect with the ordinary conduct of Borrower's
business;
i. liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection
with the importation of goods;
j. liens that are not prior to Bank's security interest which
constitute rights of set-off of a customary nature;
k. any interest or title of a lessor in equipment subject to any
capitalized lease otherwise permitted hereunder; and
l. any liens arising from the filing of any financing statements
relating to true leases otherwise permitted hereunder.
This addendum is executed by and on behalf of the parties as of the date
first above written.
VIRAGE, INC. "BORROWER"
BY: /s/ Paul Lego
-------------------------------------
CEO
- -----------------------------------------
Title
IMPERIAL BANK, "BANK"
BY: /s/ Ronald T. Kundich
-------------------------------------
AVP
- -----------------------------------------
Title
7
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 17, 2000 in the Registration Statement (Form
S-1) and related Prospectus of Virage, Inc. for the registration of shares of
its common stock.
Our audits also included the financial statement schedule listed in Item
16(b) of this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
--------------------------------------
San Jose, California
February 7, 2000
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5,822,623
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<PERIOD-START> APR-01-1997
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12,472,354
0
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<TABLE> <S> <C>
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<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 4,356,541
<SECURITIES> 0
<RECEIVABLES> 959,594
<ALLOWANCES> 187,256
<INVENTORY> 0
<CURRENT-ASSETS> 5,633,056
<PP&E> 1,599,403
<DEPRECIATION> 856,143
<TOTAL-ASSETS> 6,604,740
<CURRENT-LIABILITIES> 1,754,387
<BONDS> 521,988
17,935,913
0
<COMMON> 4,646
<OTHER-SE> (13,331,111)
<TOTAL-LIABILITY-AND-EQUITY> 6,604,740
<SALES> 3,350,209
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<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
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39,896,613
0
<COMMON> 5,608
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