<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1998
REGISTRATION 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ONYX SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 7372 91-1629814
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
310 - 120TH AVENUE N.E.
BELLEVUE, WASHINGTON 98005
(425) 451-8060
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
BRENT R. FREI
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
ONYX SOFTWARE CORPORATION
310 - 120TH AVENUE N.E.
BELLEVUE, WASHINGTON 98005
(425) 451-8060
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
GREGORY GORDER MARK A. BERTELSEN
ALESIA L. PINNEY-HAWKINS JOSE F. MACIAS
ALAN C. SMITH S. DAWN SMITH
PERKINS COIE LLP WILSON SONSINI GOODRICH & ROSATI
1201 THIRD AVENUE, 40TH FLOOR PROFESSIONAL CORPORATION
SEATTLE, WASHINGTON 98101-3099 650 PAGE MILL ROAD
(206) 583-8888 PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value per
share............................ $35,650,000 $9,911
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- --------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE +
+CANNOT 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 IT IS NOT SOLICITING AN OFFER TO BUY +
+THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1998
Shares
[LOGO OF ONYX SOFTWARE(R)]
Common Stock
--------
Prior to this offering, there has been no public market for the common stock.
The initial public offering
price is expected to be between $ and $ per share. Application has been made
to list the
common stock on the Nasdaq National Market under the symbol "ONXS."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
STARTING ON PAGE 5.
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.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS
PUBLIC COMMISSIONS TO ONYX
-------- ------------- --------
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(1)........................................ $ $ $
</TABLE>
(1) ONYX has granted the Underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase a maximum of additional shares
to cover over-allotments of shares.
Delivery of the shares of common stock will be made on or about , 1999,
against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON
SG COWEN
PIPER JAFFRAY INC.
Prospectus dated , 1999
<PAGE>
[ARTWORK AND GRAPHICS]
ERM Solutions for Progressive Organizations
ONYX Software builds ERM solutions for organizations competing in today's
business environment. Specifically, the ONYX solution:
. integrates functional departments of an enterprise around common
relationships
. is rapidly deployable throughout the entire enterprise
. yields lower total cost of ownership
. employs latest-generation technologies, including the Windows NT and Microsoft
BackOffice platforms and Internet technologies.
ONYX enables communication and collaboration across the organization through a
consistent, easy-to-use interface that is accessible through the Internet and
corporate intranets and extranets.
GAIN PERSPECTIVE -- AND UNDERSTANDING.
Having a single repository of marketing, sales and service information allows
the ONYX solution to provide a real-time view of an organization's performance.
THE RIGHT TECHNOLOGY MIX.
ERM technologies can vary significantly. The ONYX ERM solution provides out-of-
the-box functionality that lowers acquisition, implementation, consulting and
education costs, while allowing customers to tailor the application to their
business methodologies using preconfigured templates.
WORKING SMARTER -- FASTER.
We have designed the ONYX ERM solution to be rapidly deployable throughout the
enterprise, thereby helping to provide a higher return on investment. On
average, customers have completed initial deployments of ONYX applications in
eight to ten weeks.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 5
Use of Proceeds................... 16
Dividend Policy................... 16
Capitalization.................... 17
Dilution.......................... 18
Selected Consolidated Financial
Data............................. 19
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 21
Business.......................... 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................................................ 46
Certain Transactions.................................................. 52
Principal Shareholders................................................ 54
Description of Capital Stock.......................................... 56
Shares Eligible for Future Sale....................................... 59
Underwriting.......................................................... 61
Notice to Canadian Residents.......................................... 62
Legal Matters......................................................... 63
Experts............................................................... 63
Additional Information................................................ 64
Index to Consolidated 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.
"ONYX," "ONYX Web Wizards" and "Total Customer Management" are registered
trademarks of ONYX Software Corporation. We have applied for federal
registration of the marks "Customer Center," "Customer Center-Unplugged,"
"RapidLink" and "ChannelConnect." All other trademarks or service marks
appearing in this prospectus are trademarks or service marks of the respective
companies that use them.
Except as otherwise noted herein, information in this prospectus assumes (1)
the conversion of all outstanding shares of redeemable convertible preferred
stock into an aggregate of 3,533,925 shares of common stock upon the closing of
this offering, (2) no exercise of the underwriters' over-allotment option and
(3) the filing, upon the approval by our shareholders, of Articles of Amendment
to our Third Amended and Restated Articles of Incorporation (the "Restated
Articles").
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999, 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>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.
ONYX SOFTWARE CORPORATION
ONYX is a leading provider of Enterprise Relationship Management ("ERM")
software solutions, which automate the key functions that enable enterprises to
more effectively acquire, manage and retain customers, partners and other
relationships. The ONYX ERM solution is based on the Microsoft Windows NT and
Microsoft BackOffice platforms and features a common data model which creates a
single repository of marketing, sales and service information that is
accessible throughout the enterprise. We designed our solution from inception
to be an integrated, enterprise-wide ERM solution that is easy to use through a
variety of interfaces, including the Internet and corporate intranets and
extranets. The ONYX ERM solution is rapidly deployable, scaleable, flexible and
reliable, resulting in a low total cost of ownership.
We believe there is a market opportunity for an ERM system that employs
recent technology developments to enable enterprises to better address the
competitive and operational processes of today's challenging and rapidly
developing business environment to more effectively acquire, manage and retain
customers, partners and other relationships. This solution would provide a high
return on investment by improving the effectiveness of sales, marketing and
support activities while maintaining a low total cost of ownership.
Our integrated product family allows enterprises to automate the customer
lifecycle across the entire enterprise, instead of automating only individual
departments. We target mid- to large-sized organizations and divisions of
Fortune 500 companies, marketing and selling our software and services through
a direct sales force, as well as through distributors. We have direct sales
offices in the United States, the United Kingdom, Singapore and Australia and
distributors in Latin America, Asia and Europe. We serve over 300 customers in
a variety of industries, including financial services, high technology, health
care, manufacturing and telecommunications. Our customers include American
Express Financial Advisors, Brooklyn Union Gas Company, Cincinnati Bell
Telephone, Datastream Systems Inc., GIGA Information Group, NTL Internet and
Sierra Health Services, Inc.
Our principal executive offices are located at 310 - 120th Avenue N.E.,
Bellevue, Washington 98005 and our telephone number is (425) 451-8060. We were
incorporated in Washington in 1994.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.................... shares
Common stock to be outstanding after
this offering.......................... shares(1)
Use of proceeds......................... For working capital and other general
corporate purposes
Proposed Nasdaq National Market symbol.. ONXS
</TABLE>
- --------
(1) Based on shares outstanding on November 30, 1998. Includes 3,533,925
shares of common stock issuable upon conversion of the outstanding shares
of preferred stock. Excludes (1) 3,388,252 shares of common stock issuable
upon exercise of options outstanding (of which 469,067 shares are
exercisable) under our Amended and Restated 1994 Combined Incentive and
Nonqualified Stock Option Plan (the "1994 Plan") at a weighted average
exercise price of $1.66 per share, (2) 16,200 shares of common stock
issuable upon exercise of options outstanding (of which none are
exercisable) under our 1998 Stock Incentive Compensation Plan (the "1998
Plan") at an exercise price of $9.00 per share, (3) 1,502,672 shares
available for issuance under the 1998 Plan and (4) 500,000 shares
available for issuance under our 1998 Employee Stock Purchase Plan (the
"ESPP"), which was approved by the Board of Directors on December 4, 1998
and recommended to the shareholders for adoption.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FEBRUARY 23,
1994 YEAR ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------- ------------------
1994 1995 1996 1997 1997 1998
-------------- ------ ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenues......... $ 166 $2,198 $9,645 $19,437 $ 12,277 $ 24,004
Income (loss) from
operations............ (35) 801 2,065 (3,746) (2,572) (5,396)
Net income (loss)...... (15) 523 1,394 (2,544) (1,735) (5,494)
Pro forma basic and
diluted net loss per
share(1).............. $ (0.23) $ (0.47)
Shares used in
computation of pro
forma net loss per
share(1).............. 11,262 11,739
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................. $ 177 $ 177
Working capital........................... 1,629 1,629
Total assets.............................. 17,098 17,098
Redeemable convertible preferred stock.... 12,981 --
Shareholders' equity (deficit)............ (6,573) 6,408
</TABLE>
- --------
(1) See Notes 1 and 8 of Notes to Consolidated Financial Statements for
information concerning the determination of basic and diluted net income
(loss) per share.
(2) As adjusted to give effect to the conversion of 3,433,925 outstanding
shares of redeemable convertible preferred stock into 3,533,925 shares of
common stock. See "Certain Transactions."
(3) As adjusted to give effect to the sale by ONYX of shares of common
stock offered through this prospectus at an assumed initial public
offering price of $ per share and after deducting underwriting discounts
and commissions and estimated offering expenses. See "Use of Proceeds" and
"Capitalization."
4
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before buying shares
in this offering. The risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial also may impair our business operations.
If any of the following risks actually occur, our business, financial
condition and operating results could be materially adversely affected, the
trading price of our common stock could decline, and you might lose all or part
of your investment.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believes," "expects,"
"future," and "intends," and similar expressions to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks described below and elsewhere
in this prospectus.
OUR FUTURE OPERATING RESULTS ARE UNCERTAIN AND LIKELY TO FLUCTUATE.
Our operating results have varied widely in the past, and we expect that they
will continue to fluctuate in the future. In addition, our operating results
may not follow any past trends. In particular, it is difficult to predict the
timing or amount of our license revenues because
. our sales cycles are lengthy and variable, typically ranging between two
to six months from our initial contact with a potential customer to the
signing of a license agreement (although occasionally sales require
substantially more time);
. the amount of unfulfilled orders for our products at the beginning of a
quarter is small because our products are typically shipped shortly
after orders are received; and
. we recognize a substantial portion of our license revenues in the last
month of a quarter, and often in the last weeks or days of a quarter.
Nevertheless, we base our decisions regarding our operating expenses on
anticipated revenue trends. Because many of our expenses are relatively fixed,
a delay in recognizing revenue from a limited number of license transactions
could cause our operating results to vary significantly from quarter to quarter
and could result in operating losses. To the extent these expenses are not
followed by increased revenues, our operating results will suffer. Our future
operating results will depend on many factors, including
. demand for our products and services;
. product and price competition;
. variability in the mix of our license and service revenues;
. variability in the mix of our direct and indirect license revenues;
. variability in the mix of services that we perform and those performed
by third-party service providers;
. success in expanding our direct sales force, indirect distribution
channels and consulting organization;
. our ability to develop and market new and enhanced products on a timely
basis;
. timing of our new product introductions and product enhancements or
those of our competitors;
. continued purchases by our existing customers, including additional
license and maintenance revenues;
. international sales and strategic acquisitions; and
. the loss of any key employees and timing of our new hires.
5
<PAGE>
We continue to experience significant seasonality with respect to software
license revenues. In recent years, we have recognized more license revenues in
our fourth quarter than in each of the first three quarters of a fiscal year
and have experienced lower license revenues in our succeeding first quarter. We
believe that these fluctuations are primarily caused by customer buying
patterns (often influenced by year-end budgetary pressures) and the efforts of
our direct sales force to meet or exceed year-end sales quotas. We expect that
seasonal trends will continue in the future.
In the past, the software industry has experienced significant downturns,
particularly when general economic conditions decline and spending on
management information systems decreases. Our business, financial condition and
operating results may fluctuate substantially from quarter to quarter as a
consequence of general economic conditions in the software industry. In
addition, the fiscal or quarterly budget cycles of our customers can cause our
revenues to fluctuate from quarter to quarter. As a result of all of these
factors, we believe that period-to-period comparisons of our operating results
are not meaningful, and you should not rely on such comparisons to predict our
future performance. Fluctuations in our operating results, particularly
compared to the expectations of market analysts or investors, could cause
volatility in the price of our common stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--Sales
and Marketing."
WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED LOSSES.
We commenced operations in February 1994 and commercially released version
1.0 of ONYX Customer Center in December 1994. Accordingly, we have a limited
operating history, and we face all of the risks and uncertainties encountered
by early stage companies. The new and evolving nature of the ERM market
increases these risks and uncertainties. To address these risks, we must, among
other things
. successfully implement our sales and marketing strategy;
. respond to competitive developments;
. attract, retain and motivate qualified personnel;
. develop and upgrade our products and technologies more rapidly than our
competitors; and
. commercialize our products and services incorporating these enhanced
technologies.
We incurred net losses in each quarter from ONYX's inception through the
third quarter of 1994 and from the first quarter of 1997 to the third quarter
of 1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview." As of September 30, 1998, we had an
accumulated deficit of $6.1 million. We expect to continue to devote
substantial resources to our product development and sales and customer
support. As a result, we will need to generate significant quarterly revenues
to achieve and maintain profitability. Our limited operating history makes it
difficult to forecast our future operating results. Our business strategies may
not be successful, and we may not be profitable in any future period. See
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
OUR MARKET IS HIGHLY COMPETITIVE.
The market for ERM software is intensely competitive, fragmented and rapidly
changing. We face competition in the ERM software market primarily from (1)
front-office software applications vendors, such as Clarify, Inc., Pivotal
Corp., SalesLogix Corporation, Siebel Systems, Inc. and The Vantive
Corporation, (2) large enterprise software vendors, particularly enterprise
resource planning ("ERP") system vendors, such as Baan Company N.V., J. D.
Edwards & Company, Oracle Corporation, PeopleSoft Corporation and SAP AG, and
(3) our potential customers' internal information technology ("IT")
departments, which may seek to develop proprietary ERM systems. In addition, as
we develop new products, particularly applications focused on particular
industries, we may begin competing with companies with whom we have not
previously competed. It is also possible that new competitors will enter the
market or that our competitors will form alliances that may enable them to
rapidly increase their market share.
6
<PAGE>
Many of our competitors have already established supplier relationships with
divisions of our current or potential customers. These competitors may be able
to use their existing relationships to discourage these customers from
purchasing additional ONYX products or persuade them to replace our products
with their products. Many of our competitors have longer operating histories,
significantly greater resources and name recognition and a larger installed
base of customers. As a result, these competitors may have greater credibility
with our existing and potential customers. They also may be able to devote
greater resources to the development, promotion and sale of their products,
which would allow them to respond more quickly to new or emerging technologies
and changes in customer requirements.
We expect that competition will increase as other established and emerging
companies enter the ERM market, as new products and technologies are introduced
and as new competitors enter the market. Increased competition may result in
price reductions, lower gross margins and loss of our market share, any of
which could materially adversely affect our business, financial condition and
operating results. See "Business--Competition."
WE DEPEND ON CONTINUED ADOPTION OF THE WINDOWS NT/MICROSOFT BACKOFFICE
PLATFORMS.
We have designed our products to operate exclusively on the Windows NT and
Microsoft BackOffice platforms. As a result, we market our products exclusively
to customers who have developed their enterprise computing systems around these
platforms. Our future financial performance will depend on continued growth in
the number of enterprises that successfully adopt the Windows NT and Microsoft
BackOffice computing platforms. Acceptance of the Windows NT and Microsoft
BackOffice platforms may not continue to increase in the future. The adoption
of new operating systems and computing platforms, and the market for software
applications that run on those platforms, has in the past been significantly
affected by the timing of new product releases and enhancements to these
platforms. If the Windows NT/Microsoft BackOffice market fails to grow or grows
more slowly than we currently expect, or the market is affected by delays in
the release of new or enhanced products, our business, financial condition and
operating results could be materially adversely affected. Also, the performance
of our products depends, to some extent, on the technical capabilities of the
Windows NT and Microsoft BackOffice platforms. If the Windows NT and Microsoft
BackOffice platforms do not meet the technical demands of our products, the
performance or scalability of the ONYX ERM solution may be limited and, as a
result, our business, financial condition and operating results could be
materially adversely affected. See "Business--Industry Background," "--Products
and Services" and "--Competition."
THE MARKET FOR ERM SOLUTIONS IS NEW AND HIGHLY UNCERTAIN.
The market for ERM products is still emerging, and continued growth in demand
for and acceptance of ERM products remains uncertain. Even if the ERM market
grows, businesses may purchase our competitors' ERM products or develop their
own. We believe that many of our potential customers are not fully aware of the
benefits of ERM solutions and that these solutions may never achieve market
acceptance. We have spent, and will continue to spend, considerable resources
educating potential customers about our products and ERM software solutions in
general. However, even with these educational efforts, market acceptance of our
products may not increase. If the market for our products does not grow or
grows more slowly than we currently anticipate, our business, financial
condition and operating results would be materially adversely affected.
WE RELY ON SALES OF ONLY ONE PRODUCT FAMILY.
As of September 30, 1998, substantially all of our 1998 revenues were
generated from the sale of the ONYX Customer Center product family and related
maintenance, training and implementation services. We expect revenues from the
ONYX Customer Center product family to continue to account for a substantial
majority of our future revenues. As a result, factors adversely affecting the
pricing of or demand for the ONYX Customer Center product family, such as
competition or technological change, could materially adversely affect our
business, financial condition and operating results. Our future financial
performance will substantially depend on successfully deploying current
versions of the ONYX Customer Center product family and
7
<PAGE>
developing, introducing and establishing customer acceptance of new and
enhanced versions of the ONYX Customer Center product family. See "Business--
Products and Services" and "--Sales and Marketing."
WE MAY BE UNABLE TO EXPAND OUR SALES AND SUPPORT INFRASTRUCTURE.
To date, we have sold our products primarily through our direct sales force
and have supported our customers with our consulting and customer support
staff. Our future revenue growth will depend in large part on recruiting and
training additional direct sales, consulting and customer support personnel and
expanding our indirect distribution channels. We have experienced and continue
to experience difficulty in recruiting qualified sales and support personnel
and in establishing third-party relationships. We may not be able to
successfully expand our direct sales force or other distribution channels and
any such expansion may not result in increased revenues. We believe the
complexity of our products and the large-scale deployments anticipated by our
customers will require us to hire a number of highly trained consulting and
customer support personnel, and, if we are unable to do so, we may be unable to
meet customer demands. Our business, financial condition and operating results
would be materially adversely affected if we fail to expand our direct sales
force or other distribution channels or if we fail to expand our technical and
customer support staff. See "--We may experience difficulties managing our
growth, and we depend on certain key employees" and "Business--Strategy," "--
Sales and Marketing" and "--Customers and Markets."
WE MAY EXPERIENCE DIFFICULTIES MANAGING OUR GROWTH, AND WE DEPEND ON CERTAIN
KEY EMPLOYEES.
Continued growth of our business may place a significant strain on our
existing management systems and resources. To compete effectively and manage
future growth, we must continue to improve our financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage our work force. If we are not successful, our business, financial
condition and operating results would be materially adversely affected. Our
future performance will also largely depend on the efforts and abilities of our
key technical, customer support, sales and managerial personnel and our ability
to retain them. We have in the past experienced difficulty in hiring qualified
technical, customer support, sales and managerial personnel. In addition, the
loss of any of our executive officers could materially adversely affect our
business, financial condition and operating results. Our success will depend on
our ability to attract and retain such personnel in the future. See "--We may
be unable to expand our sales and support infrastructure," "Business--Sales and
Marketing" and "Management."
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE.
The software market in which we compete is characterized by rapid
technological change, frequent new product introductions, changes in customer
demands and evolving industry standards. For example, existing products can
become obsolete and unmarketable when products using new technologies are
introduced and new industry standards emerge. As a result, the life cycles of
our products are difficult to estimate. We may need to modify our products when
third parties change software that we integrate into our products. To be
successful, we must continue to enhance our current product line and develop
new products that successfully respond to such developments. For example, we
intend to enhance our products to provide more advanced Internet functionality,
which partially depends on available Internet security, bandwidth and
reliability. We have delayed enhancements or new product release dates several
times in the past and may not be able to introduce enhancements or new products
successfully or in a timely manner in the future. Our business, financial
condition and operating results would be materially adversely affected if we
delay release of our products and product enhancements or if these products and
product enhancements fail to achieve market acceptance when released. In
addition, customers may defer or forego purchases of our products if we, our
competitors or major hardware, systems or software vendors introduce or
announce new products or product enhancements. Such events could materially
adversely affect our business, financial condition and operating results. See
"Business--Products and Services."
8
<PAGE>
WE FACE RISKS FROM EXPANSION OF OUR INTERNATIONAL OPERATIONS.
We intend to continue to substantially expand our international operations
and enter new international markets. This expansion will require significant
management attention and financial resources to successfully translate and
localize our software products to various languages and to develop direct and
indirect international sales and support channels. We may not be able to
maintain or increase international market demand for the ONYX Customer Center
product family and if we are unable to do so, international sales will be
limited, and our business, financial condition and operating results will be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
International operations are subject to inherent risks, including
. the difficulties and costs of staffing and managing foreign operations;
. the difficulties of achieving the optimal mix of direct and indirect
sales channels;
. the impact of possible adverse economic conditions;
. the costs of localizing products for foreign markets;
. longer receivables collection periods and greater difficulty in accounts
receivable collection as compared to those experienced in our domestic
operations;
. unexpected changes in regulatory requirements;
. reduced protection for intellectual property rights in some countries;
. fluctuations in the value of the U.S. dollar relative to other
currencies;
. potentially adverse tax consequences;
. seasonal reductions in business activities; and
. political and economic instability.
We (or our distributors or resellers) may not be able to sustain or increase
international revenues from licenses or from consulting and customer support.
The above factors could materially adversely affect our future international
revenues and, consequently, our business, financial condition and operating
results. Our foreign subsidiaries operate primarily in local currencies, and
their results are translated into U.S. dollars. We do not currently engage in
currency hedging activities, but we may do so in the future. Increases in the
value of the U.S. dollar relative to foreign currencies would materially
adversely affect our operating results. These factors could materially
adversely affect our future international operations and, consequently, our
business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Customers and Markets" and "--Sales and Marketing."
WE RELY HEAVILY ON KEY PARTNERS AND SYSTEMS INTEGRATORS.
We have established relationships with a number of organizations that are
important to our worldwide sales, marketing and support activities and the
implementation of our products. We expect our relationships with these
organizations to provide marketing and sales opportunities for our direct sales
force and expand the distribution of our products. We believe that these
relationships help us keep pace with the technological and marketing
developments of major software vendors and, in certain instances, provide us
with technical assistance for our product development efforts. If we fail to
maintain our existing relationships, or to establish new relationships, or if
our partners do not perform to our expectations, our business, financial
condition and operating results could be materially adversely affected.
We rely on a number of systems consulting and integration firms to implement
our software, provide customer support services and endorse our products during
the competitive evaluation stage of the sales cycle. Although we seek to
maintain relationships with these service providers, many of them have similar,
and often more established, relationships with our competitors. Further, these
third parties, many of which have significantly greater resources than we have,
may in the future market software products that compete with ours
9
<PAGE>
or reduce or discontinue their relationships with us or their support of our
products. See "Business--Products and Services." In addition, our business,
financial condition and operating results could be materially adversely
affected if
. we are unable to develop and retain effective, long-term relationships
with our systems integrators;
. we are unable to adequately train a sufficient number of systems
integrators;
. our systems integrators do not have or do not devote the resources
necessary to facilitate implementation of our products; or
. our systems integrators endorse a product or technology other than ours.
OUR SALES CYCLE IS LONG.
We believe that an enterprise's decision to purchase an ERM system is
discretionary, involves a significant commitment of its resources and is
influenced by its budget cycles. To successfully sell our products, we
generally must educate our potential customers regarding the use and benefit of
our products, which can require significant time and resources. Consequently,
the period between initial contact and the purchase of our products is often
long and subject to delays associated with the lengthy budgeting, approval and
competitive evaluation processes that typically accompany significant capital
expenditures. Our sales cycles are lengthy and variable, typically ranging
between two to six months from our initial contact to the signing of a license
agreement (although occasionally sales require substantially more time). Such
delays may cause our operating results to vary widely. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Sales and Marketing."
WE DEPEND ON SERVICE REVENUES.
Support and service revenues represented 24% of our total revenues for 1995,
30% for 1996, 32% for 1997 and 37% for the nine months ended September 30,
1998. We anticipate that service revenues will continue to represent a
significant percentage of total revenues. Because service revenues have a lower
gross margin than license revenues, a continued increase in the percentage of
total revenues represented by service revenues or an unexpected decrease in
license revenues could have a detrimental impact on overall gross margins and
our operating results. Service revenues depend in part on the ongoing renewals
of customer support contracts by our installed customer base, and we cannot
provide any assurances that these customers will renew their support contracts.
Also, we subcontract certain consulting, customer support and training services
to third-party service providers. Contract revenues generally carry lower gross
margins than our service business overall; as a result, our service revenues
and related margins may vary from period to period, depending on the mix of
these third-party contract revenues. In addition, consulting revenues as a
percentage of total revenues could decline if customers select third-party
service providers to install and service our products more frequently than they
have in the past. If service revenues are lower than anticipated, our business,
financial condition and operating results could be materially adversely
affected. Our ability to increase service revenues will depend in large part on
our ability to increase the scale of our services organization, including our
ability to successfully recruit and train a sufficient number of qualified
services personnel. We cannot provide any assurance that we will be able to do
so. See "--We may experience difficulties managing our growth, and we depend on
certain key employees" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES.
We incorporate into our products certain software that is licensed to us by
third-party software developers. Although we believe there are other sources
for this licensed software, any significant interruption in the supply of any
of this licensed software could materially adversely affect our sales, unless
and until we can replace the functionality provided by this licensed software.
Because our products incorporate software developed and maintained by third
parties, we depend on such third parties' abilities to deliver and support
reliable products,
10
<PAGE>
enhance their current products, develop new products on a timely and cost-
effective basis, and respond to emerging industry standards and other
technological changes. The third-party software currently offered in
conjunction with our products may become obsolete or incompatible with future
versions of our products. Our sales could be materially adversely affected if
we are unable to replace the functionality provided by that software. See
"Business--Products and Services."
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS.
Our success depends in part on our ability to protect our proprietary rights.
To protect our proprietary rights, we rely primarily on a combination of
copyright, trade secret and trademark laws, confidentiality agreements with
employees and third parties, and protective contractual provisions such as
those contained in license agreements with consultants, vendors and customers,
although we have not signed such agreements in every case. Despite our efforts
to protect our proprietary rights, unauthorized parties may copy aspects of our
products and obtain and use information that we regard as proprietary. Other
parties may breach confidentiality agreements and other protective contracts we
have entered into, and we may not become aware of, or have adequate remedies in
the event of, such breach.
We pursue the registration of certain of our trademarks and service marks in
the United States and in certain other countries, but we have not secured
registration of all our marks. In addition, the laws of some foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States, and effective copyright, trademark and trade secret protection
may not be available in other jurisdictions. A significant portion of our marks
include the word "Onyx." Other companies use "Onyx" in their marks alone or in
combination with other words, and we cannot prevent all third-party uses of the
word "Onyx." We license certain proprietary rights to third parties. Such
licensees may not abide by compliance and quality control guidelines with
respect to such proprietary rights and may take actions that would materially
adversely affect our business, financial condition and operating results.
We have been subject to claims and expect to be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of trademarks and other intellectual property
rights of third parties. See "Business--Legal Proceedings." ONYX Computers,
Incorporated ("OCI") has filed a lawsuit against us alleging trademark
infringement of the mark ONYX in Canada. We are negotiating to settle the
litigation. However, our negotiations may not be successful. An adverse outcome
could have a material adverse effect on our financial condition and operating
results.
In the computer software market, there is frequent and substantial
intellectual property litigation, which is often complex and expensive, and
involves a significant diversion of resources and uncertainty of outcome. We
may need to litigate to enforce and protect our intellectual property or to
defend against a claim of infringement or invalidity. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we have been and expect to continue to be subject to legal
proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of third-party proprietary
rights by us and our licensees. In addition, we expect that software developers
will be increasingly subject to infringement claims as the number of products
and competitors in our industry grows and the functionality of products in
different industry segments overlaps. Furthermore, former employers of our
present and future employees may assert claims that our employees have
improperly disclosed confidential or proprietary information to us. If we
discover that any elements of the ONYX Customer Center product family violate
third-party proprietary rights, we may be unable to obtain licenses on
commercially reasonable terms, if at all, and to avoid or settle litigation
without substantial expense and damage awards. Any claims relating to the
infringement of third-party proprietary rights, even if not meritorious, could
result in costly litigation, divert management's attention and resources, cause
product shipment delays or require us to pay damages or enter into royalty or
license agreements on terms that are not advantageous to us. Any of these
results could materially adversely affect our business, financial condition and
operating results.
11
<PAGE>
We rely on certain technology that we license from third parties, including
software that is integrated with internally developed software and used in our
products, to perform key functions. Although we are generally indemnified
against claims that such third-party technology infringes the proprietary
rights of others, such indemnification is not always available for all types of
intellectual property rights, and in some cases the scope of such
indemnification is limited. Even if we receive broad indemnification, third-
party indemnitors are not always well capitalized and may not be able to
indemnify us in the event of infringement, resulting in substantial exposure to
us. Infringement or invalidity claims arising from the incorporation of third-
party technology, and claims for indemnification from our customers resulting
from such claims, may be asserted or prosecuted against us. Such claims, even
if not meritorious, could result in the expenditure of significant financial
and managerial resources in addition to potential product redevelopment costs
and delays, and could materially adversely affect our business, financial
condition and operating results. See "Business--Intellectual Property and Other
Proprietary Rights."
OUR PRODUCTS MAY SUFFER FROM DEFECTS OR ERRORS.
Software products as complex as ours frequently contain errors or defects,
especially when first introduced or when new versions are released. We have had
to delay commercial release of certain versions of our products until software
problems were corrected, and in some cases have provided product enhancements
to correct errors in released products. Our new products or releases may not be
free from errors after commercial shipments have begun. Any errors that are
discovered after commercial release could result in loss of revenues or delay
in market acceptance, diversion of development resources, damage to our
reputation or increased service and warranty costs, all of which could
materially adversely affect our business, financial condition and operating
results.
WE MAY FACE PRODUCT LIABILITY CLAIMS.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that these provisions may be ineffective under the laws of
certain jurisdictions. Although we have not experienced any product liability
claims to date, the sale and support of our products entails the risk of such
claims, and we may be subject to such claims in the future. Although we
maintain product liability insurance, this coverage may not be adequate and may
not continue to be available. Product liability insurance is expensive and in
the future may not be available on acceptable terms, if at all. A successful
product liability claim brought against us could materially adversely affect
our business, financial condition and operating results.
THE INTEGRATION OF ENCYC MAY BE DIFFICULT AND DISRUPTIVE.
In September 1998, we acquired EnCyc, Inc, a privately held marketing
encyclopedia software company ("EnCyc"). We are currently in the process of
integrating the EnCyc business with our business. This integration is subject
to risks commonly encountered in making acquisitions, including, among others,
risk of loss of key personnel, difficulties associated with assimilating the
technologies, products, personnel and operations, potential disruption of our
ongoing business, and the ability of our sales force, consultants and
development staff to adapt to the new product line. We may not successfully
overcome these risks or any other problems encountered in connection with the
acquisition of EnCyc.
ANY FUTURE ACQUISITIONS MAY BE DIFFICULT AND DISRUPTIVE.
As part of our business strategy, we expect to consider acquiring other
companies that would complement our existing product offerings, augment our
market coverage, enhance our technological capabilities, or otherwise offer us
growth opportunities. Future acquisitions may result in the following, any of
which could adversely affect our operating results or the trading price of our
common stock:
. issuances of equity securities that may dilute your ownership interest
in ONYX;
. cash payments or assumption of debt or other liabilities of the
companies we acquire;
12
<PAGE>
. large one-time write-offs and amortization expenses related to goodwill
and other intangible assets; and
. negative changes to our financial model.
In addition, acquisitions involve many risks and challenges that we might not
successfully overcome, including
. difficulties in assimilating technologies, products, personnel and
operations;
. diversion of management's attention;
. risks of entering markets in which we have no or limited prior
experience; and
. loss of key employees of acquired organizations.
We may not be able to successfully integrate any technologies, products,
personnel or operations of companies that we may acquire in the future. If we
fail to do so, our business, financial condition and operating results could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR STOCK PRICE MAY BE VOLATILE.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock will be determined
through negotiations between ONYX and the representatives of the Underwriters.
The market price for our shares of common stock is likely to be very volatile,
and, if you decide to purchase our shares, you may not be able to resell your
shares at or above the initial public offering price due to a number of
factors, including
. actual or anticipated variations in quarterly operating results;
. the gain or loss of significant orders;
. changes in earning estimates by analysts;
. announcements of technological innovations or new products by us or our
competitors;
. general conditions in the software and computer industries; and
. other events or factors that negatively affect the stock market.
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have affected the market price for many companies in
industries similar or related to ours and that have been unrelated to these
companies' operating performances. These broad market fluctuations could
materially adversely affect the market price of our common stock.
CERTAIN EXISTING SHAREHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK.
Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately % of the
outstanding shares of our common stock ( % if the Underwriters' over-allotment
option is exercised in full). As a result, these shareholders will be able to
control all matters requiring shareholder approval and, thereby, our management
and affairs. Matters that typically require shareholder approval include:
. election of directors;
. merger or consolidation; and
. sale of all or substantially all our assets.
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock. See "Principal Shareholders."
13
<PAGE>
OUR ARTICLES OF INCORPORATION AND BYLAWS AND WASHINGTON LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A TAKEOVER.
Certain provisions of our Restated Articles and our Amended and Restated
Bylaws (the "Restated Bylaws") and Washington law could make it more difficult
for a third party to obtain control of ONYX. See "Description of Capital
Stock."
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, we will have outstanding shares of common stock.
Sales of a substantial number of shares of common stock in the public market
following this offering could materially adversely affect the market price of
our common stock. All the shares sold in this offering will be freely tradable.
The remaining 13,360,134 shares of common stock outstanding after this offering
will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
---------------- -----------------------------
<S> <C>
-- , 1999 (date of this prospectus)
82,309 , 1999 (90 days after the date of
this prospectus)
13,135,597 , 1999 (180 days after the date of
this prospectus)
242,228 At various times thereafter upon the
expiration of one-year holding periods
</TABLE>
See "Shares Eligible for Future Sale" and "Underwriting."
WE FACE "YEAR 2000" RISKS.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries will produce erroneous results or fail unless
they have been modified or upgraded to process date information correctly.
Significant uncertainty exists in the software industry and other industries
concerning the scope and magnitude of problems associated with the century
change. Based on our assessment to date, we believe the current versions of our
software products are "Year 2000 compliant"--that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. However,
our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products that may not be Year 2000
compliant. We may face claims based on Year 2000 problems in other companies'
products, or issues arising from the integration of multiple products within an
overall system. We also need to ensure Year 2000 compliance of our own internal
computer systems. In addition, we may experience reduced sales of our products
as potential customers reduce their budgets for ERM software due to increased
expenditures on their own Year 2000 compliance efforts. We do not expect the
total cost to us of Year 2000 compliance issues to be material to our business,
financial condition and operating results. However, we and our customers and
suppliers may not identify and remediate all significant Year 2000 problems on
a timely basis. Remediation efforts may involve significant time and expense
and unremediated problems could materially adversely affect our business,
financial condition and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
WE FACE RISKS RELATED TO THE EUROPEAN MONETARY CONVERSION.
We are aware of the issues associated with the forthcoming changes in Europe
aimed at forming a European economic and monetary union (the "EMU"). One of the
changes resulting from this union will require EMU member states to irrevocably
fix their respective currencies to a new currency, the Euro, on January 1,
1999, at which date the Euro will become a functional legal currency of these
countries. During the
14
<PAGE>
next three years, business in the EMU member states will be conducted in both
the existing national currency, such as the French Franc or the Deutsche Mark,
and the Euro. As a result, companies operating in or conducting business in EMU
member states will need to ensure that their financial and other software
systems are capable of processing transactions and properly handling these
currencies, including the Euro.
We are still assessing the impact the conversion to the Euro will have on
both our internal systems and the products we sell. We will take appropriate
corrective actions based on the results of such assessment. We have not yet
determined the cost related to addressing this issue. This issue and its
related costs could materially adversely affect our business, financial
condition and operating results.
CHANGES IN ACCOUNTING STANDARDS COULD AFFECT OUR FUTURE OPERATING RESULTS.
We recognize revenues from software license agreements upon delivery of our
software products if
. persuasive evidence of an arrangement exists;
. collection is probable;
. the fee is fixed or determinable; and
. vendor-specific objective evidence exists to allocate the total fee to
all elements of the arrangement.
We recognize customer support (maintenance) revenues ratably over the
contract term--typically one year--and recognize revenues for consulting and
training services as such services are performed.
Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition," was
issued in October 1997 by the American Institute of Certified Public
Accountants and amended by Statement of Position 98-4 ("SOP 98-4"). We adopted
SOP 97-2 effective January 1, 1998. Based on our interpretation of SOP 97-2 and
SOP 98-4, we believe our current revenue recognition policies and practices are
consistent with SOP 97-2 and SOP 98-4. However, full implementation guidelines
for this standard have not yet been issued. Once available, such implementation
guidance could lead to unanticipated changes in our current revenues accounting
practices, which changes could materially adversely affect our business,
financial condition and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Additionally, the accounting standard setters, including the Securities and
Exchange Commission (the "Commission") and the Financial Accounting Standards
Board are reviewing the accounting standards related to business combinations
and stock-based compensation. Any changes to either of these standards or any
other accounting standards could materially adversely affect our business,
financial condition and operating results.
15
<PAGE>
USE OF PROCEEDS
We expect to receive approximately $ million in net proceeds from the sale
of the shares of common stock in this offering, assuming the initial public
offering price is $ per share (approximately $ million if the Underwriters'
over-allotment option is exercised in full).
We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including increased
domestic and international sales and marketing expenditures, increased research
and development expenditures, and capital expenditures made in the ordinary
course of business. We may also use a portion of the net proceeds to acquire
additional businesses, products and technologies or to establish joint ventures
that we believe will complement our current or future business. However, we
have no specific plans, agreements or commitments, oral or written to do so,
and are not currently engaged in any negotiations for any such acquisition or
joint venture. The amounts that we actually expend for working capital purposes
will vary significantly depending on a number of factors, including future
revenue growth, if any, the amount of cash we generate from operations and the
progress of our product development efforts. As a result, we will retain broad
discretion in the allocation of the net proceeds of this offering. Pending the
uses described above, we will invest the net proceeds in short-term, interest-
bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of our current credit facility
prohibit us from paying dividends without our lender's consent.
16
<PAGE>
CAPITALIZATION
The following table sets forth (1) the actual capitalization of ONYX as of
September 30, 1998, (2) the pro forma capitalization of ONYX after giving
effect to the conversion of all 3,433,925 outstanding shares of redeemable
convertible preferred stock into 3,533,925 shares of common stock, and (3) the
pro forma as adjusted capitalization to give effect to the sale of shares of
common stock at $ per share in this offering (less underwriting discounts and
commissions and estimated expenses we expect to pay in connection with this
offering). You should read this table in conjunction with our Consolidated
Financial Statements and the Notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------------- ---------------- ------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term obligations,
net of current
portion................ $ 692 $ 692 $ 692
Redeemable convertible
preferred stock, $0.01
par value per share;
10,000,000 shares
authorized: 3,433,925
shares issued and
outstanding, actual; no
shares issued and
outstanding, pro forma
and pro forma as
adjusted............... 12,981 -- --
Shareholders' equity
(deficit):
Preferred stock, $0.01
par value per share
10,000,000 shares
authorized; none pro
forma or pro forma
adjusted............. -- -- --
Common stock, $0.01
par value per share;
40,000,000 shares
authorized; 9,823,709
shares issued and
outstanding, actual;
13,357,634 shares
issued and
outstanding, pro
forma; shares
issued and
outstanding, pro
forma as
adjusted(1).......... (79) 12,902
Notes receivable from
officers for common
stock................ (212) (212) (212)
Deferred stock-based
compensation......... (161) (161) (161)
Accumulated other
comprehensive
income............... 15 15 15
Accumulated deficit... (6,136) (6,136) (6,136)
--------------- --------------- ---------------
Total shareholders'
equity (deficit)... (6,573) 6,408
--------------- --------------- ---------------
Total
capitalization..... $ 7,100 $ 7,100 $
=============== =============== ===============
</TABLE>
- --------
(1) Based on shares outstanding on September 30, 1998. Includes 3,533,925
shares of common stock issuable upon conversion of the outstanding shares
of preferred stock. Excludes (1) 3,352,127 shares of common stock issuable
upon exercise of options outstanding (of which 380,683 shares are
exercisable) under the 1994 Plan at a weighted average exercise price of
$1.52 per share, (2) 57,497 shares of common stock available for future
issuance under the 1994 Plan, (3) 1,500,000 shares available for future
issuance under the 1998 Plan adopted on October 23, 1998 and (4) 500,000
shares available for issuance under the ESPP, which was approved by the
Board of Directors on December 4, 1998 and recommended to the shareholders
for adoption.
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<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value per
share by dividing the net tangible book value (total assets less intangible
assets and total liabilities) by the number of outstanding shares of common
stock.
The pro forma net tangible book value of ONYX at September 30, 1998, after
giving effect to the automatic conversion of all outstanding shares of
redeemable convertible preferred stock into 3,533,925 shares of common stock
upon the closing of this offering was $2,974,000, or $0.22 per share of common
stock. After giving effect to the sale of the shares of common stock at an
assumed initial public offering price of $ per share (less underwriting
discounts and commissions and estimated expenses we expect to pay in connection
with this offering), the pro forma as adjusted net tangible book value of ONYX
at September 30, 1998 would be $ million, or $ per share. This represents an
immediate increase in the as adjusted pro forma net tangible book value of $
per share to existing shareholders and an immediate dilution of $ per share to
new investors, or approximately % of the assumed offering price of $ per
share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Pro forma net tangible book value per share at September 30,
1998........................................................... $0.22
Increase per share attributable to new investors................
-----
Pro forma as adjusted net tangible book value per share after
this offering..................................................
----
Dilution per share to new investors............................. $
====
</TABLE>
The following table sets forth on a pro forma as adjusted basis at September
30, 1998, after giving effect to the automatic conversion of all outstanding
shares of preferred stock into an aggregate of 3,533,925 shares of common stock
upon the closing of this offering, the number of shares of common stock
purchased from us, the total consideration paid to us and the average price
paid per share by existing shareholders and by investors purchasing common
stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 13,357,634 % $12,507,000 % $ 0.94
New investors...............
---------- ----- ----------- -----
Total..................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations assume the exercise of no stock options after
September 30, 1998. At November 30, 1998, we had outstanding options to
purchase a total of 3,404,452 shares of common stock at a weighted average
exercise price of $1.70 per share, as illustrated below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
<S> <C> <C>
1994 Plan............................................. 3,388,252 $ 1.66
1998 Plan............................................. 16,200 $ 9.00
---------
Total................................................. 3,404,452 $ 1.70
=========
</TABLE>
To the extent the option holders exercise these outstanding options, or any
options we grant in the future, there will be further dilution to new
investors.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The tables that follow present portions of our financial statements and are
not complete. You should read the following selected consolidated financial
data in conjunction with our Consolidated Financial Statements and related
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus. The
consolidated statement of operations data for the years ended December 31,
1995, 1996 and 1997, and for the nine months ended September 30, 1998, and the
consolidated balance sheet data as of December 31, 1996 and 1997, and September
30, 1998, are derived from our Consolidated Financial Statements that have been
audited by Ernst & Young LLP, independent auditors, which are included
elsewhere in this prospectus. The consolidated statement of operations data for
the period from February 23, 1994 (inception) to December 31, 1994, and the
consolidated balance sheet data as of December 31, 1994 and 1995 are derived
from audited consolidated financial statements that are not included in this
prospectus. The consolidated statement of operations data for the nine months
ended September 30, 1997 are derived from unaudited Consolidated Financial
Statements included in this prospectus. The unaudited Consolidated Financial
Statements include all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our
financial position and operating results for that period. Operating results for
the nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the entire year. Historical results are not
necessarily indicative of future results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Nine Months Ended September 30, 1997 and 1998."
19
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
FEBRUARY 23,
1994 YEAR ENDED NINE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, --------------------- -------------------
1994 1995 1996 1997 1997 1998
-------------- ------ ------ ------- ----------- -------
(IN THOUSANDS, EXCEPT (UNAUDITED)
PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
License................ $ 115 $1,665 $6,797 $13,191 $ 8,408 $15,153
Service................ 51 533 2,848 6,246 3,869 8,851
----- ------ ------ ------- -------- -------
Total revenues....... 166 2,198 9,645 19,437 12,277 24,004
Cost of revenues:
License................ 2 10 52 250 90 607
Service................ 52 300 2,062 5,022 3,060 5,880
----- ------ ------ ------- -------- -------
Total cost of
revenues............ 54 310 2,114 5,272 3,150 6,487
----- ------ ------ ------- -------- -------
Gross margin........... 112 1,888 7,531 14,165 9,127 17,517
Operating expenses:
Sales and marketing.... 35 583 3,187 11,026 7,278 13,615
Research and
development........... 86 255 1,170 4,729 2,931 6,705
General and
administrative........ 26 249 1,109 2,156 1,490 2,593
----- ------ ------ ------- -------- -------
Total operating
expenses............ 147 1,087 5,466 17,911 11,699 22,913
----- ------ ------ ------- -------- -------
Income (loss) from
operations............ (35) 801 2,065 (3,746) (2,572) (5,396)
Interest income, net... 2 10 118 314 231 95
----- ------ ------ ------- -------- -------
Income (loss) before
income taxes.......... (33) 811 2,183 (3,432) (2,341) (5,301)
Income tax provision
(benefit)............. (18) 288 789 (888) (606) 193
----- ------ ------ ------- -------- -------
Net income (loss)...... $ (15) $ 523 $1,394 $(2,544) $ (1,735) $(5,494)
===== ====== ====== ======= ======== =======
Pro forma basic and
diluted net loss per
share(1).............. $ (0.23) $ (0.47)
Shares used in
computation of pro
forma basic and
diluted loss per
share(1).............. 11,262 11,739
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
-------------------------- ---------------------
1994 1995 1996 1997 ACTUAL PRO FORMA(2)
---- ------ ------ ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents........... $ 90 $ 377 $1,356 $ 3,512 $ 177 $ 177
Working capital........ 136 391 4,288 9,307 1,629 1,629
Total assets........... 221 1,200 8,004 15,952 17,098 17,098
Long-term obligations,
net of current
portion............... -- -- 356 155 692 692
Redeemable convertible
preferred stock....... -- -- 3,202 12,070 12,981 --
Shareholders' equity
(deficit)............. 185 708 1,878 (1,552) (6,573) 6,408
</TABLE>
- --------
(1) See Notes 1 and 8 of Notes to Consolidated Financial Statements for an
explanation of the method used to calculate pro forma basic and diluted
income (loss) per share.
(2) Adjusted to reflect the conversion of 3,433,925 outstanding shares of
redeemable convertible preferred stock into 3,533,925 shares of common
stock. See "Description of Capital Stock."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of this prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipate," "believes,"
"expects," "future," and "intends," and similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
our predictions. For a description of these risks, see "Risk Factors."
OVERVIEW
ONYX is a leading provider of ERM software solutions, which automate the key
functions that enable enterprises to more effectively acquire, manage and
retain customers, partners and other relationships. ONYX was founded in
February 1994. We commercially released version 1.0 of our flagship product,
ONYX Customer Center, in December 1994. In our first year of operation, we
focused primarily on research and development activities. From early 1995
through mid-1996, we began to recruit personnel, purchase operating assets,
market our products, build a direct sales force and expand our service
business. Our revenues totaled $2.2 million in 1995 and $9.6 million in 1996.
We generated net income of $523,000 in 1995 and $1.4 million in 1996.
In mid-1996, we substantially expanded our operations to capitalize on our
opportunity within the rapidly emerging ERM market. We decided, at the
potential expense of profitability, to accelerate our investments in research
and development, marketing, domestic and international sales channels,
professional services and our general and administrative infrastructure. Since
mid-1996, we have
. hired more than 220 employees;
. opened 13 domestic field sales offices;
. entered the European and Pacific markets by opening direct sales offices
in the United Kingdom, Australia and Singapore;
. released localized versions of ONYX Customer Center in German, Spanish
and International English;
. established distributor relationships with 11 international resellers;
. released two major upgrades to our flagship product;
. released four Internet-based products; and
. acquired a leading marketing encyclopedia software developer, EnCyc, Inc.
("EnCyc").
We believe these investments have been critical to our growth to date. Our
revenues were $19.4 million in 1997, representing an increase of 102% from
1996. During the first nine months of fiscal 1998, our revenues were $24.0
million, representing an increase of 96% compared to the same period of 1997.
Nevertheless, these investments have also significantly increased our operating
expenses, contributing to the net losses that we incurred in each fiscal
quarter since the first quarter of 1997. As of September 30, 1998, we had an
accumulated deficit of $6.1 million. We anticipate that our operating expenses
will increase substantially for the foreseeable future as we expand our product
development, sales and marketing and professional services staff. Accordingly,
we may incur net losses in future quarters. See "Risk Factors--Our future
operating results are uncertain and likely to fluctuate" and "--We have a
limited operating history and have incurred losses."
Source of Revenues and Revenue Recognition Policy
We generate revenues from sales of software licenses and services. We receive
software license revenues from licensing our products directly to end-users and
indirectly through resellers. To a lesser extent, we receive software license
revenues from third-party products that we distribute. We receive service
revenues from sales
21
<PAGE>
of post-contract support, consulting and training services that we perform for
customers that license our products either directly from us or indirectly
through resellers.
We recognize revenues from software license agreements upon delivery of our
software products if there is persuasive evidence of an arrangement, collection
is probable, the fee is fixed or determinable, and there is sufficient vendor-
specific objective evidence to support allocating the total fee to all elements
of the arrangement. Elements included in multiple element arrangements could
consist of software products, upgrades, enhancements, customer support services
or consulting services. If an acceptance period is required, we recognize
revenues upon the earlier of customer acceptance or the expiration of the
acceptance period. We enter into reseller arrangements that typically provide
for sublicense fees payable to us based on a percentage of our list price. We
recognize sublicense fees as they are reported by the reseller when it
relicenses our products to end-users.
We recognize revenues from customer support services ratably over the term of
the contract, typically one year. We derive consulting revenues primarily from
implementation services performed on a time-and-materials basis under separate
service arrangements related to the installation of our software products. We
recognize revenues from consulting and training services as these services are
performed. If a transaction includes both license and service elements, we
recognize license fee revenue on shipment of the software, provided services do
not include significant customization or modification of the base product, and
the payment terms for licenses are not subject to acceptance criteria. In cases
where license fee payments are contingent on the acceptance of services, we
defer recognition of revenues from both the license and the service elements
until the acceptance criteria are met.
We believe that our current revenue recognition policies and practices are
materially consistent with the revenue recognition rules released by the
American Institute of Certified Public Accountants in October 1997 and in early
1998. However, full implementation guidelines for these rules have not yet been
issued. See "Risk Factors--Changes in accounting standards could affect our
future operating results."
EnCyc Acquisition
On September 14, 1998, we acquired EnCyc, a marketing encyclopedia software
developer founded in August 1995. In exchange for all the outstanding shares of
EnCyc, we issued 233,333 shares of our common stock, paid $500,000 to EnCyc
shareholders and liquidated $250,000 of EnCyc's existing long-term debt. In
addition, in connection with the acquisition, we issued options to EnCyc
employees to purchase up to 75,000 shares of our common stock. For accounting
purposes, these options have been treated as part of the purchase price,
resulting in a total purchase price of $2.3 million, including direct costs of
the acquisition. In determining the purchase price, we estimated the fair value
of our common stock and stock options issued in the transaction. We accounted
for the acquisition under the purchase method of accounting. We have included
the results of operations of EnCyc and the fair value of the assets acquired
and liabilities assumed in our Consolidated Financial Statements beginning on
the acquisition date. We recorded capitalized technology and other intangible
assets of $2.2 million that will be amortized on a straight-line basis over the
five years following the acquisition, which represents the expected life of the
intangible assets that we acquired.
RESULTS OF OPERATIONS
We believe that period-to-period comparisons of our operating results are not
meaningful. You should not rely on them to predict our future performance. You
should consider our prospects in light of the risks, expenses and difficulties
frequently encountered by early stage companies, particularly companies in new
and rapidly evolving markets. However, we may not be able to successfully
address such risks and difficulties. In addition, although we have experienced
significant revenue growth recently, such revenue growth may not continue, and
we may not achieve or maintain profitability in the future. See "Risk Factors--
Our future operating results are uncertain and likely to fluctuate" and "--We
have a limited operating history and have incurred losses."
22
<PAGE>
The following table presents certain financial data for the periods indicated
as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
1995 1996 1997 1997 1998
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERA-
TIONS DATA:
Revenues:
License......................... 75.8% 70.5% 67.9% 68.5% 63.1%
Service......................... 24.2 29.5 32.1 31.5 36.9
----- ----- ----- -------- --------
Total revenues................. 100.0 100.0 100.0 100.0 100.0
----- ----- ----- -------- --------
Cost of revenues:
License......................... 0.5 0.5 1.3 0.7 2.5
Service......................... 13.6 21.4 25.8 24.9 24.5
----- ----- ----- -------- --------
Total cost of revenues......... 14.1 21.9 27.1 25.6 27.0
----- ----- ----- -------- --------
Gross margin.................... 85.9 78.1 72.9 74.4 73.0
Operating expenses:
Sales and marketing............. 26.5 33.0 56.7 59.3 56.7
Research and development........ 11.6 12.1 24.3 23.9 28.0
General and administrative...... 11.4 11.5 11.2 12.1 10.8
----- ----- ----- -------- --------
Total operating expenses....... 49.5 56.6 92.2 95.3 95.5
----- ----- ----- -------- --------
Income (loss) from operations.... 36.4 21.5 (19.3) (20.9) (22.5)
Interest income, net............. 0.5 1.2 1.6 1.9 0.4
----- ----- ----- -------- --------
Income (loss) before income
taxes........................... 36.9 22.7 (17.7) (19.0) (22.1)
Income tax provision (benefit)... 13.1 8.2 (4.6) (4.9) 0.8
----- ----- ----- -------- --------
Net income (loss)................ 23.8% 14.5% (13.1)% (14.1)% (22.9)%
===== ===== ===== ======== ========
</TABLE>
RESULTS OF OPERATIONS--NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
REVENUES
Total revenues, which consist of software license and service revenues,
increased 96%, from $12.3 million for the nine months ended September 30, 1997
to $24.0 million for the nine months ended September 30, 1998. No single
customer accounted for more than 10% of our revenues for the nine months ended
September 30, 1997 or 1998.
Our license revenues increased 80%, from $8.4 million for the nine months
ended September 30, 1997 to $15.2 million for the nine months ended September
30, 1998. The increase in license revenues resulted primarily from an increase
in the volume of shipments of our software applications due to increased market
acceptance of our products, repeat business in our existing customer base and
expansion in international markets.
Our service revenues increased 129%, from $3.9 million for the nine months
ended September 30, 1997 to $8.9 million for the nine months ended September
30, 1998. Service revenues represented 32% of our total revenues for the nine
months ended September 30, 1997 and 37% for the nine months ended September 30,
1998. The increase in service revenues resulted primarily from an increase in
customer support revenues as our installed base continued to grow and, to a
lesser extent, increases in consulting and training services. We expect the
proportion of service revenues to total revenues to fluctuate in the future,
depending in part on our customers' direct use of third-party consulting and
implementation service providers and the ongoing renewals of customer support
contracts. See "Risk Factors--We depend on service revenues."
23
<PAGE>
Revenues outside of North America totaled $699,000 for the nine months ended
September 30, 1997 and $4.2 million for the nine months ended September 30,
1998. Revenues from indirect sales channels totaled $73,000 for the nine months
ended September 30, 1997 and $6.2 million for the nine months ended
September 30, 1998. The increase in both our international and indirect
revenues resulted primarily from the increased volume of business generated by
our international resellers, the majority of which were added in mid-1997.
We do not believe that we can sustain the historical percentage growth rates
of license and service revenues as our revenue base increases.
COST OF REVENUES
Cost of license revenues
Cost of license revenues consists of license fees for third-party software,
product media, product duplication and manuals. Cost of license revenues
increased 574%, from $90,000 for the nine months ended September 30, 1997 to
$607,000 for the nine months ended September 30, 1998. Cost of license revenues
as a percentage of related license revenues was 1% for the nine months ended
September 30, 1997 and 4% for the nine months ended September 30, 1998. The
increase in dollar amount in cost of license revenues resulted primarily from
an increase in third-party products we resold, as well as an increase in the
volume of shipments of our software applications. The increase in cost of
license revenues as a percentage of related license revenues resulted primarily
from the increase in third-party products we sold, which contribute
significantly lower margins.
Cost of service revenues
Cost of service revenues consists of personnel and third-party service
provider costs related to consulting services, customer support and training.
Cost of service revenues increased 92%, from $3.1 million for the nine months
ended September 30, 1997 to $5.9 million for the nine months ended September
30, 1998. The increase in dollar amount resulted primarily from the hiring and
training of consulting, support and training personnel to support our growing
customer base. Cost of service revenues as a percentage of related service
revenues was 79% for the nine months ended September 30, 1997 and 66% for the
nine months ended September 30, 1998. The cost of services as a percentage of
service revenues may vary between periods primarily for two reasons: (1) the
mix of services we provide (consulting, customer support, training), which have
different cost structures, and (2) the resources we use to deliver these
services (internal versus third parties). The decrease in cost of service
revenues as a percentage of the related service revenues resulted from a lower
percentage use of third-party service providers, which contribute significantly
lower margins than internal resources, and increased customer support revenues,
which contribute higher margins than the other services.
COSTS AND EXPENSES
Sales and marketing
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses earned by sales and marketing personnel, lead referral fees, travel and
promotional expenses and facility and communication costs for direct sales
offices. Sales and marketing expenses increased 87%, from $7.3 million for the
nine months ended September 30, 1997 to $13.6 million for the nine months ended
September 30, 1998. The increase in dollar amount of our sales and marketing
expenses resulted primarily from our continued investment in sales and
marketing infrastructure, both domestically and internationally, which included
significant personnel-related expenses, recruiting fees, travel expenses, and
related facility and equipment costs, as well as increased marketing
activities, including trade shows, public relations, direct mail campaigns and
other promotional expenses. The increase in dollar amount of our sales and
marketing expenses also resulted from an increase in lead referral fees made
under our agreement with certain international partners. Sales and marketing
expenses
24
<PAGE>
represented 59% of our total revenues for the nine months ended September 30,
1997 and 57% for the nine months ended September 30, 1998. The decrease in
sales and marketing expenses as a percentage of total revenues reflects the
more rapid growth in our revenues compared to the growth of sales and marketing
expenses due to maturing direct and indirect sales channels, as well as
increased service revenues as a percentage of total revenues. We believe that
we need to significantly increase our sales and marketing efforts to expand our
market position and further increase acceptance of our products. Accordingly,
we anticipate that sales and marketing expenses will increase in future
periods.
Research and development
Research and development expenses consist primarily of salaries, benefits and
equipment for software developers, quality assurance personnel, program
managers and technical writers and payments to outside contractors. Research
and development expenses increased 129%, from $2.9 million for the nine months
ended September 30, 1997 to $6.7 million for the nine months ended September
30, 1998. The increase in dollar amount resulted from an increase in the number
of software developers and quality assurance personnel and the use of outside
contractors to support our product development and testing activities. Research
and development costs represented 24% of our total revenues for the nine months
ended September 30, 1997 and 28% for the nine months ended September 30, 1998.
The increase in research and development expenses as a percentage of total
revenues primarily reflects the more rapid investment in our research and
development activities compared to the growth of our revenues in this period.
We believe that we need to significantly increase our research and development
investment to expand our market position and continue to expand our product
line. Accordingly, we anticipate that research and development expenses will
increase in future periods.
General and administrative
General and administrative expenses consist primarily of salaries, benefits
and related costs for our executive, finance, administrative and information
services personnel, professional services fees. General and administrative
expenses increased 74%, from $1.5 million for the nine months ended September
30, 1997 to $2.6 million for the nine months ended September 30, 1998. The
increase in dollar amount resulted primarily from the addition of finance,
executive and administrative personnel to support the growth of our business.
General and administrative costs represented 12% of our total revenues for the
nine months ended September 30, 1997 and 11% for the nine months ended
September 30, 1998. We believe our general and administrative expenses will
continue to increase as we expand our administrative staff, domestically and
internationally, and incur expenses associated with becoming a public company,
including, but not limited to, annual and other public reporting costs,
directors' and officers' liability insurance, investor relations programs and
professional services fees.
Deferred compensation
We recorded deferred compensation of approximately $98,000 for the nine
months ended September 30, 1998, representing the difference between the
exercise prices of options granted to acquire 138,400 shares of common stock
during the nine months ended September 30, 1998 and the deemed fair value for
financial reporting purposes of our common stock on the grant dates. We
amortized deferred compensation expense of $77,000 during the nine months ended
September 30, 1998. Total deferred compensation at September 30, 1998 of
$161,000 will be amortized over the vesting periods of the options.
Interest income, net
Interest income, net consists of earnings on our cash and cash equivalent and
short-term investment balances offset by interest expense associated with debt
obligations. Interest income, net was $231,000 for the nine months ended
September 30, 1997 and $95,000 for the nine months ended September 30, 1998.
The decrease in interest income, net resulted from a reduction in interest
income as a result of declining cash and cash equivalents and short-term
investment balances.
25
<PAGE>
Income taxes
As a result of our net operating loss in 1997 and prior years' profitability,
we realized a tax benefit of $606,000 for the nine months ended September 30,
1997. We recorded an income tax provision of $193,000 for the nine months ended
September 30, 1998 in connection with our foreign operations. We made no
provision or benefit for federal or state income taxes for the nine months
ended September 30, 1998 due to the operating losses incurred in the period. As
of September 30, 1998, we had net operating loss carryforwards for tax
reporting purposes of approximately $6.1 million, which begin to expire in
2017. In addition, as of September 30, 1998, we had tax credit carryforwards of
approximately $453,000, which begin to expire in 2017. The Internal Revenue
Code of 1986, as amended (the "Code"), limits the use in any future period of
net operating loss and credit carryforwards upon the occurrence of certain
events, including a significant change in ownership interests. We had net
deferred tax assets, including net operating loss carryforwards and tax
credits, totaling approximately $2.7 million as of September 30, 1998. We have
recorded a valuation allowance for the entire deferred tax asset as a result of
uncertainties regarding the realization of the asset balance. See Note 9 of
Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
REVENUES
Total revenues increased 339%, from $2.2 million in 1995 to $9.6 million in
1996, and 102% to $19.4 million in 1997. During 1995, one customer accounted
for 15% of total revenues. No single customer accounted for more than 10% of
our revenues in 1996 or 1997.
Our license revenues increased 308%, from $1.7 million in 1995 to $6.8
million in 1996, and 94% to $13.2 million in 1997. The increase in license
revenues from 1995 to 1996 primarily resulted from an increase in the volume of
shipments of our software applications due to increased market acceptance of
our existing products, new product offerings and, to a lesser extent, repeat
business from our existing customer base. The increase in revenues from 1996 to
1997 resulted from the continued effect of those same factors, as well as
expansion in international markets, primarily Europe and the South Pacific.
Our service revenues increased 434%, from $533,000 in 1995 to $2.8 million in
1996, and 119% to $6.2 million in 1997. Of our total revenues, service revenues
represented 24% in 1995, 30% in 1996 and 32% in 1997. The increases in service
revenues from 1995 to 1997 resulted primarily from the increase in consulting,
customer support and training services associated with increased sales of our
software applications and overall growth of our installed base of customers
during these periods. See "Risk Factors--We depend on service revenues."
Revenues outside of North America totaled $1,000 in 1995, $348,000 in 1996
and $1.2 million in 1997. The increases in international revenues from 1995 to
1997 resulted from our investment in direct and indirect sales channels,
primarily in Europe, Australia and Singapore, over the period. Prior to 1997,
revenues from indirect sales channels were insignificant. In 1997, revenues
from indirect sales channels totaled $103,000.
COST OF REVENUES
Cost of license revenues
Cost of license revenues increased 420%, from $10,000 in 1995 to $52,000 in
1996, and 381% to $250,000 in 1997. Cost of license revenues as a percentage of
related license revenues were 1% in 1995 and 1996 and 2% in 1997. The increases
in dollar amount of cost of license revenues from 1995 to 1997 resulted
primarily from an increase in the volume of shipments of our software
applications and product royalties for third-party technology shipped with our
Web Wizard and ONYX Customer Center-Unplugged products.
26
<PAGE>
Cost of service revenues
Cost of service revenues increased 587%, from $300,000 in 1995 to $2.1
million in 1996, and 144% to $5.0 million in 1997. The increases in dollar
amount from 1995 to 1997 resulted from the hiring and training of consulting,
support and training personnel to support our growing customer base and
increased use of third-party service providers. Cost of service revenues as a
percentage of related service revenues were 56% in 1995, 72% in 1996 and 80% in
1997. The increases in cost of service revenues as a percentage of related
service revenues from 1995 to 1997 primarily reflected a higher concentration
of third-party service providers, which results in significantly lower margins.
COSTS AND EXPENSES
Sales and marketing
Sales and marketing expenses increased 447%, from $583,000 in 1995 to $3.2
million in 1996, and 246% to $11.0 million in 1997. The increases in sales and
marketing expenses from 1995 to 1997 resulted primarily from our investment in
sales and marketing infrastructure, both domestically and internationally,
which included significant personnel-related expenses, recruiting fees, travel
expenses, and related facility and equipment costs, as well as increased
marketing activities, including trade shows, public relations, direct mail
campaigns and other promotional expenses. Sales and marketing expenses
represented 27% of our total revenues in 1995, 33% in 1996 and 57% in 1997. The
increases in sales and marketing expenses as a percentage of total revenues
from 1995 to 1997 primarily reflects the more rapid investment in our sales and
marketing infrastructure compared to the growth of our revenues in this period.
Research and development
Research and development expenses increased 359%, from $255,000 in 1995 to
$1.2 million in 1996, and 304% to $4.7 million in 1997. The increases in
research and development expenses from 1995 to 1997 primarily related to the
increase in the number of software developers and quality assurance personnel
and outside contractors brought on to support our product development and
testing activities. Research and development costs represented 12% of our total
revenues in 1995, 12% in 1996 and 24% in 1997. The increases in research and
development expenses as a percentage of total revenues from 1995 to 1997
primarily reflects the more rapid investment in our research and development
activities compared to the growth of our revenues in this period.
General and administrative
General and administrative expenses increased 345%, from $249,000 in 1995 to
$1.1 million in 1996, and 94% to $2.2 million in 1997. The increases from 1995
to 1997 primarily resulted from the addition of finance, executive and
administrative personnel to support the growth of our business during these
periods. General and administrative costs represented 11% of our total revenues
in each of 1995, 1996 and 1997.
Deferred compensation
We recorded deferred compensation of approximately $140,000 in December 1997,
representing the difference between the exercise prices of 405,450 shares of
common stock subject to options granted during December 1997 and the deemed
fair value for financial reporting purposes of our common stock on the grant
date. The deferred compensation will be amortized to operating expense over the
vesting periods of the options.
Interest income, net
Interest income, net was $10,000 in 1995, $118,000 in 1996 and $314,000 in
1997. The increases from 1995 to 1997 primarily resulted from increases in
interest income resulting from higher average cash and cash equivalent and
short-term investment balances over the period.
27
<PAGE>
Income taxes
Our provision for federal, state and foreign income taxes was $288,000 for
1995 and $789,000 for 1996, yielding an effective rate of 36% in 1995 and 1996.
As a result of our net operating loss in 1997 and prior years' profitability,
we realized a tax benefit of $888,000 in 1997. See Note 9 of Notes to
Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
for 1997 and the nine months ended September 30, 1998. You should read the
following table in conjunction with our Consolidated Financial Statements and
related Notes thereto included elsewhere in this prospectus. We have prepared
this unaudited information on the same basis as the audited Consolidated
Financial Statements. This table includes all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a fair
presentation of our financial position and operating results for the quarters
presented. You should not draw any conclusions about our future results from
the results of operations for any quarter.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997 1997 1998 1998 1998
--------- -------- ------------- ------------ --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License............... $ 2,160 $ 3,096 $ 3,152 $ 4,783 $ 4,116 $ 5,076 $ 5,961
Service............... 1,029 1,173 1,667 2,377 2,839 2,929 3,083
--------- -------- ----------- ----------- --------- --------- -----------
Total revenues....... 3,189 4,269 4,819 7,160 6,955 8,005 9,044
--------- -------- ----------- ----------- --------- --------- -----------
Cost of revenues:
License............... 24 24 42 160 93 240 274
Service............... 700 1,049 1,311 1,962 1,970 1,916 1,994
--------- -------- ----------- ----------- --------- --------- -----------
Total cost of
revenues............ 724 1,073 1,353 2,122 2,063 2,156 2,268
--------- -------- ----------- ----------- --------- --------- -----------
Gross margin.......... 2,465 3,196 3,466 5,038 4,892 5,849 6,776
Operating expenses:
Sales and marketing... 1,614 2,573 3,091 3,748 3,818 4,372 5,425
Research and
development.......... 659 790 1,482 1,798 2,069 2,383 2,253
General and
administrative....... 381 515 593 667 780 868 945
--------- -------- ----------- ----------- --------- --------- -----------
Total operating
expenses............ 2,654 3,878 5,166 6,213 6,667 7,623 8,623
--------- -------- ----------- ----------- --------- --------- -----------
Loss from operations.. (189) (682) (1,700) (1,175) (1,775) (1,774) (1,847)
Interest income, net.. 33 103 94 84 40 22 33
--------- -------- ----------- ----------- --------- --------- -----------
Loss before income
taxes................ (156) (579) (1,606) (1,091) (1,735) (1,752) (1,814)
Income tax provision
(benefit)............ (40) (150) (416) (282) 62 62 69
--------- -------- ----------- ----------- --------- --------- -----------
Net loss.............. $ (116) $ (429) $ (1,190) $ (809) $ (1,797) $ (1,814) $ (1,883)
========= ======== =========== =========== ========= ========= ===========
</TABLE>
28
<PAGE>
The following table sets forth unaudited quarterly results of operations as a
percentage of revenues for 1997 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1997 1997 1997 1998 1998 1998
--------- -------- ------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
License................ 67.7 % 72.5 % 65.4 % 66.8 % 59.2 % 63.4 % 65.9 %
Service................ 32.3 27.5 34.6 33.2 40.8 36.6 34.1
----- ----- ----- ----- ----- ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Cost of revenues:
License................ 0.8 0.6 0.9 2.2 1.4 3.0 3.0
Service................ 22.0 24.6 27.2 27.4 28.3 23.9 22.1
----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............. 22.8 25.2 28.1 29.6 29.7 26.9 25.1
----- ----- ----- ----- ----- ----- -----
Gross margin........... 77.2 74.8 71.9 70.4 70.3 73.1 74.9
Operating expenses:
Sales and marketing.... 50.6 60.3 64.1 52.4 54.9 54.6 60.0
Research and
development........... 20.6 18.5 30.8 25.1 29.7 29.8 24.9
General and
administrative........ 11.9 12.0 12.3 9.3 11.2 10.9 10.4
----- ----- ----- ----- ----- ----- -----
Total operating
expenses............. 83.1 90.8 107.2 86.8 95.8 95.3 95.3
----- ----- ----- ----- ----- ----- -----
Loss from operations... (5.9) (16.0) (35.3) (16.4) (25.5) (22.2) (20.4)
Interest income, net... 1.0 2.4 2.0 1.2 0.6 0.3 0.4
----- ----- ----- ----- ----- ----- -----
Loss before income
taxes................. (4.9) (13.6) (33.3) (15.2) (24.9) (21.9) (20.0)
Income tax provision
(benefit)............. (1.3) (3.6) (8.6) (3.9) 0.9 0.8 0.8
----- ----- ----- ----- ----- ----- -----
Net loss............... (3.6)% (10.0)% (24.7)% (11.3)% (25.8)% (22.7)% (20.8)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
The trends discussed in the annual comparisons of operating results from 1995
through 1997, and from the nine months ended September 30, 1997 to the nine
months ended September 30, 1998, generally apply to the comparison of results
of operations for the seven quarters in the 21-month period ended September 30,
1998, adjusted for the seasonality we have experienced as referred to below.
Cost of service revenues remained relatively flat in dollar amount during the
first three quarters of 1998 due to the declining use of third-party service
providers offset by the hiring of our own service personnel. Research and
development expenses declined in the three months ended September 30, 1998 due
to reduced use of independent contractors and other outside services used for
development of our products. The significant increase in sales and marketing
expenses during the three months ended September 30, 1998 resulted primarily
from increased lead referral fees made under our agreement with certain
international partners.
Our quarterly operating results have varied widely in the past, and we expect
that they will continue to fluctuate in the future as a result of a number of
factors, many of which are outside our control. See "Risk Factors--Our future
operating results are uncertain and likely to fluctuate" and "--Changes in
accounting standards could affect our future revenues and earnings." We have in
the past experienced delays in the planned release dates of new software
products or upgrades, and we have discovered software defects in new products
after their introduction. New products or upgrades may not be released
according to schedule, or may contain defects when released. Either of these
situations could result in adverse publicity, loss of revenues, delay in market
acceptance or claims by customers brought against us, any of which could
materially adversely affect on our business, financial condition and operating
results. See "Risk Factors--Our market is subject to rapid technological
change," "--Our products may suffer from defects or errors" and "--Changes in
accounting standards could affect our future operating results." In addition,
the timing of individual sales has been difficult for us to predict, and large
individual sales have, in some cases, occurred in quarters subsequent to those
in which we originally anticipated they would occur. The loss or deferral of
one or more significant sales could materially adversely affect our quarterly
operating results. See "Risk Factors--Our sales cycle is long."
29
<PAGE>
ONYX has experienced, and expects to continue to experience, significant
seasonality with respect to software license revenues. In recent years, there
has been a greater demand for our products in our fourth quarter than in each
of the first three quarters of a fiscal year. For example, in 1997, 37% of
total revenues, 36% of license revenues and 38% of service revenues were
recognized in the fourth quarter. We also have experienced lower revenues in
our succeeding first quarter. For example, license revenues in the first
quarter of 1998 decreased 14% from the fourth quarter of 1997. We believe that
these fluctuations are caused by customer buying patterns (often influenced by
year-end budgetary pressures) and the efforts of our direct sales force to meet
or exceed year-end sales quotas. We expect that seasonal trends will continue
for the foreseeable future. See "Risk Factors--Our future operating results are
uncertain and likely to fluctuate."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have primarily financed our operations through
private placements of our common and preferred stock. Through September 30,
1998, proceeds from private placements of common and preferred stock totaled
$11.3 million. To a lesser extent, we have financed our operations through
equipment financing and traditional financing arrangements.
As of September 30, 1998, we had cash and cash equivalents of $177,000, a
decrease of $3.3 million from cash and cash equivalents held at December 31,
1997. In October 1998, we received a federal income tax refund of $963,000. Our
working capital at September 30, 1998 was $1.6 million, compared to $9.3
million at December 31, 1997. We have a working capital revolving line of
credit with a financial institution that is secured by our accounts receivable.
This facility allows us to borrow up to the lesser of 80% of our eligible
accounts receivable or $8.0 million. As of November 30, 1998, we had borrowed
$1.6 million under the facility. The facility expires in June 2000. The
agreement under which the line of credit was established contains certain
covenants, including a provision requiring us to maintain specified financial
ratios. We were in compliance with these covenants at September 30, 1998 and,
at that time, there were no borrowings outstanding under this credit facility.
We also have a $3.0 million term loan facility with a financial institution
for the purpose of financing new capital equipment purchases. This facility
operates as a revolver through August 1999, after which time any balances must
be paid over a 36-month term. This facility also requires us to maintain
certain financial covenants, including a requirement that we maintain certain
financial ratios. We were in compliance with these covenants at September 30,
1998 and, at that time, there were no borrowings outstanding under this credit
facility. As of November 30, 1998, we had borrowed $63,000 under this line of
credit.
Our operating activities resulted in net cash inflows of $584,000 in 1995 and
$323,000 in 1996, and net cash outflows of $5.0 million in 1997 and $3.4
million for the nine months ended September 30, 1998. The sources of cash in
1995 and 1996 were primarily income from operations, increases in accounts
payable and accrued liabilities and increases in deferred revenues, partially
offset by increases in accounts receivable, and other current assets. The
operating cash outflows in 1997 and the nine months ended September 30, 1998
resulted from significant investments in sales, marketing and product
development, which led to operating losses. The cash outflows from operating
losses, increases in accounts receivable, prepaid expenses and other current
assets were partially offset by increases in accounts payable and accrued
liabilities and deferred revenues.
Investing activities used cash of $302,000 in 1995, $2.2 million in 1996 and
$354,000 in 1997, primarily for the purchase of capital equipment and short-
term securities. Investing activities provided cash of $642,000 in the nine
months ended September 30, 1998, primarily due to proceeds from the maturity of
securities offset by cash used for the acquisition of EnCyc and the purchase of
capital equipment.
Financing activities provided cash of $5,000 in 1995, $2.8 million in 1996
and $7.5 million in 1997, primarily through the issuance of preferred stock and
proceeds from the exercise of stock options, partially offset by payments on
capital equipment lease obligations. Financing activities used cash of $560,000
in the nine months ended September 30, 1998, primarily for payments on long-
term obligations.
30
<PAGE>
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we enter new
markets for our products and services, increase research and development
spending, increase sales and marketing activities, develop new distribution
channels, improve our operational and financial systems and broaden our
professional service capabilities. Such operating expenses will consume a
material amount of our cash resources, including a portion of the net proceeds
of this offering. We believe that the net proceeds of this offering, together
with our existing cash and cash equivalents, tax refund and available bank
borrowings, will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next twelve months.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes and may seek to raise such additional funds
through public or private equity financing or from other sources. We may not be
able to obtain adequate or favorable financing at that time. Any financing we
do obtain may dilute your ownership interest in ONYX.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and organizations
in a wide variety of industries (including technology, transportation,
utilities, finance and telecommunications) will produce erroneous results or
fail unless they have been modified or upgraded to process date information
correctly. Significant uncertainty exists in the software industry and other
industries concerning the scope and magnitude of problems associated with the
century change. We recognize the need to ensure our operations will not be
adversely affected by Year 2000 software failures. We are assessing the
potential overall impact of the impending century change on our business,
financial condition and operating results.
Based on our assessment to date, we believe the current versions of our
software products are "Year 2000 compliant"--that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. However,
our products are generally integrated into enterprise systems involving
sophisticated hardware and complex software products that may not be Year 2000
compliant. We may face claims based on Year 2000 problems in other companies'
products, or issues arising from the integration of multiple products within an
overall system. Although we have not been a party to any litigation or
arbitration proceeding to date involving our products or services related to
Year 2000 compliance issues, we may in the future be required to defend our
products or services in such proceedings, or to negotiate resolutions of claims
based on Year 2000 issues. The costs of defending and resolving Year 2000-
related disputes, regardless of the merits of such disputes, and any liability
we have for Year 2000-related damages, including consequential damages, could
materially adversely affect our business, financial condition and operating
results. In addition, we believe that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or upgrade their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those we offer. To the extent Year 2000
issues cause a significant delay in, or cancellation of, decisions to purchase
our products or services, our business, financial condition and operating
results would be materially adversely affected.
We are reviewing our internal management information and other systems to
identify any products, services or systems that are not Year 2000 compliant and
to take corrective action. To date, we have not encountered any material Year
2000 problems with our computer systems or any other equipment that might be
subject to such problems. We plan to verify compliance by external vendors that
supply us with software and information systems and to communicate with
significant suppliers to determine the readiness of third parties' remediation
of their own Year 2000 issues. As part of our assessment, we are evaluating the
level of validation we will require of third parties to ensure their Year 2000
readiness. If third parties cannot provide us with products, services or
systems that meet the Year 2000 requirements on a timely basis, our business,
financial condition and operating results could be materially adversely
affected. We do not expect the total cost of these Year 2000 compliance
activities to be material to our business, financial condition and operating
results. These costs and the timing with which we plan to complete our Year
2000 modifications and testing processes are based on our management's
estimates. However, we may not identify and remediate all significant Year 2000
problems on a timely basis. Remediation efforts may involve significant time
and expense and unremediated problems could materially adversely affect our
business, financial condition and operating results.
31
<PAGE>
BUSINESS
ONYX SOFTWARE CORPORATION
ONYX is a leading provider of Enterprise Relationship Management ("ERM")
software solutions, which automate the key functions that enable enterprises to
more effectively acquire, manage and retain customers, partners and other
relationships. The ONYX ERM solution is based on the Windows NT and Microsoft
BackOffice platforms and features a common data model that creates a single
repository of marketing, sales and service information that is accessible
throughout the enterprise. We designed our solution from inception to be an
integrated, enterprise-wide ERM solution that is easy to use and widely
accessible through a variety of interfaces, including the Internet and
corporate intranets and extranets. The ONYX ERM solution is rapidly deployable,
scaleable, flexible and reliable, resulting in a low total cost of ownership.
Our integrated product family allows enterprises to automate the customer
lifecycle across the entire enterprise, instead of automating only individual
departments. We target mid- to large-sized organizations and divisions of
Fortune 500 companies, marketing and selling our software and services through
a direct sales force, as well as through distributors. The ONYX ERM solution
can be easily implemented and flexibly configured to address an enterprise's
specific business needs, resulting in a low total cost of ownership and rapid
return on investment. We believe that our solution provides broad functionality
that enables our customers to compete more effectively in today's intensely
competitive and dynamic business environment.
INDUSTRY BACKGROUND
In recent years, many enterprises have sought to use technology to improve
interactions with their customers. Many of these enterprises have implemented
customer interaction software ("CIS") systems to automate separate departments,
such as sales, marketing and customer service and support. For example, sales
force automation ("SFA") software has improved how sales departments manage
customer contacts and sales opportunities. Forrester Research estimates that
the aggregate customer applications market was $950 million in 1997 and will
grow to $3.5 billion by 2000.
As the competitive and operational pressures in today's business environment
have increased, many enterprises have adopted CIS applications to help address
these challenges. Traditionally, organizations utilizing UNIX- and mainframe-
based CIS applications to manage enterprise relationships have been hindered by
long development cycles and significant costs of ownership. Recently,
improvements in the affordability and flexibility of client-server technologies
have enabled enterprises of all sizes to adopt advanced technologies that were
previously available only to large enterprises with significant IT resources.
These technology developments include
. improvements in the scalability and performance of powerful, low-cost
"Wintel" servers and PCs, which are replacing traditional UNIX client-
server systems;
. adoption of the Internet and corporate intranets and extranets as
channels of internal and external corporate communication; and
. use of object-oriented programming languages, which have significantly
improved the functionality and accessibility of enterprise software
applications.
These technology developments have also significantly contributed to the
rapid penetration of the Windows NT and Microsoft BackOffice platforms within
corporate enterprises. International Data Corporation projects that the
installed base of Windows NT-based servers will increase from 1.6 million in
1997 to 5.9 million in 2002.
32
<PAGE>
[GRAPHIC OF PROJECTED WORLDWIDE MICROSOFT NT INSTALLED BASE]
As these technology developments have made advanced software applications
more widely available, organizations have begun to adopt a new approach to
managing their enterprise relationships, called Enterprise Relationship
Management. This relationship-centric approach automates the customer lifecycle
by creating a single repository of marketing, sales and service information
that is accessible throughout the enterprise. In an attempt to provide a
comparable solution, traditional CIS application vendors have bundled
departmental applications into product suites to provide more comprehensive
relationship management capabilities. These solutions, however, remain limited
in their ability to distribute and share information. In addition, many of
these applications require significant customization and ongoing support.
We believe there is a market opportunity for an ERM system that employs
recent technological developments to enable enterprises competing in today's
challenging and dynamic business environment to more effectively acquire,
manage and retain customers, partners and other relationships. This solution
would provide a high return on investment by improving the effectiveness of
sales, marketing and support activities while maintaining a low total cost of
ownership.
THE ONYX ERM SOLUTION
We provide an integrated, enterprisewide ERM solution based on the Windows NT
and Microsoft BackOffice platforms that is easy to use and widely accessible
through a variety of interfaces, including the Internet and corporate
intranets. We designed the ONYX ERM solution specifically to be rapidly
deployable, scaleable, flexible and reliable, resulting in a low total cost of
ownership. Our integrated product family allows enterprises to automate the
customer lifecycle across the entire enterprise, instead of automating only
individual departments, by creating a single repository of marketing, sales and
service information. We target mid- to large-sized organizations and divisions
of Fortune 500 companies. The ONYX ERM solution can be easily implemented and
flexibly configured to address an enterprise's specific business needs,
resulting in a low total cost of ownership and rapid return on investment. We
believe that our solution provides broad functionality that enables our
customers to compete more effectively in today's intensely competitive and
dynamic business environment.
33
<PAGE>
Our solution provides the following key advantages:
<TABLE>
<S> <C>
</TABLE>
Offers an Integrated The ONYX ERM solution integrates functional departments
Approach to of an enterprise around common relationships. This
Enterprise integrated solution provides an enterprise with a
Relationship relationship-centric approach to automating all its
Management business-critical relationships, instead of automating
individual functional departments. We use a
distributed, common data model which, unlike CIS, SFA
or other point solutions, creates a single repository
of marketing, service and sales information that is
accessible throughout the enterprise. Each employee can
access a unified view of an enterprise's interactions
with a customer, thereby improving the enterprise's
ability to satisfy the customer's needs.
Enables Rapid We have designed the ONYX ERM solution to be rapidly
Deployment deployable throughout the enterprise, thereby enabling
customers to generate a higher return on investment. On
average, customers have completed initial deployments
of ONYX applications in eight to ten weeks.
Easy to Use The ONYX ERM solution enables communication and
collaboration across the organization through a
consistent, easy-to-use "dashboard" interface. This
common interface enables access to relationship
information from both client-server and Web-based
applications.
Yields Lower Total We have specifically designed our solution to be a
Cost of Ownership flexible application that is well suited for rapidly
growing enterprises demanding highly functional
solutions without the high cost of ownership associated
with traditional client/server implementations. The
ONYX ERM solution provides out-of-the-box functionality
that lowers acquisition, implementation, consulting and
education costs, while allowing customers to tailor the
application to their business methodologies using
preconfigured templates.
Provides Scalability We designed the ONYX ERM solution to support the growth
of our customers as they add new users and process
increased volume of transactions. Independent studies
run on our product and those of our competitors in
Microsoft scalability labs showed our product's ability
to scale to 5,000 concurrent users in a simulated
production environment.
Uses Latest We designed our products to operate exclusively on the
Generation Windows NT and Microsoft BackOffice platforms. We
Technologies believe that we are the market leader in providing ERM
systems for these platforms. Our solution has been
designed to extend all front-office information across
the enterprise and to the extended enterprise,
including customers, vendors and partners, through the
use of the Internet, as well as corporate intranets and
extranets.
STRATEGY
Our objective is to establish a market leadership position in the ERM market.
Our strategy includes the following key elements
Exploit Growing We designed the ONYX ERM solution to be quickly and
Demand for Rapidly efficiently adopted, installed and deployed in mid- to
Deployable, Low- large-sized enterprises, including divisions of Fortune
Cost Solutions 500 companies. The length and high cost of deployment
of traditional high-end customized ERM products are
unacceptable to growing numbers of enterprises.
Competitive pressures encourage enterprises of all
sizes to adopt
34
<PAGE>
IT solutions that can be deployed quickly, offer
extensive capabilities that meet business-critical
needs and provide interfaces that minimize user
training and facilitate incremental upgrade, extension
and scalability paths. We plan to continue to design
our products to maintain low total cost of ownership.
Build on Market For the foreseeable future, we plan to focus
Leadership Position exclusively on the Windows NT platform and build on our
in Windows NT ERM market leadership position in Windows NT-based ERM
solutions. The Windows NT platform is rapidly gaining
share in the enterprise computing market. A recent
International Data Corporation study stated that
Windows NT-based solutions are the most popular
corporate choice for new customer relationship
management solutions. We believe our products have a
competitive advantage in leveraging the Windows NT
platform because they were conceived, designed and
implemented to optimize Microsoft technology.
Expand We plan to expand our global operations by investing in
Internationally our sales channels in major international markets and
building new localized products. Our products are
currently available in Spanish and German and are
installed and operational in 22 countries worldwide.
Maintain Industry- We plan to maintain industry-leading customer
Leading Customer satisfaction through high-quality products, superior
Satisfaction implementation and responsive customer service and
support. A recent study by CustomerSat.com, sponsored
by us and some of our competitors, concluded that we
exceeded the average customer satisfaction index
achieved by our competition on all analyzed customer
satisfaction attributes. We strive to maintain this
position because we believe it is a critical
differentiator and gives us a significant competitive
advantage.
Expand Strategic We are actively adding both channel and technology
Partnerships partners. We believe that expanding our channel
partnerships will provide us with increasing access to
various geographic markets and potential customers. In
addition, we are forming strategic relationships that
enhance the integration with our partners' technology
to expand our product functionality.
Use Internet We are developing new products and enhancing our
Technology current products to provide greater Internet
connectivity and deploy Web-based technologies. The
Internet enables ERM information to be available to
sales and service professionals, prospects, partners
and customers.
<TABLE>
<S> <C>
</TABLE>
PRODUCTS AND SERVICES
The ONYX ERM solution consists of an integrated suite of products and
services that enables an enterprise to manage its relationships, primarily its
customers, partners and employees. Users of the ONYX ERM solutions, including
employees in sales, marketing service and support, as well as customers and
partners, can access the system through a variety of software interfaces and
hardware devices.
Products
ONYX's ERM products provide four primary types of functionality, which
automate the key processes involved in managing enterprise relationships,
including sales, marketing and customer service and support.
OPPORTUNITY AND PROCESS MANAGEMENT is the foundation of our product line.
This functionality enables users to automate their relationship management
processes across the entire enterprise. These processes include prospect
management, forecasting, task management, campaign management, campaign
tracking, lead
35
<PAGE>
assignment and management, work notes, key word search, customer and prospect
segmentation tools, literature fulfillment, bug tracking, product and pricing
configuration, reporting, administrative controls, contact management, surveys,
calendar functions and activity tracking. Our products also provide
connectivity to email, fax and telephony software applications.
VERTICAL SOLUTIONS offer industry-specific methodologies and functionality
tailored to the business processes of enterprises in particular industries.
ONYX offers preconfigured templates tailored for the financial services,
health-care and high-technology industries.
DISTRIBUTED INTERFACE TECHNOLOGIES enable ONYX Customer Center users,
including customers, partners, members, vendors and employees, to communicate
with the ONYX Customer Center application through a variety of distributed
interfaces, including the Internet and corporate intranets and extranets. ONYX
offers several forms of interface functionality that facilitate the interaction
between the user and the application for sales, service and distribution
relationships.
KNOWLEDGE MANAGEMENT functionality enables users to easily search for and
share customer, market, competitive, technology, product and other information
located on corporate networks to improve the efficiency and effectiveness of
sales, marketing and support activities. This functionality also enables
enterprises to exchange information among customers, partners and remote
employees via the Web.
INTEGRATION functionality facilities the linkage of the ONYX ERM solution to
other business information and legacy systems, such as accounting and
telephony. ONYX also provides software development kits that enable the
development of integration interfaces between ONYX products and other business
applications.
THE ONYX ERM SOLUTION
[GRAPHIC OF THE ONYX ERM SOLUTION]
36
<PAGE>
The ONYX ERM solution includes the following products:
<TABLE>
<S> <C> <C>
PRODUCT DESCRIPTION BENEFIT
OPPORTUNITY AND PROCESS MANAGEMENT PRODUCTS
ONYX Customer Center . Provides an integrated and . Improves productivity,
comprehensive system for increases collaboration and
managing sales, marketing and facilitates development of
customer service and support strong relationships with key
relationships external people
. Enables employees to interact . Improves management
with each other, customers visibility of the dynamic
and partners changes in the business
. Automates the processes of
sales, marketing, service and
support
ONYX Customer Center- . Provides the core . Improves productivity of
Unplugged functionality of ONYX field users by providing
Customer Center for remote or access to current
mobile users relationship information
. Provides synchronization
capabilities for remote or
mobile users to update
customer data
Trilogy SC Config . Enables users to dynamically . Improves product
(resold product) configure and manage the configuration and pricing
pricing of their product or accuracy in the sales cycle
system
VERTICAL SOLUTIONS
PRODUCTS
ONYX Industry Solutions . Provides preconfigured ONYX . Brings industry-specific
Customer Center templates methodologies to an
tailored for a particular implementation, allowing
industry customers to deploy the
solution effectively and
efficiently
--ONYX Asset Management
--ONYX Managed Care
--ONYX High Tech
DISTRIBUTED INTERFACE PRODUCTS
ONYX Web Wizards for . Captures, qualifies and . Prepopulates the database
Sales distributes prospect automatically and distributes
information via the Web sales leads to the
appropriate users according
to enterprise-required
business rules
. Qualifies customers in the
sales cycle
ONYX Web Wizards for . Enables support professionals . Improves and simplifies
Service to answer support questions interactions with customers
and interact with customers to increase customer
via the Web satisfaction
ONYX Channel Connect . Distributes sales leads to . Extends the capabilities of
channel and distribution sales organizations by
partners via the Web enhancing communication with
partners while capturing
valuable customer information
from partners
KNOWLEDGE MANAGEMENT PRODUCTS
ONYX Insight . Allows employees, partners . Empowers employees to find
and customers to search and reuse information faster
secure portions of an and more efficiently
enterprise's intranet from
their browser via the Web
. Facilitates convenient access
to information for customers
and partners without
intervention from the
enterprise
ONYX EnCyc Marketing . Provides users with access to . Builds presentations, quotes
Encyclopedia a repository of critical and proposals easily and
sales and marketing automatically
information
. Sends information to . Customizes information
prospects, customers and directly to a client's or
other users prospect's needs
INTEGRATION FUNCTIONALITY PRODUCTS
ONYX RapidLink for Great . Integrates the Sales Order . Enables ONYX Customer Center
Plains Processing module of Great users to more efficiently
Plains Dynamics C/S+ version link to accounting and
4.0 with ONYX Customer Center financial information
ONYX Computer Telephony . Provides customers and . Enables users to access
Integration Software independent software vendors computer telephony
Development Kit with the ability to create functionality through ONYX
bi-directional integration Customer Center
between telephony
applications and ONYX
Customer Center . Enables ONYX Customer Center
to be interfaced with a
variety of telephony
applications
</TABLE>
37
<PAGE>
We price our core application, ONYX Customer Center, as well as the remote
version, ONYX Customer Center Unplugged, on a per user basis plus an additional
database server fee that varies depending on the number of users licensed to
use the database server. All the other products in the ONYX Customer Center
product family provide functionality that enhances and extends the capabilities
of ONYX Customer Center and, with the exception of EnCyc, are sold as add-ons
to ONYX Customer Center based on a per server price. EnCyc is sold both as part
of the ONYX Customer Center product family and as a stand-alone product at a
base price plus an additional fee based on the number of users.
Professional Services
The ONYX ERM solution includes consulting support and training services as
follows:
Consulting We offer our customers high-quality consulting,
including business process reengineering, change
management, systems integration, configuration,
installation and project management. We work closely
with our customers to identify their unique business
needs and we tailor our solution to these needs in an
efficient, cost-effective manner. We provide ongoing
business consulting to help our customers optimize the
use of our system over time.
We have implemented a comprehensive customer support
Customer Support program to assist customers to use our products and to
identify, analyze and solve any problems that may
result from such use. The support program includes
email support, on-line support via the Web and
telephone support from our three worldwide support
centers. In addition, we offer a premium support
program that allows our customers to contact our
support centers around the world seven days a week, 24
hours a day.
We offer a number of educational classes in conjunction
Training with our products, including end-user training and in-
depth technical training regarding the implementation
and administration of our solution.
We price our consulting and training services based on the time spent and
resources used. We price our basic support program based on a percentage of the
software license fee plus additional amounts for premium support services. We
price training services on a per-class basis.
We have established a number of strong relationships for both the
implementation of our solution and the training of our customer base. For
example, we have relationships internationally with KPMG Consulting in
Singapore and Arthur Andersen LLP in Australia. Domestically, we have
relationships with regional and local systems integrators such as Norstan
Consulting, TechnologyWorks, Inc., Breakaway, Inc., Eggrock Partners, LLC and
Aquarius Technology Corporation. We frequently participate in joint sales and
marketing efforts with our systems integrators.
We use an industry-leading third-party training organization, TRG
Incorporated ("TRG"), to broaden our customer training offerings. TRG offers a
wide range of training courses in the configuration, administration and use of
our products. Such training is available either at the customer's place of
business or at the facilities maintained by TRG.
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ONYX Technology
ONYX's products are based on a 32-bit client/server architecture and use
industry-standard, low cost modular components. This combination of robust
technology and flexible design enables us to offer an attractive combination of
reliability, performance, scalability, integration and low total cost of
ownership. Following are the key technologies that enable ONYX to provide a
robust ERM solution:
Optimized for Windows NT and SQL Server. The ONYX ERM solution is optimized
for Windows NT and SQL Server in both LAN and WAN environments in the following
ways:
.uses precompiled stored procedures;
.uses Microsoft vendor-specific extensions to the ANSI 92 SQL standard;
.uses Microsoft vendor-specific object interface (COM); and
.optimizes data model architecture for the SQL Server query engine and data
storage engine.
n-tiered Architecture. The ONYX ERM solution consists of a relationship-
centric, integrated data model surrounded by a set of configurable business
objects. This architecture utilizes multiple tiers to deliver a balance between
configurability, performance and administration. The logical tiers are: User
Services (presentation layer), Business Services (business rules) and Data
Services (data access and data store). All tiers can be customized, and
customizations can be preserved during system upgrades.
Configuration. To adapt to rapidly changing business needs, the ONYX ERM
solution provides the following technologies:
. Enterprise Configurable Procedures. The ONYX architecture allows
customization of standard business rules and procedures through
accessible and configurable software programming code. These Enterprise
Configurable Procedures are implemented as SQL-stored procedures and are
written in Transact-SQL, a vendor-specific implementation of ANSI 92
SQL. This enables more robust customization than traditional GUI-based
configuration methods and enables these customized business rules to be
preserved during system upgrades. Using Transact-SQL as the scripting
language also enables the same business rules to be used online and
offline.
. External Data Connectivity. External Data Connectivity enables
integration with other business applications and legacy systems, as well
as customization of the core product. Standard External Data
Connectivity is a data-driven architecture coupled with a graphical
administration tool that allows administrators to integrate data
residing outside the ONYX Customer Center solution with the ONYX
enterprise client. Standard External Data Connectivity is particularly
focused on integration with Windows NT/Microsoft BackOffice-based
solutions. Common Object Model ("COM") External Data Connectivity
utilizes industry-standard COM interfaces to enable broader integration,
specifically with any ODBC-compliant database and custom forms.
. Software Development Kits. To increase the breadth and depth of
solutions available for the ONYX ERM solution, we have developed
products that include integration platforms consisting of COM
presentation objects and business objects allowing bi-directional
integration between ONYX products and other business applications.
Real-time synchronization architecture. Real-time synchronization
architecture ensures that, upon completion of synchronization between the
mobile client and enterprise database, the mobile user's data snapshot is a
replica of the enterprise database. In addition, our architecture provides
robust error detection and recovery by automatically restarting the data
synchronization process at the point of failure should a connectivity link
fail. Our synchronization system also provides robust, configurable data
conflict resolution algorithms and enables synchronization to be performed
without user intervention or attention.
Integrated data model. The ONYX ERM solution includes a relationship-centric,
integrated data model--every task, form, campaign, opportunity management form,
forecasting tool and any other feature can be
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interrelated at any time within the application. This fundamental part of the
architecture allows any relationship information to be shared with any other
part of the organization and ensures that every user within an organization has
access to the same data. This data model also provides flexibility to make
additions and changes to the application as the needs of the enterprise change
over time.
Multiple interface support. Due to the architectural design enabling
integration in front of the business rules, the ONYX ERM platform supports
multiple interfaces, including Windows desktop applications, Web applications
and personal digital assistants.
Standards-based tools and components. Our products employ an n-tiered
client/server architecture built on the Windows NT, Microsoft BackOffice,
Microsoft Office and Microsoft Windows 95 and Windows 98 operating systems.
ONYX utilizes advanced object-oriented development tools and technologies in
the development of its products, including Microsoft Visual C++, Microsoft
Visual Basic, Microsoft OLE2/COM/ActiveX, Sybase SQL Anywhere, PLATINUM ERwin
relational database modeling tool, Rational Rose object modeling tool and
Rational SQA Manager test automation tool.
CUSTOMERS AND MARKETS
We target mid- to large-sized business and divisions of Fortune 500
companies. We believe that these enterprises have a strong need to move quickly
and develop collaborative teams, and that they are deploying new technologies
as a competitive advantage. We have licensed our products to over 300 customers
as of September 30, 1998. The following is a representative list of our current
customers who have purchased more than $200,000 in software licenses from
January 1, 1997 to September 30, 1998.
HIGH TECHNOLOGY HEALTH CARE
Active Voice Corporation AEA International Pte Ltd.
Advent Software, Inc. Momentum Employee Benefits
BindView Development Penn State Geisinger Health Plan
Clarus Corporation Sierra Health Services, Inc.
Data Dimensions Inc. MANUFACTURING
Datastream Systems Inc. Data Broadcasting Corporation
Hummingbird Communications Ltd. Direct Focus, Inc.
JetForm Corporation MicroTouch Systems, Inc.
Orcom Solutions, Inc. Optiva Corporation
PC DOCS/Fulcrum TELECOMMUNICATIONS
Restrac, Inc. Cincinnati Bell Telephone
NTL Group Ltd. (Business Telecoms and
FINANCIAL SERVICES Internet divisions)
American Express Financial Advisors
American Express Retirement Services OTHER
ASB Bank Ltd. Brooklyn Union Gas Company
Evergreen Investment Services, Inc. Coastal Video Communications
First American Trust Company Corporation
Piper Jaffray Inc. Data Monitor
GIGA Information Group
Reed Exhibition Companies
Weider Publications, Inc.
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<PAGE>
SELECTED CUSTOMER APPLICATIONS
<TABLE>
<CAPTION>
CUSTOMER APPLICATION
<C> <S>
American Express American Express Financial Advisors is one of the leading
Financial Advisors financial services companies in the United States and has
approximately $188.8 billion under management. Three
divisions of American Express Financial Advisors use the
ONYX ERM solution. One division, Retirement Services, uses
the ONYX ERM solution in Sales, Marketing, and Client
Services, which has allowed them to be more customer
focused and has improved their ability to manage client
information from the initial point of contact. It also
allows for improved visibility into the other business
relationships that other Amex divisions have with their
clients, including card, travel and other services.
NTL Internet NTL Internet, a U.K.-based Internet service provider,
purchased ONYX Customer Center to manage its inbound sales
and support queries. The system was installed and
operational in four weeks, including integration with
existing billing systems and customization to address NTL
Internet's particular requirements, together with complete
end-user training. NTL Internet's call center handles up to
6,000 calls per day, seven days per week, from customers
regarding new sales inquiries, connection requests and
operational queries. In 1998, NTL Internet was awarded the
UK Call Centre of the Year award by UK Computing Magazine.
In addition to supporting large and varied call volumes,
ONYX Customer Center is also directly integrated with NTL
Internet's sales and marketing Web site, where NTL Internet
receives over 500 sales leads daily. NTL Internet utilizes
ONYX Web Wizards for Sales to automatically populate its
customer database with this lead information and uses ONYX
Web Wizards for Sales to then distribute this lead
information to the appropriate follow-up personnel. Using
the ONYX ERM solution, NTL Internet has converted a
significant number of these Web-based leads into sales.
Sierra Health Sierra Health Services, Inc. ("Sierra"), a diversified
Services, Inc. health care services company, selected ONYX as its ERM
solution provider for managing marketing, sales and service
activities for direct relationships with individual
Medicare customers, commercial accounts and brokers. In the
Medicare segment, Sierra utilizes the ONYX ERM solution to
manage its direct marketing, sales and service activities.
The ONYX ERM solution enables Sierra to generate lists of
Medicare prospects based on a variety of segmentation
criteria, which can then be used to automatically send
direct marketing materials to Medicare prospects. Telesales
representatives use the ONYX ERM solution to schedule
prospect appointments. This integrated process enables
Sierra to carefully track rates of conversion from
competitive plans and measure the effectiveness of each
marketing campaign. Sierra also utilizes the ONYX ERM
solution to manage its commercial account relationships. A
majority of Sierra's commercial accounts are acquired from
brokers who sell its plans directly to employer groups.
Sales opportunity tracking, forecasting and quote/contract
generation is managed with the ONYX ERM solution, enabling
Sierra to better forecast revenues and identify top
producing brokers with which to align itself. With the ONYX
ERM solution, Sierra is able to quickly provide its brokers
and prospective group members with updated benefit/plan
information, thereby allowing Sierra to improve quote
generation times, reduce the contracting cycle and improve
overall customer response and satisfaction.
</TABLE>
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<PAGE>
SALES AND MARKETING
We market and sell our software and services through a direct sales force, as
well as through distributors. We have direct sales offices in the United
States, the United Kingdom, Singapore and Australia and distributors in Latin
America, Asia and Europe. As of September 30, 1998, we employed 120 people in
sales and marketing. We support our field sales force with telemarketing
representatives and sales engineers. The direct sales effort is complemented by
indirect channel partners in many of our international markets.
Our marketing programs are focused on creating awareness, preference and lead
generation for the ONYX ERM solution. These programs are targeted at key
executives such as Chief Executive Officers and Chief Information Officers, as
well as Vice Presidents of Sales, Service and Marketing.
To support our worldwide direct and indirect sales channels, we have
sponsored a series of joint seminars with key customers and partners, such as
Microsoft. Our marketing personnel engage in a variety of marketing activities,
including managing and maintaining the ONYX Web site, making direct mailings,
placing advertisements, conducting public relations programs and establishing
and maintaining relationships with recognized industry analysts.
We also have initiated a branding and marketing communications strategy to
solidify our position as a leading provider of ERM software. This effort
includes new messaging, target positioning, a new "look and feel" and an
increased effort to broaden market awareness of ONYX. We have also initiated
marketing strategies targeted at industry-specific vertical markets, including
high technology, financial services, health care, telecommunications and
manufacturing.
Our sales process consists of several phases: lead generation, initial
contact, lead qualification, needs assessment, enterprise overview, product
demonstration, proposal generation and contract negotiation. In a number of
instances, we believe that our relationships with strategic partners, including
systems integrators, has substantially shortened our sales cycle. Partners have
generated and qualified sales leads, made initial customer contacts and
assessed needs prior to our introduction. Additionally, systems integration
partners have assisted us in the creation of customized presentations and
demonstrations, which we believe enhance our competitive position. While the
sales cycle varies substantially from customer to customer, the initial sales
cycle typically ranges from two to six months (although in the past certain
sales cycles have lasted substantially longer).
We have distribution partners located in Europe, Asia, Latin America and the
South Pacific who market, promote and sell our software products. Our
distributors also typically provide both the implementation and customer
support services to our end-users, drawing on our expertise as necessary to
assist them in these efforts. We collaborate with our distributors in a variety
of areas, including seminars, trade shows and conferences. Our distributors
also create market- and language-specific collateral and product demonstrations
and assist in the localization of our products and related documentation.
RESEARCH AND DEVELOPMENT
As of September 30, 1998, we employed 65 people in our research and
development organization. This team is responsible for the design, development
and release of ONYX products. The group is organized into four disciplines:
development, quality assurance, documentation and program management. Members
from each of these disciplines, along with a product manager from our marketing
department, form separate product teams that work closely with sales,
marketing, professional services, customers and prospects to better understand
market needs and requirements. When required, we also utilize third-party
development firms to expand the capacity and technical expertise of our
internal research and development team. Additionally, we sometimes license
third-party technology that is incorporated into our products. We believe this
approach significantly shortens our time to market without compromising our
competitive position or product quality. Therefore, we expect to continue to
draw on third-party resources in the foreseeable future.
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We have a well-defined software development methodology that we believe
allows us to deliver products that satisfy real business needs for the global
market and meet commercial quality expectations. This methodology is based on
the following key components:
. specification and review of business requirements, functional
requirements, prototypes, technical designs, test plans and
documentation plans;
. iterative, scheduled quality assurance of code and documentation;
. frequent stabilization of product;
. test automation definition, instrumentation and execution;
. test functions, components, systems, integration, performance, stress
and international and year 2000 compliance;
. full product regression testing before beta or general availability
releases;
. trial deployments in an internal production environment prior to
release;
. external beta releases; and
. general availability release.
We emphasize quality assurance throughout the software development life
cycle. We believe that strong emphasis placed on analysis and design early in
the project life cycle reduces the number and costs of defects that may be
found in later stages. Our development methodology focuses on delivery of
product to a global market, enabling localization into multiple languages from
a single code base.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Our success depends in part on our ability to protect our proprietary rights.
To protect our proprietary rights, we rely primarily on a combination of
copyright, trade secret and trademark laws, confidentiality agreements with
employees and third parties, and protective contractual provisions such as
those contained in license agreements with consultants, vendors and customers,
although we have not signed such agreements in every case. Despite our efforts
to protect our proprietary rights, unauthorized parties may copy aspects of our
products, and obtain and use information that we regard as proprietary. Other
parties may breach confidentiality agreements and other protective contracts we
have entered into, and we may not become aware of, or have adequate remedies in
the event of, such breach.
We pursue the registration of certain of our trademarks and service marks in
the United States and in certain other countries, but we have not secured
registration of all our marks. In addition, the laws of some foreign countries
do not protect our proprietary rights to the same extent as do the laws of the
United States, and effective copyright, trademark and trade secret protection
may not be available in other jurisdictions. A significant portion of our marks
include the word "Onyx." Other companies use "Onyx" in their marks alone or in
combination with other words, and we cannot prevent all third-party uses of the
word "Onyx." We license certain proprietary rights to third parties. Such
licensees may not abide by compliance and quality control guidelines with
respect to such proprietary rights and may take actions that would materially
adversely affect our business, financial condition and operating results.
We have been subject to claims and expect to be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of trademarks and other intellectual property
rights of third parties. See "--Legal Proceedings." OCI has filed a lawsuit
against us alleging trademark infringement of the mark ONYX in Canada. This
claim, even if not meritorious, could require the expenditure of significant
financial and managerial resources. A negative outcome could materially
adversely affect our business, financial condition and operating results.
Other than the trademark infringement matter described above, as of the date
of this prospectus, we are not a party to any litigation that, if adversely
determined, would have a material adverse effect on our business, financial
condition and operating results.
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In the computer software market there is frequent and substantial
intellectual property litigation, which is often complex and expensive, and
involves a significant diversion of resources and uncertainty of outcome. We
may need to litigate to enforce and protect our intellectual property or to
defend against a claim of infringement or invalidity. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we have been and expect to continue to be subject to legal
proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of third-party proprietary
rights by us and our licensees. In addition, we expect that software developers
will be increasingly subject to infringement claims as the number of products
and competitors in our industry grows and the functionality of products in
different industry segments overlaps. Furthermore, former employers of our
present and future employees may assert claims that our employees have
improperly disclosed confidential or proprietary information to us. If we
discover that any elements of the ONYX Customer Center product family violate
third-party proprietary rights, we may be unable to obtain licenses on
commercially reasonable terms, if at all, and to avoid or settle litigation
without substantial expense and damage awards. Any claims relating to the
infringement of third-party proprietary rights, even if not meritorious, could
result in costly litigation, divert management's attention and resources, cause
product shipment delays or require us to pay damages or enter into royalty or
license agreements on terms that are not advantageous to us. Any of these
results could materially adversely affect our business, financial condition and
operating results.
We rely on certain technology that we license from third parties, including
software that is integrated with internally developed software and used in our
products, to perform key functions. Although we are generally indemnified
against claims that such third-party technology infringes the proprietary
rights of others, such indemnification is not always available for all types of
intellectual property rights, and in some cases the scope of such
indemnification is limited. Even if we receive broad indemnification, third-
party indemnitors are not always well capitalized and may not be able to
indemnify us in the event of infringement, resulting in substantial exposure to
us. Infringement or invalidity claims arising from the incorporation of third-
party technology, and claims for indemnification from our customers resulting
from such claims, may be asserted or prosecuted against us. Such claims, even
if not meritorious, could result in the expenditure of significant financial
and managerial resources in addition to potential product redevelopment costs
and delays, and could materially adversely affect our business, financial
condition and operating results. See "Risk Factors--We may be unable to
adequately protect our proprietary rights."
COMPETITION
The market for ERM software is intensely competitive, fragmented and rapidly
changing. We believe that we compete effectively as a result of our integrated,
relationship-centric, rapidly deployable, Internet-enabled solution that is
optimized for the Windows NT platform, coupled with our commitment to providing
high-quality solutions that yield a rapid return on investment and a low total
cost of ownership.
We face competition in the ERM software market primarily from (1) front-
office software applications vendors, such as Clarify, Inc., Pivotal Corp.,
SalesLogix Corporation, Siebel Systems, Inc., and The Vantive Corporation, (2)
large enterprise software vendors, particularly ERP system vendors, such as
Baan Company N.V., J. D. Edwards & Co., Oracle Corporation, PeopleSoft
Corporation and SAP AG, and (3) our potential customers' IT departments, which
may seek to develop proprietary ERM systems. In addition, as we develop new
products, particularly applications focused on particular industries, we may
begin competing with companies with whom we have not previously competed. It is
also possible that new competitors will enter the market or that our
competitors will form alliances that enable them to rapidly increase their
market share.
Many of our competitors have already established supplier relationships with
divisions of our current or potential customers. These competitors may be able
to leverage their existing relationships to discourage these customers from
purchasing additional ONYX products or persuade them to replace our products
with their products. Many of our competitors have longer operating histories,
significantly greater resources and name recognition and a larger installed
base of customers than we have. As a result, these competitors may have greater
credibility with our existing and potential customers. They also may be able to
devote greater resources
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to the development, promotion and sale of their products than we can to ours,
which would allow them to respond more quickly than we can to new or emerging
technologies and changes in customer requirements.
We expect that competition will increase as other established and emerging
companies enter the ERM market, as new products and technologies are introduced
and as new competitors enter the market. Increased competition may result in
price reductions, lower gross margins and loss of our market share, any of
which could materially adversely affect our business, financial condition and
operating results. See "Risk Factors--Our market is highly competitive."
EMPLOYEES
As of September 30, 1998, we had a total of 281 employees, excluding
independent contractors and other temporary employees, including 65 people in
research and development, 120 people in sales and marketing, 64 people in
consulting, customer support and training and 32 people in general and
administrative services. Our future performance depends in significant part on
the continued service of our key technical, sales and senior management
personnel. The loss of the services of one or more of our key employees could
have a material adverse effect on our business, financial condition and
operating results. Our future success also depends on our continuing ability to
attract, train and retain highly qualified technical, sales and managerial
personnel. Competition for such personnel is intense. We cannot provide any
assurance that we can retain our key technical, sales and managerial personnel
in the future. None of our employees is represented by a labor union, and we
consider our employee relations to be good. See "Risk Factors--We may
experience difficulties managing our growth, and we depend on certain key
employees."
FACILITIES
Our principal administrative, sales, marketing, support and research and
development facilities are located in approximately 38,500 square feet of space
in Bellevue, Washington. Our principal lease, covering 33,000 square feet of
this office space, expires on June 30, 1999. The remaining leases expire
between June 1999 and January 2002. In July 1999, we plan to relocate our
principal administrative, sales, marketing, support and research and
development facilities to a new location in Bellevue, Washington with
approximately 90,000 square feet, pursuant to a lease that expires in 2006. We
currently lease other domestic sales and support offices in California,
Colorado, Georgia, Illinois, Maryland, Massachusetts, Minnesota, New Jersey,
Oregon and Texas. We maintain international offices in Australia, Singapore and
the United Kingdom.
LEGAL PROCEEDINGS
We have been subject to claims and expect to be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of trademarks and other intellectual property
rights of third parties. See "Risk Factors--We may be unable to adequately
protect our proprietary rights." OCI has filed a lawsuit against us alleging
trademark infringement of the mark ONYX in Canada. This claim, even if not
meritorious, could require the expenditure of significant financial and
managerial resources. A negative outcome could materially adversely affect our
business, financial condition and operating results.
Other than the trademark infringement matter described above, as of the date
of this prospectus, we are not a party to any litigation that, if adversely
determined, would have a material adverse effect on our business, financial
condition and operating results.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of ONYX as of November 1, 1998 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ----------------------------------------------------------------
<S> <C> <C>
Brent R. Frei........... 32 President, Chief Executive Officer and Chairman of the Board
Sarwat H. Ramadan....... 55 Vice President, Chief Financial Officer, Secretary and Treasurer
Keith D. Brown.......... 40 Vice President of Marketing
Eben W. Frankenberg..... 32 Vice President of Sales
Howard K. Hawk.......... 35 Vice President of International Operations
Michael D. Racine....... 41 Vice President of Professional Services
Mary A. Reeder.......... 40 Vice President of Product Development
William B. Elmore(1).... 45 Director
Jay C. Hoag(2).......... 40 Director
Paul G. Koontz(1)(2).... 38 Director
Daniel R. Santell....... 40 Director
Todd A. Stevenson....... 30 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Brent R. Frei, a cofounder of ONYX, has been a Director of ONYX since its
inception in 1994, served as Secretary and Treasurer from September 1995 to
October 1998, and has served as President since September 1995 and Chief
Executive Officer and Chairman of the Board since October 1998. From 1991 to
February 1994, Mr. Frei was a Programmer Analyst with Microsoft's Information
Technology Group, in which position he was involved with creating international
customer information systems. From 1989 to 1990, he was a Mechanical Engineer
with Motorola Corporation. Mr. Frei received his B.S. in Engineering from the
Thayer School of Engineering at Dartmouth College.
Sarwat H. Ramadan has been Chief Financial Officer of ONYX since July 1998
and Vice President, Secretary and Treasurer since October 1998. From 1993 to
July 1998, Mr. Ramadan was the Chief Financial Officer, Secretary and Treasurer
of Integrated Measurement Systems, Inc., an engineering test stations and
software company. From 1987 to 1993, Mr. Ramadan was Chief Accounting Officer
and Finance Director of Mentor Graphics Corporation, an electronic design
automation software company. Mr. Ramadan held various executive positions from
1985 to 1987 with CAD/CAM Resources, Inc. and from 1979 to 1985 with
Computervision Corporation. Mr. Ramadan received his B.S. from Ain Shams
University, his M.B.A. from the University of New Haven and his C.S.S. from
Harvard University.
Keith D. Brown has been Vice President of Marketing of ONYX since October
1997. From 1987 to October 1997, Mr. Brown held several positions, including
Strategic Alliances Manager, Product Marketing Manager and Worldwide Marketing
Manager, in Hewlett-Packard Corporation's LaserJet Printer Solutions Group. Mr.
Brown received his B.S. in Electrical Engineering from the DeVry Institute of
Technology and his M.B.A. from the University of Montana.
Eben W. Frankenberg joined ONYX in January 1995 and has been Vice President
of Sales since August 1995. From 1990 to December 1994, Mr. Frankenberg was a
petroleum geophysicist for Amoco Production Company, a developer of crude oil
and natural gas, and Amoco Netherlands Petroleum Co., a producer of petroleum.
Mr. Frankenberg received his B.A. from Dartmouth College and his M.S. from
Stanford University.
Howard K. Hawk has been Vice President of International Operations of ONYX
since August 1996. From 1989 to August 1996, Mr. Hawk was Director of
International Information Technology of Microsoft. From 1985 to 1987, he was a
Senior Consultant with Andersen Consulting LLP. Mr. Hawk received his B.S. in
Business Administration with a concentration in Information Systems from the
University of Washington.
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Michael D. Racine has been Vice President of Professional Services of ONYX
since July 1994. From 1991 to July 1994, Mr. Racine held various positions with
Microsoft's Information Technology Group, including Project Manager in the
development and deployment of a revenue consolidation and reporting system.
From 1987 to 1991, he was a Senior Consultant with Andersen Consulting LLP. Mr.
Racine received his B.A. from Utah State University and his M.B.A. from the
University of Oregon.
Mary A. Reeder has been Vice President of Product Development of ONYX since
June 1996. From 1989 to May 1996, Ms. Reeder worked for Microsoft, where she
was involved in product development, process management and emerging
technology. From 1987 to 1989, she was an independent consultant, developing
custom software. From 1985 to 1987, she was a Senior Programmer Analyst of Data
I/O Corporation, a manufacturer of engineering programming systems. Ms. Reeder
received her B.S. in Computer Science and her B.F.A. in Graphic Design from the
University of Washington.
William B. Elmore has been a Director of ONYX since March 1996. Since 1995,
Mr. Elmore has been a Member of Foundation Capital Management, L.L.C., the
General Partner of Foundation Capital, L.P., a venture capital firm focused on
early stage information technology companies. From 1987 to 1995, he was a
General Partner of Inman & Bowman, a venture capital firm. Mr. Elmore serves on
the Board of Directors of Wind River Systems, Inc. and Pilot Network Services,
Inc., as well as several privately held companies. Mr. Elmore received his B.S.
and M.S. in Electrical Engineering from Purdue University and his M.B.A. from
Stanford University.
Jay C. Hoag has been a Director of ONYX since October 1998. Since June 1995,
Mr. Hoag has been a General Partner of Technology Crossover Ventures. From 1982
to 1994, he was with Chancellor Capital Management, Inc. Mr. Hoag serves on the
Board of Directors of several privately held companies. Mr. Hoag received his
B.A. in Economics and Political Science from Northwestern University and his
M.B.A. from the University of Michigan.
Paul G. Koontz has been a Director of ONYX since April 1997. Since 1996, Mr.
Koontz has been a Member of Foundation Capital Management, L.L.C., the General
Partner of Foundation Capital, L.P. From 1995 to 1996, he was with Sutter Hill
Ventures and, in 1994, he was the initial Vice President of Marketing of
Netscape Communications Corporation. From 1987 to 1994, Mr. Koontz was with
Silicon Graphics, Inc., where he held a number of positions, including Director
of Marketing. From 1983 to 1987, he held various marketing and management
positions with Hewlett-Packard in the United States and Europe. Mr. Koontz
serves on the Board of Directors of several privately held companies. Mr.
Koontz received his B.S. in Mechanical Engineering from Princeton University
and his Masters in Engineering Management from Stanford University.
Daniel R. Santell has been a Director of ONYX since November 1994. Since
1996, Mr. Santell has been the Vice President of Worldwide Services for
InterWorld Corporation. From 1995 to 1996, he was Director of the North
American Client Services Division for SSA Corporation, from 1992 to 1996, he
was Vice President of Product Development at Platinum Software and from 1983 to
1992, he was a Manager at Anderson Consulting LLP. Mr. Santell received his
B.S.E. from Purdue University and his M.B.A. from the University of Washington.
Todd A. Stevenson, a co-founder of ONYX, has been a Director of ONYX since
its inception in 1994 and served as Chairman of the Board until October 1998.
Mr. Stevenson has been a manager of the Developer Support Service Group since
July 1998. He previously served as Chief Technology Officer from June 1996 to
July 1998 and Vice President of Development from ONYX's inception to June 1996.
From 1993 to 1994. Mr. Stevenson was a programmer involved in creating
international customer information systems at Microsoft and from 1991 to 1993,
he was a support analyst for Microsoft Pty (Australia) developer products.
Mr. Stevenson received his B.S. in Computer Science from Oregon State
University.
47
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee currently consists of Messrs. Elmore and Koontz.
The Compensation Committee
. reviews and approves the compensation and benefits for our executive
officers and grants stock options under our stock option plans; and
. makes recommendations to the Board of Directors regarding such matters.
The Audit Committee consists of Messrs. Hoag and Koontz. The Audit Committee
. makes recommendations to the Board of Directors regarding the selection
of independent auditors;
. reviews the results and scope of the audit and other services provided
by our independent auditors; and
. reviews and evaluates our audit and control functions.
DIRECTOR COMPENSATION
All nonemployee directors of the Company will be paid $1,000 for each Board
of Directors meeting attended in person, $500 for each Board meeting attended
telephonically, $500 for each committee meeting attended in person and $250 for
each committee meeting attended telephonically. We also reimburse them for
reasonable expenses they incur in attending meetings of the Board of Directors
and its committees. In November 1994, we granted Mr. Santell, an ONYX director,
a nonqualified stock option to purchase 50,000 shares of common stock at an
exercise price of $0.12 per share. Directors of ONYX are eligible to
participate in the 1998 Plan. We currently intend to make comparable option
grants to future nonemployee directors. See "--Employee Benefit Plans--Stock
Option Program for Nonemployee Directors."
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Restated Articles include a provision that limits the liability of
directors to the fullest extent permitted by the Washington Business
Corporation Act (the "WBCA") as it currently exists or as it may be amended in
the future. Consequently, subject to the WBCA, no director shall be personally
liable to ONYX or its shareholders for monetary damages resulting from his or
her conduct as a director of ONYX, except liability for (1) acts or omissions
involving intentional misconduct or knowing violations of law, (2) unlawful
distributions, or (3) transactions from which the director personally receives
a benefit in money, property or services to which the director is not legally
entitled. The Restated Articles also provide that we shall indemnify any
individual made a party to a proceeding because that individual is or was a
director of ONYX and shall advance or reimburse reasonable expenses incurred by
such individual in advance of the final disposition of the proceeding to the
full extent permitted by applicable law. Any repeal of or modification to the
Restated Articles may not adversely affect any right of a director of ONYX who
is or was a director at the time of such repeal or modification. To the extent
the provisions of the Restated Articles provide for indemnification of
directors for liabilities arising under the Securities Act of 1933, as amended
(the "Securities Act"), those provisions are, in the opinion of the Commission,
against public policy as expressed in the Securities Act and they are therefore
unenforceable.
The Restated Bylaws provide that we shall indemnify our directors and
officers and may indemnify our employees and agents to the full extent
permitted by law. In addition, we intend to enter into separate indemnification
agreements with our directors and executive officers that could require us,
among other things, to indemnify them against certain liabilities that arise
because of their status or service as directors or executive officers and to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified. Finally, we intend to purchase and maintain
a liability insurance policy, pursuant to which our directors and officers may
be indemnified against liability they may incur for serving in their capacities
as directors and officers of ONYX.
48
<PAGE>
We believe that the limitation of liability provision in the Restated
Articles, the indemnification provisions in the Restated Bylaws, the
indemnification agreements and the liability insurance policy will facilitate
our ability to continue to attract and retain qualified individuals to serve as
directors and officers of ONYX.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Messrs. Elmore and Koontz.
No member of the Board of Directors or of the Compensation Committee serves as
a member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as members of our Board of Directors
or Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered to ONYX in all capacities during the year ended
December 31, 1997 by ONYX's President, Secretary and Treasurer. No other
executive officer of ONYX who held office at December 31, 1997 met the
definition of "highly compensated" within the meaning of the Commission's
executive compensation disclosure rules.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)
------------------------ --------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Brent R. Frei........... $ 75,334 $ 1,500 $ -0- $ -0-
President, Secretary
and Treasurer
</TABLE>
Mr. Frei does not currently hold options to purchase capital stock of ONYX.
EMPLOYEE BENEFIT PLANS
1998 Stock Incentive Compensation Plan
The Board of Directors and shareholders have adopted the 1998 Plan. The
purpose of the 1998 Plan is to enhance long-term shareholder value by offering
opportunities to employees, directors, officers, consultants, agents, advisors
and independent contractors of ONYX and its subsidiaries to participate in
ONYX's growth and success, and to encourage them to remain in the service of
ONYX and its subsidiaries and to own ONYX stock. The 1998 Plan provides for
awards of stock options and restricted stock. The Board has reserved a total of
(1) 1,500,000 shares of common stock (plus 18,872 shares that have been
reserved but unissued under the 1994 Plan), (2) any shares returned to the 1994
Plan upon termination of options or repurchase of shares by ONYX and (3) an
automatic annual increase, to be added on the first day of our fiscal year
beginning in 2000, equal to the lesser of 1,675,763 shares or 5% of the average
common shares outstanding as used to calculate fully diluted earnings per share
as reported in ONYX's Annual Report for the preceding year. As of November 30,
1998, options to purchase 16,200 shares of common stock were outstanding under
the 1998 Plan with exercise prices of $9.00 per share, options to purchase
1,502,672 shares were available for grant and no options had been exercised.
Stock Option Grants. The Compensation Committee will serve as the Plan
Administrator of the 1998 Plan. The Plan Administrator will have the authority
to select individuals to receive options under the 1998 Plan and to specify the
terms and conditions of each option granted (incentive or nonqualified), the
exercise price (which, for incentive stock options, must be at least equal to
the fair market value of the common stock on the date of grant), the vesting
provisions and the option term. For purposes of the 1998 Plan, fair market
value means the average of the high and low per share sales price as reported
on the Nasdaq National Market on the date of grant. Unless otherwise provided
by the Plan Administrator, and to the extent required for incentive stock
options by the Code, an option granted under the 1998 Plan will expire ten
years from the date
49
<PAGE>
of grant or, if earlier, three months after the optionee's termination of
service (other than termination for cause) or one year after the optionee's
death or disability.
Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of common stock to eligible participants with terms, conditions
and restrictions established by the Plan Administrator in its sole discretion.
Restrictions may be based on continuous service with ONYX or its subsidiaries
or the achievement of performance goals. Holders of restricted stock are
shareholders of ONYX and have, subject to certain restrictions, all the rights
of shareholders with respect to such shares.
Adjustments. The Plan Administrator will make proportional adjustments to the
aggregate number of shares issuable under the 1998 Plan and to outstanding
awards in the event of stock splits or other capital adjustments.
Corporate Transactions. In the event of certain corporate transactions, such
as a merger or sale of ONYX, each outstanding option and restricted stock award
will automatically accelerate and become 100% vested immediately before the
corporate transaction, unless the option or restricted stock award is, in
connection with the corporate transaction, assumed by ONYX's successor
corporation or parent thereof. Any option or restricted stock award granted to
an "executive officer" (as defined for purposes of Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) that is assumed or
replaced in the corporate transaction will automatically accelerate in the
event the executive officer terminates his or her employment for certain
specified good reasons, or the successor corporation terminates the executive
officer's employment or services without cause within two years following the
corporate transaction.
1998 Employee Stock Purchase Plan
The Board of Directors adopted the ESPP in December 1998, subject to
shareholder approval. If the ESPP is approved by our shareholders, we will
implement it upon the effectiveness of this offering. We intend for the ESPP to
qualify under Section 423 of the Code. The ESPP permits eligible employees of
ONYX and its subsidiaries to purchase common stock through payroll deductions
of up to 10% of their compensation. Under the ESPP, no employee may purchase
common stock worth more than $25,000 in any calendar year, valued as of the
first day of each offering period. In addition, owners of 5% or more of ONYX's
or a subsidiary's common stock may not participate in the ESPP. We authorized
the issuance under the ESPP of a total of 500,000 shares of common stock, plus
an automatic annual increase, to be added on the first day of our fiscal year
beginning in 2000, equal to the lesser of (a) 200,000 shares and (b) 1.2% of
the average common shares outstanding as used to calculate fully diluted
earnings per share as reported in ONYX's Annual Report for the preceding year,
or a lesser amount determined by the Board of Directors. Any shares from
increases in previous years that are not actually issued shall be added to the
aggregate number of shares available for issuance under the ESPP.
We will implement the ESPP with six-month offering periods. The first
offering period will commence on the effectiveness of this offering. Subsequent
offering periods will begin on each January 1 and July 1. The price of the
common stock purchased under the ESPP will be the lesser of 85% of the fair
market value on the first day of an offering period and 85% of the fair market
value on the last day of an offering period, except that the purchase price for
the first offering period will be equal to the lesser of 100% of the initial
public offering price of the common stock and 85% of the fair market value on
June 30, 1999. The ESPP terminates ten years after the date of adoption by the
Board of Directors, but the Board of Directors may terminate it at any earlier
time. We have not yet issued any shares of common stock under the ESPP.
In the event of a merger, consolidation or acquisition by another corporation
of all or substantially all of our assets, each outstanding option to purchase
shares under the ESPP shall be assumed or an equivalent option substituted by
the successor corporation. If the successor corporation refuses to assume or
substitute for the option, the offering period during which a participant may
purchase stock will be shortened to a specified date before the proposed merger
or sale. Similarly, in the event of a proposed liquidation or dissolution of
ONYX,
50
<PAGE>
the offering period during which a participant may purchase stock will be
shortened to a specified date before the date of the proposed liquidation or
dissolution.
1994 Combined Incentive and Nonqualified Stock Option Plan
The Board of Directors and shareholders have adopted the 1994 Plan and
reserved an aggregate of 5,000,000 shares of common stock for grants of stock
options under the 1994 Plan. The 1994 Plan provides for the grant of options
for common stock to employees, directors, consultants or independent
contractors of ONYX or its subsidiaries. As of November 30, 1998, options to
purchase 3,388,252 shares of common stock were outstanding under the 1994 Plan
with exercise prices ranging from $0.10 to $9.00 per share and options for
1,592,876 shares had been exercised. The Board of Directors of ONYX has
suspended the 1994 Plan and determined that no further grants shall be made
pursuant to the 1994 Plan.
The 1994 Plan is administered by the Board of Directors. The Board of
Directors has the authority to select individuals who are to receive options
under the 1994 Plan and to specify the terms and conditions of each option so
granted (incentive or nonqualified), the vesting provisions, the option term
and the exercise price. Options granted under the 1994 Plan must be exercised
within three months of the optionee's termination of service (as defined in the
1994 Plan) to or employment by ONYX, or within one year after the optionee's
termination by death or disability, but in no event later than the expiration
of the option term. Options granted under the 1994 Plan are not transferable by
the optionee, except by will or the laws of descent and distribution, and
generally are exercisable during the optionee's lifetime only by the optionee.
In the event of a merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation of ONYX, as a result of which the
shareholders receive cash, stock or other property in exchange for their shares
of common stock, the Board of Directors will determine whether provision will
be made in connection with any such transaction for assumption of the options
under the 1994 Plan or substitution of appropriate new options covering the
stock of the successor corporation or an affiliate of the successor
corporation. If the Board of Directors determines that no such assumption or
substitution will be made, each outstanding option under the 1994 Plan will
automatically accelerate and become 100% vested and exercisable immediately
before the transaction. Acceleration will not occur, however, if, in the
opinion of our accountants, it would render unavailable "pooling of interest"
accounting for the transaction.
401(k) Plan
We maintain a 401(k) Plan that covers all our employees who satisfy certain
eligibility requirements relating to minimum age, length of service and hours
worked. We may make an annual contribution for the benefit of eligible
employees in an amount determined by the Board of Directors. We have not made
any such contribution to date and have no current plans to do so. Eligible
employees may make pretax elective contributions of up to 15% of their
compensation, subject to maximum limits on contributions prescribed by law.
51
<PAGE>
CERTAIN TRANSACTIONS
Since our inception in February 1994, we have issued shares of preferred
stock in private placement transactions as summarized in the following table:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK
----------------------------------------------------------
ENTITIES AFFILIATED
ENTITIES WITH TECHNOLOGY
AFFILIATED WITH CROSSOVER
CLASS OF ISSUANCE PRICE PER FOUNDATION CAPITAL MANAGEMENT II, HILLMAN/DOVER
PREFERRED STOCK DATE SHARE MANAGEMENT, L.L.C. L.L.C. LIMITED PARTNERSHIP
- --------------- ---------- --------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C> <C>
Series A March 1996 1.38 2,174,082 -- --
Series B March 1997 6.35 314,961 629,922 314,960
</TABLE>
William B. Elmore and Paul G. Koontz, directors of ONYX, are Members of
Foundation Capital Management, L.L.C., which is the General Partner of
Foundation Capital, L.P. and a Member of Foundation Capital Entrepreneurs Fund,
L.L.C (collectively, the "Foundation Entities"). Jay C. Hoag, a director of
ONYX, is the Managing Member of Technology Crossover Management II, L.L.C., the
General Partner of Technology Crossover Ventures II, L.P., TCV II (Q), L.P.,
Technology Crossover Ventures II, C.V., TCV II Strategic Partners, L.P. and TCV
II V.O.F. (collectively, the "Technology Crossover Entities"). In addition,
Foundation Capital Management, L.L.C. holds a 7.86% interest in TCV II
Strategic Partners, L.P. All outstanding shares of preferred stock will convert
into an aggregate of 3,533,925 shares of common stock upon the closing of this
offering.
In connection with the issuances of preferred stock described above, we
entered into an Amended and Restated Investors' Rights Agreement dated as of
March 31, 1997 (the "Investors' Rights Agreement") with the holders of the
preferred stock (the "Preferred Shareholders") and certain principal
shareholders of ONYX (the "Principal Common Shareholders"), including:
. Brent R. Frei, President, Chief Executive Officer and Chairman of the
Board of ONYX, his parents, Ronald and Glenda Frei, his sister, Colleen
Chmelik, and his brother-in-law, James Chmelik;
. Brian M. Janssen, a former director and a principal shareholder of ONYX;
. Todd A. Stevenson, a director of ONYX, and his parents, Leon and Barbara
Stevenson; and
. Michael and Mary Racine, principal shareholders of ONYX.
Pursuant to the terms of the Investors' Rights Agreement, the holders of the
Series B Preferred Stock are entitled to purchase in the initial public
offering their pro rata share of an aggregate number of shares equal to the
greater of (a) the number of shares having an aggregate offering price of
$3,000,000 and (b) 10% of the shares offered in the initial public offering;
provided, however, that the purchase amount shall not exceed the number of
shares having an aggregate offering price of $4,000,000. See "Underwriting."
Each holder of Series B Preferred Stock is also entitled to purchase its pro
rata share of any shares not purchased by the other holders of Series B
Preferred Stock. The Investors' Rights Agreement also grants to the Preferred
Shareholders and the Principal Common Shareholders certain registration rights
that obligate ONYX, under certain circumstances, to effect a registration under
the Securities Act of shares of common stock. See "Description of Capital
Stock--Registration Rights."
52
<PAGE>
In May 1998, the Technology Crossover Entities entered into a transaction
with Ronald and Glenda Frei, pursuant to which Mr. and Mrs. Frei (1) borrowed
$85,000 from the Technology Crossover Entities; (2) pledged 56,666 shares of
common stock of ONYX to secure such indebtedness (the "Frei Pledge"); and (3)
granted to the Technology Crossover Entities the right to purchase 20,000
shares of common stock at a per share price of $4.25 (the "Frei Call Option").
In connection with this transaction, we entered into a Call Option Agreement
and a Stock Pledge Agreement, pursuant to which we agreed to hold in escrow the
shares of ONYX common stock subject to the Frei Call Option and the Frei
Pledge.
Also in April 1998, the Foundation Entities entered into a transaction with
Leon and Barbara Stevenson, pursuant to which Mr. and Mrs. Stevenson (1)
borrowed $425,000 from the Foundation Entities and an affiliated entity; (2)
pledged 283,331 shares of common stock to secure such indebtedness (the
"Stevenson Pledge"); and (3) granted to the Foundation Entities and an
affiliated entity the right to purchase 100,000 shares of common stock of ONYX
at a per share purchase price of $4.25 (the "Stevenson Call Option"). In
connection with this transaction, we entered into a Call Option Agreement and a
Stock Pledge Agreement, pursuant to which we agreed to hold in escrow the
shares of ONYX common stock subject to the Stevenson Call Option and the
Stevenson Pledge.
The Frei Call Option and the Stevenson Call Option will terminate if not
exercised prior to the closing of this offering.
In July 1998, Eben W. Frankenberg, an ONYX officer, exercised an option to
purchase 800,000 shares of common stock and paid the exercise price by issuing
a full recourse promissory note to us in the amount of $160,000. The note is
secured by 750,000 shares of the common stock issued upon exercise. The note
accrues interest at the rate of 5.39% per annum and is due in July 2001.
In connection with this offering, our Board of Directors approved, and
recommended to our shareholders for approval prior to this offering, amendments
to our Articles of Incorporation that, among other things, increase by an
aggregate of 100,000 the number of shares of common stock issuable on
conversion of our Series B Preferred Stock and eliminate the minimum per share
price threshold for automatic conversion of our preferred stock upon completion
of this offering.
We intend to enter into separate indemnification agreements with each of our
directors and executive officers prior to the closing of this offering. See
"Management--Director and Officer Indemnification and Liability."
53
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table summarizes certain information regarding the beneficial
ownership of our outstanding common stock as of November 30, 1998 for (1) each
person or group that we know owns more than 5% of the common stock, (2) each of
our directors, (3) each of the Named Executive Officers, and (iv) all of our
directors and executive officers as a group. Except as otherwise indicated, we
believe the beneficial owners of the common stock listed below, based on
information furnished by them, have sole voting and investment power with
respect to the number of shares listed opposite their names. Unless otherwise
indicated, the following officers, directors and shareholders can be reached at
the principal offices of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
-------------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED(1) OFFERING OFFERING
---------------- --------------------- ----------- ----------
<S> <C> <C> <C>
Entities Affiliated with
Foundation Capital
Management, L.L.C.(2)..... 2,575,948 19.28% %
75 Willow Road
Menlo Park, CA 94025
Brian M. Janssen(3)........ 2,308,895 17.28
Todd A. Stevenson(4)....... 2,500,000 18.71
Brent R. Frei(5)........... 2,500,000 18.71
Michael D. Racine(6)....... 991,105 7.42
Eben W. Frankenberg(7)..... 800,000 5.99
Glenda and Ronald Frei(8).. 708,000 5.30
Entities Affiliated with
Technology Crossover
Management II, L.L.C.(9).. 699,922 5.24
56 Main Street, Suite 210
Millburn, NJ 07041
William B. Elmore(10)...... 2,575,948 19.28
Jay C. Hoag(11)............ 699,922 5.24
Paul G. Koontz(12)......... 2,575,948 19.28
Daniel R. Santell(13)...... 40,000 * *
All directors and executive
officers as a group (12
persons)(14).............. 10,230,675 75.70
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the indicated beneficial owner
exercises voting and/or investment power. Shares of common stock subject
to options currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage ownership of the person holding
the options but are not deemed outstanding for computing the percentage
ownership of any other person.
(2) Includes 2,514,043 shares issuable upon conversion of the preferred stock
held by the Foundation Entities. Also includes 61,905 shares over which
the Foundation Entities hold call options, which options are exercisable
within 60 days of November 30, 1998 and expire upon the closing of this
offering. Excludes up to shares issuable on exercise of certain
contractual rights of first offer pursuant to the Investors' Rights
Agreement. See "Certain Transactions" and "Underwriting." Foundation
Capital Management, L.L.C. is the General Partner of Foundation Capital,
L.P. and the Manager of Foundation Capital Entrepreneurs Fund, L.L.C. and
thus is deemed to beneficially own such shares.
(3) Includes 300,000 shares for which Mr. Janssen has sole voting power
pursuant to irrevocable proxies granted to him by various persons and
entities to whom he previously transferred shares of ONYX common stock,
which proxies will terminate upon the closing of this offering. Mr.
Janssen disclaims beneficial ownership of such shares upon termination of
such proxies. Mr. Janssen is a former director of ONYX.
(4) Includes 578,750 shares for which Mr. Stevenson has sole voting power
pursuant to irrevocable proxies granted to him by various persons to whom
he previously transferred shares of ONYX common stock, which proxies will
terminate upon the closing of this offering. Mr. Stevenson disclaims
beneficial ownership of such shares upon termination of such proxies.
54
<PAGE>
(5) Includes 904,900 shares for which Mr. Frei has sole voting power pursuant
to irrevocable proxies granted to him by various persons to whom he
previously transferred shares of ONYX common stock, which proxies will
terminate upon the closing of this offering. Mr. Frei disclaims
beneficial ownership of such shares upon termination of such proxies.
(6) Includes 350,505 shares held jointly with Mr. Racine's spouse. Also
includes 70,300 shares held by the Michael Racine Generation-Skipping
Trust of 1998 and 70,300 shares held by the Mary Racine Generation-
Skipping Trust of 1998, trusts for the benefit of Mr. Racine's children,
for which Mr. Racine has sole voting power pursuant to irrevocable
proxies granted to him, which proxies will terminate upon the closing of
this offering. Mr. Racine disclaims beneficial ownership of the shares
held by such trusts upon termination of such proxies.
(7) Includes 25,000 shares held by the Eben Whitfied Frankenberg Generation-
Skipping Trust of 1998 and 25,000 shares held by the Sarah Shaw
Frankenberg Generation-Skipping Trust of 1998, trusts for the benefit of
Mr. Frankenberg's children, for which Mr. Frankenberg has sole voting
power pursuant to irrevocable proxies granted to him, which proxies will
terminate upon the closing of this offering. Mr. Frankenberg disclaims
beneficial ownership of such shares upon termination of such proxies.
(8) Represents 657,500 shares held by Glenda and Ronald Frei, including
20,000 shares subject to call options held by the Technology Crossover
Entities, 36,500 shares held by their daughter, Kim Frei, a minor, and
14,000 shares held by their son, Mark Frei, a minor. See "Certain
Transactions." Brent R. Frei currently exercises sole voting power with
respect to these shares pursuant to irrevocable proxies that will expire
upon the closing of this offering. Glenda and Ronald Frei disclaim
beneficial ownership of the shares held by their minor children.
(9) Includes 679,922 shares issuable upon conversion of the preferred stock
held by the Technology Crossover Entities. Also includes 20,000 shares
over which the Technology Crossover Entities hold call options, which
options are exercisable within 60 days of November 30, 1998 and expire
upon the closing of this offering. Excludes up to shares issuable on
exercise of certain contractual rights of first offer pursuant to the
Investors' Rights Agreement. See "Certain Transactions" and
"Underwriting." Technology Crossover Management II, L.L.C. is the General
Partner of each of the Technology Crossover Entities and thus is deemed
to beneficially own such shares.
(10) Includes shares issuable upon conversion of the preferred stock held by
the Foundation Entities. Also includes 61,905 shares over which the
Foundation Entities hold call options, which options are exercisable
within 60 days of November 30, 1998 and expire upon the closing of this
offering. Excludes up to shares issuable on exercise of certain
contractual rights of first offer pursuant to the Investors' Rights
Agreement. See "Certain Transactions" and "Underwriting." Mr. Elmore is a
Member of Foundation Capital Management, L.L.C., the General Partner and
a Member of the Foundation Entities. Mr. Elmore disclaims beneficial
ownership of the shares held by the Foundation Entities, except to the
extent of his pecuniary interest arising from his interest in Foundation
Capital Management II, L.L.C.
(11) Includes 679,922 shares issuable upon conversion of the preferred stock
held by the Technology Crossover Entities. Also includes 20,000 shares
over which the Technology Crossover Entities hold call options, which
options are exercisable within 60 days of November 30, 1998 and expire
upon the closing of this offering. Excludes up to shares issuable on
exercise of certain contractual rights of first offer pursuant to the
Investors' Rights Agreement. See "Certain Transactions" and
"Underwriting." Mr. Hoag is a Managing Member of Technology Crossover
Management II, L.L.C., the General Partner of each of the Technology
Crossover Entities. Mr. Hoag disclaims beneficial ownership of the shares
held by the Technology Crossover Entities, except to the extent of his
pecuniary interest therein arising from his interest in Technology
Crossover Management II, L.L.C.
(12) Includes shares issuable upon conversion of the preferred stock held by
the Foundation Entities. Also includes 61,905 shares over which the
Foundation Entities hold call options, which options are exercisable
within 60 days of November 30, 1998 and expire upon the closing of this
offering. Excludes up to shares issuable on exercise of certain
contractual rights of first offer pursuant to the Investors' Rights
Agreement. See "Certain Transactions" and "Underwriting." Mr. Koontz is a
Member of Foundation Capital Management, L.L.C., the General Partner and
a Member of the Foundation Entities. Mr. Koontz disclaims beneficial
ownership of the shares held by the Foundation Entities, except to the
extent of his pecuniary interest arising from his interest in Foundation
Capital Management II, L.L.C.
(13) Represents shares subject to an option exercisable within 60 days of
November 30, 1998.
(14) Includes 155,000 shares subject to options exercisable within 60 days of
November 30, 1998. Also includes 81,905 shares over which the Foundation
Entities and the Technology Crossover Entities hold call options, which
options expire upon the closing of this offering. Excludes up to
shares issuable on exercise of certain contractual rights of first offer
pursuant to the Investors' Rights Agreement. See "Certain Transactions"
and "Underwriting."
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 40,000,000 shares of common stock, $0.01 par
value per share, and 10,000,000 shares of preferred stock, $0.01 par value per
share. The following summary of certain provisions of the common stock and
preferred stock is not complete and may not contain all the information you
should consider before investing in the common stock. You should read carefully
our Restated Articles, which are included as an exhibit to the Registration
Statement, of which this prospectus is a part.
COMMON STOCK
As of November 30, 1998, there were 13,360,134 shares of common stock
outstanding held of record by 68 shareholders. Following this offering, there
will be shares of common stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options).
The holders of common stock are entitled to one vote per share on all matters
to be voted on by the shareholders. Subject to preferences of any outstanding
shares of preferred stock, the holders of common stock are entitled to receive
ratably any dividends the Board of Directors declares out of funds legally
available for the payment of dividends. See "Dividend Policy." If ONYX is
liquidated, dissolved or wound up, the holders of common stock are entitled to
share pro rata all assets remaining after payment of liabilities and
liquidation preferences of any outstanding shares of preferred stock. Holders
of common stock have no preemptive rights or rights to convert their common
stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common stock to be
issued following this offering will be fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of preferred stock
will be converted into 3,533,925 shares of common stock. Thereafter, pursuant
to our Restated Articles, the Board of Directors will have the authority,
without further action by the shareholders, to issue up to 10,000,000 shares of
preferred stock in one or more series and to fix the designations, powers,
preferences, privileges and relative, participating, optional or special rights
and the qualifications, limitations or restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. The Board of Directors, without shareholder approval, can issue
preferred stock with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms that could delay or
prevent a change in control of ONYX or make removal of management more
difficult. Additionally, the issuance of preferred stock may decrease the
market price of the common stock and may adversely affect the voting and other
rights of the holders of common stock. We have no plans to issue any preferred
stock.
REGISTRATION RIGHTS
After this offering, the holders of 11,462,158 shares of common stock will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act, pursuant to the Amended and Restated Investors'
Rights Agreement among such holders and ONYX, dated March 31, 1997 (the
"Investor Rights Agreement"). Under the terms of the Investor Rights Agreement,
if we propose to register any of our securities under the Securities Act,
either for our own account or for the account of other security holders
exercising registration rights, such holders are entitled to notice of the
registration and to include shares of common stock in the registration at our
expense. Additionally, such holders are entitled to certain demand registration
rights pursuant to which they may require us to file a registration statement
under the Securities Act at our expense with respect to their shares of common
stock. Further, such holders may require us to file additional registration
statements on Form S-3 at our expense. All of these registration rights are
subject to certain conditions and
56
<PAGE>
limitations, among them the right of the underwriters of an offering to limit
the number of shares included in such registration and our right to decline to
effect such a registration before the earlier of March 31, 2000 and six months
after the closing of the initial public offering.
ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF RESTATED ARTICLES, RESTATED
BYLAWS AND WASHINGTON LAW
As noted above, our Board of Directors, without shareholder approval, has the
authority under our Restated Articles to issue preferred stock with rights
superior to the rights of the holders of common stock. As a result, preferred
stock could be issued quickly and easily, could adversely affect the rights of
holders of common stock and could be issued with terms calculated to delay or
prevent a change in control of ONYX or make removal of management more
difficult.
Election and Removal of Directors. Effective with the first annual meeting of
shareholders following this offering, the Company's Restated Articles provide
for the division of our Board of Directors into three classes, as nearly as
equal in number as possible, with the directors in each class serving for a
three-year term, and one class being elected each year by our shareholders.
Directors may be removed only for cause. Because this system of electing and
removing directors generally makes it more difficult for shareholders to
replace a majority of the Board of Directors, it may tend to discourage a third
party from making a tender offer or otherwise attempting to gain control of
ONYX and may maintain the incumbency of the Board of Directors.
Approval for Certain Business Combinations. Our Restated Articles require
that certain business combinations (including a merger, share exchange and the
sale, lease, exchange, mortgage, pledge, transfer or other disposition or
encumbrance of a substantial part of our assets other than in the usual and
regular course of business) be approved by the holders of not less than two-
thirds of the outstanding shares, unless such business combination has been
approved by a majority of the Board of Directors, in which case the affirmative
vote required shall be a majority of the outstanding shares.
Shareholder Meetings. Under our Restated Articles and Restated Bylaws, our
shareholders may call a special meeting only upon the request of holders of at
least 25% of the outstanding shares. Additionally, the Board of Directors, the
Chairman of the Board and the President may call special meetings of
shareholders.
Requirements for Advance Notification of Shareholder Nominations and
Proposals. Our Restated Bylaws establish advance notice procedures with respect
to shareholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the Board of
Directors or a committee thereof.
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the WBCA
prohibits a "target corporation," with certain exceptions, from engaging in
certain significant business transactions with a person or group of persons
that beneficially owns 10% or more of the voting securities of the target
corporation (an "Acquiring Person") for a period of five years after such
acquisition, unless the transaction or acquisition of shares is approved by a
majority of the members of the target corporation's board of directors prior to
the time of acquisition. Such prohibited transactions include, among other
things,
. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the Acquiring Person;
. termination of 5% or more of the employees of the target corporation as
a result of the Acquiring Person's acquisition of 10% or more of the
shares; or
. allowing the Acquiring Person to receive any disproportionate benefit as
a shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of ONYX.
57
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C., Ridgefield Park, New Jersey.
NASDAQ NATIONAL MARKET LISTING
We have applied to have the common stock listed for quotation on the Nasdaq
National Market under the symbol "ONXS."
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common stock.
We cannot provide any assurances that a significant public market for the
common stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding shares of common stock. Of
these shares, the shares that we expect to sell in this offering ( shares
if the Underwriters' over-allotment option is exercised in full) will be freely
tradable in the public market without restriction under the Securities Act,
unless such shares are held by "Affiliates" of ONYX, as that term is defined in
Rule 144 under the Securities Act.
The remaining 13,360,134 shares of common stock that will be outstanding
after this offering will be Restricted Shares. We issued and sold the
Restricted Shares in private transactions in reliance on exemptions from
registration under the Securities Act. Restricted Shares may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act, as
summarized below.
Pursuant to certain "lock-up" agreements, all the executive officers,
directors and certain shareholders of ONYX, who collectively hold an aggregate
of 13,277,825 Restricted Shares, have agreed not to offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any such shares for
a period of 180 days from the date of this prospectus. We also have entered
into an agreement with the Underwriters that we will not offer, sell or
otherwise dispose of common stock for a period of 180 days from the date of
this prospectus.
Ninety days after the date of this prospectus, 82,309 shares that are not
subject to lock-up agreements will be eligible for sale in the public market in
accordance with Rules 144 and 701. On the date of the expiration of the lock-up
agreements, an additional 13,035,597 Restricted Shares will be eligible for
immediate sale (of which 8,418,470 shares will be subject to certain volume,
manner of sale and other limitations under Rule 144). The remaining 242,228
Restricted Shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one-year holding periods over the six months following
the expiration of the lock-up period.
Following the expiration of such lock-up periods, certain shares issued upon
exercise of options we granted prior to the date of this prospectus will also
be available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of such shares in reliance upon Rule
144 under the Securities Act but without compliance with certain restrictions,
including the holding-period requirement, imposed under Rule 144. In general,
under Rule 144 as in effect at the closing of this offering, beginning 90 days
after the date of this prospectus, a person (or persons whose shares of ONYX
are aggregated) who has beneficially owned Restricted Shares for at least one
year (including the holding period of any prior owner who is not an Affiliate
of ONYX) would be entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (1) 1% of the then-outstanding
shares of common stock (approximately shares immediately after this
offering) and (2) the average weekly trading volume of the common stock during
the four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale and
notice requirements and to the availability of current public information about
ONYX. Under Rule 144(k), a person who is not deemed to have been an Affiliate
of ONYX at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner who is not an Affiliate of
ONYX) is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
59
<PAGE>
We intend to file, after the effective date of this offering, a Registration
Statement on Form S-8 to register approximately 9,158,650 shares of common
stock reserved for issuance under the 1994 Plan, the 1998 Plan and the ESPP.
The Registration Statement will become effective automatically upon filing.
Shares issued under the foregoing Plans, after the filing of a Registration
Statement on Form S-8, may be sold in the open market, subject, in the case of
certain holders, to the Rule 144 limitations applicable to Affiliates, the
above-referenced lock-up agreements and vesting restrictions imposed by us.
In addition, following this offering, the holders of 11,462,158 shares of
outstanding common stock will, under certain circumstances, have rights to
require us to register their shares for future sale. See "Description of
Capital Stock--Registration Rights."
60
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1999 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, SG Cowen Securities Corporation and Piper Jaffray Inc. are acting
as representatives (the "Representatives"), have severally but not jointly
agreed to purchase from ONYX the following respective numbers of shares of
common stock:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Credit Suisse First Boston Corporation......................
SG Cowen Securities Corporation.............................
Piper Jaffray Inc...........................................
---
Total.....................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the shares of common stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased. The Underwriting Agreement provides that, in the event of a default
by an Underwriter, in certain circumstances the purchase commitments of
nondefaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
ONYX has granted to the Underwriters an option, expiring at the close of
business on the 30th day after the date of this prospectus to purchase up to
additional shares at the initial public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this prospectus. Such option may be exercised only to cover over-allotments in
the sale of shares of common stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of common
stock as it was obligated to purchase pursuant to the Underwriting Agreement.
ONYX has been advised by the Representatives that the Underwriters propose to
offer the shares to the public initially at the public offering price set forth
on the cover page of this prospectus and, through the Representatives, to
certain dealers at such price less a concession of $ per share, and the
Underwriters and such dealers may allow a discount of $ per share on sales to
certain other dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the
Representatives.
The following table summarizes the compensation to be paid to the
Underwriters by ONYX, and the expenses payable by ONYX.
<TABLE>
<CAPTION>
TOTAL
------------------------
PER WITHOUT OVER- WITH OVER-
SHARE ALLOTMENT ALLOTMENT
----- ------------- ----------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by
ONYX.......................................... $ $ $
Expenses payable by ONYX....................... $ $ $
</TABLE>
The Representatives have informed ONYX that they do not expect discretionary
sales by the Underwriters to exceed 5% of the shares being offered hereby.
ONYX, its officers and directors and certain other shareholders have agreed
that they will not offer, sell, contract to sell, announce their intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Securities Act relating to, any
additional shares of common stock or securities convertible into or
exchangeable or exercisable for any shares of ONYX without
61
<PAGE>
the prior written consent of Credit Suisse First Boston Corporation for a
period of 180 days after the date of this prospectus, except in the case of
ONYX issuances pursuant to the exercise of employee stock options outstanding
on the date hereof.
Of the shares of common stock to be sold in this offering, the
Underwriters have reserved for sale, at the price to public set forth on the
cover page of this prospectus, up to shares as follows: (1) at the
Company's request, up to shares for the Company's directors, officers,
employees and business associates and (2) up to an additional shares for
the Preferred Shareholders in connection with a preexisting contractual right
between the Company and the Preferred Shareholders. See "Certain Transactions"
and "Principal Shareholders." As a result, the number of shares of common stock
available for sale to the general public will be reduced to the extent such
persons purchase the reserved shares. The Underwriters will offer to the
general public (on the same basis as the other shares to be sold in this
offering) any reserved shares that are not so purchased.
ONYX has agreed to indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or to contribute to
payments which the Underwriters may be required to make in respect thereof.
We have applied to list the shares of common stock on the Nasdaq National
Market.
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
ONYX and the Representatives. The principal factors to be considered in
determining the public offering price include: the information set forth in
this prospectus and otherwise available to the Representatives; the history and
the prospects for the industry in which ONYX will compete; the ability of
ONYX's management; the prospects for future earnings of ONYX; the present state
of ONYX's development and its 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, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. 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
securities 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 securities originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the securities to be higher than it would otherwise be in
the absence of such transactions. These transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
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 ONYX 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.
62
<PAGE>
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to ONYX and the dealer from whom such purchase
confirmation is received that (1) 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, (2) where required by law,
such purchaser is purchasing as principal and not as agent, and (3) such
purchaser has reviewed the text above under "Resale 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
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission 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 judgment against the issuer or such persons
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 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 ONYX. 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
Certain legal matters will be passed on for ONYX by Perkins Coie llp,
Seattle, Washington. Certain legal matters will be passed on for the
underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in this prospectus and Registration
Statement for the years ended December 31, 1995, 1996 and 1997 and the nine
months in the period ended September 30, 1998, as set forth in their reports,
which are included in this prospectus and Registration Statement. Our
consolidated financial statements are included herein in reliance on their
reports, given on their authority as experts in accounting and auditing.
63
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Commission a Registration Statement on Form S-1. This
prospectus, which forms a part of the Registration Statement, does not contain
all the information included in the Registration Statement. Certain information
is omitted and you should refer to the Registration Statement and its exhibits.
With respect to references made in this prospectus to any contract or other
document of ONYX, such references are not necessarily complete and you should
refer to the exhibits attached to the Registration Statement for copies of the
actual contract or document. You may review a copy of the Registration
Statement, including exhibits and schedule filed therewith, at the Commission's
public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may also obtain copies of such materials from the Public Reference Section
of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as ONYX, that file
electronically with the Commission.
64
<PAGE>
ONYX SOFTWARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young, Independent Auditors............................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Onyx Software Corporation
We have audited the accompanying consolidated balance sheets of ONYX Software
Corporation as of December 31, 1996 and 1997 and September 30, 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997 and the
nine months ended September 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ONYX Software
Corporation at December 31, 1996 and 1997 and September 30, 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 and the nine months ended
September 30, 1998, in conformity with generally accepted accounting
principles.
Seattle, Washington
November 16, 1998, except for Note
12 as to which the date is
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the recapitalization described in Note 12 to the consolidated financial
statements.
ERNST & YOUNG LLP
Seattle, Washington
December 8, 1998
F-2
<PAGE>
ONYX SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, SEPTEMBER 30, EQUITY AT
--------------- ------------- SEPTEMBER 30,
1996 1997 1998 1998
------ ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........ $1,356 $ 3,512 $ 177
Securities available-for-sale.... 2,024 2,064 --
Accounts receivable, less
allowances of $317, $553, and
$402 in 1996, 1997, and 1998,
respectively.................... 3,207 7,650 9,355
Income tax receivable............ -- 963 963
Deferred tax asset............... 54 -- --
Prepaid expense and other........ 215 397 1,132
------ ------- -------
Total current assets.............. 6,856 14,586 11,627
Property and equipment, net....... 1,104 1,264 1,613
Purchased technology.............. -- -- 2,920
Goodwill.......................... -- -- 514
Other assets...................... 44 102 424
------ ------- -------
Total assets...................... $8,004 $15,952 $17,098
====== ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable................. $ 315 $ 574 $ 893
Salary and benefits payable...... 242 476 608
Accrued liabilities.............. 140 902 1,911
Income taxes payable............. 535 65 205
Current portion of capital lease
obligations..................... 322 475 295
Current portion of long-term
debt............................ -- -- 625
Deferred revenue................. 1,014 2,787 5,461
------ ------- -------
Total current liabilities......... 2,568 5,279 9,998
Capital lease obligations, less
current portion.................. 356 155 223
Long-term debt, net of current
portion.......................... -- -- 469
Redeemable convertible preferred
stock, issued and outstanding
shares -- 2,174,082 in 1996 and
3,433,925 in 1997 and 1998,
respectively;
Liquidation value of $11,000
(Note 6)........................ 3,202 12,070 12,981
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $1.00 par
value:
Authorized shares -- 10,000,000
Designated shares -- 3,433,925
in 1998 (none pro forma)...... -- -- -- $ --
Common stock, $0.01 par value:
Authorized shares -- 40,000,000
Issued and outstanding
shares -- 8,010,000,
8,137,876, and 9,823,709 in
1996, 1997 and 1998,
respectively (13,357,634 pro
forma)........................ (24) (769) (79) 12,902
Notes receivable from officers
for common stock................ -- -- (212) (212)
Deferred stock-based
compensation.................... -- (140) (161) (161)
Retained earnings (accumulated
deficit)........................ 1,902 (642) (6,136) (6,136)
Accumulated other comprehensive
income (loss)................... -- (1) 15 15
------ ------- ------- -------
Total shareholders' equity
(deficit)........................ 1,878 (1,552) (6,573) $ 6,408
------ ------- ------- =======
Total liabilities and
shareholders' equity............. $8,004 $15,952 $17,098
====== ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
ONYX SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License.................... $ 1,665 $ 6,797 $ 13,191 $ 8,408 $15,153
Support and service........ 533 2,848 6,246 3,869 8,851
------- ------- -------- ------- -------
2,198 9,645 19,437 12,277 24,004
Cost of revenues:
License.................... 10 52 250 90 607
Support and service........ 300 2,062 5,022 3,060 5,880
------- ------- -------- ------- -------
310 2,114 5,272 3,150 6,487
------- ------- -------- ------- -------
Gross margin................. 1,888 7,531 14,165 9,127 17,517
Operating expenses:
Sales and marketing........ 583 3,187 11,026 7,278 13,615
Research and development... 255 1,170 4,729 2,931 6,705
General and
administrative............ 249 1,109 2,156 1,490 2,593
------- ------- -------- ------- -------
Total operating expenses..... 1,087 5,466 17,911 11,699 22,913
------- ------- -------- ------- -------
Income (loss) from
operations.................. 801 2,065 (3,746) (2,572) (5,396)
Interest income.............. 11 136 370 272 146
Interest expense............. (1) (18) (56) (41) (51)
------- ------- -------- ------- -------
10 118 314 231 95
------- ------- -------- ------- -------
Income (loss) before income
taxes....................... 811 2,183 (3,432) (2,341) (5,301)
Income tax provision
(benefit)................... 288 789 (888) (606) 193
------- ------- -------- ------- -------
Net income (loss)............ 523 1,394 (2,544) (1,735) (5,494)
Preferred stock accretion.... -- (225) (923) (642) (911)
------- ------- -------- ------- -------
Income (loss) available to
common shareholders......... $ 523 $ 1,169 $ (3,467) $(2,377) $(6,405)
======= ======= ======== ======= =======
Earnings (loss) per share:
Basic...................... $ 0.07 $ 0.15 $ (0.43) $ (0.30) $ (0.78)
Diluted.................... $ 0.06 $ 0.14 $ (0.43) $ (0.30) $ (0.78)
Pro forma basic and
diluted................... $ (0.23) $ (0.47)
Shares used in calculation of
earnings (loss) per share:
Basic...................... 8,000 8,008 8,068 8,045 8,205
Diluted.................... 8,322 8,390 8,068 8,045 8,205
Proforma basic and
diluted................... 11,262 11,739
</TABLE>
See accompanying notes.
F-4
<PAGE>
ONYX SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE ACCUMULATED
FROM RETAINED OTHER TOTAL
COMMON STOCK OFFICERS FOR DEFERRED EARNINGS COMPREHENSIVE SHAREHOLDERS'
---------------- COMMON STOCK-BASED (ACCUMULATED INCOME EQUITY
SHARES AMOUNT STOCK COMPENSATION DEFICIT) (LOSS) (DEFICIT)
--------- ------ ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 8,000,000 $ 200 $ -- $ -- $ (15) $-- $ 185
Net income............. -- -- -- -- 523 -- 523
--------- ------ ----- ----- ------- ---- -------
Balance at December 31,
1995................... 8,000,000 200 -- -- 508 -- 708
Exercise of stock
options............... 10,000 1 -- -- -- -- 1
Preferred stock
accretion............. -- (225) -- -- -- -- (225)
Net income............. -- -- -- -- 1,394 -- 1,394
--------- ------ ----- ----- ------- ---- -------
Balance at December 31,
1996................... 8,010,000 (24) -- -- 1,902 -- 1,878
Exercise of stock
options............... 127,876 24 -- -- -- -- 24
Stock options exchanged
for services.......... -- 14 -- -- -- -- 14
Deferred stock
compensation.......... -- 140 -- (140) -- -- --
Cumulative translation
adjustment............ -- -- -- -- -- (1) (1)
Preferred stock
accretion............. -- (923) -- -- -- -- (923)
Net loss............... -- -- -- -- (2,544) -- (2,544)
--------- ------ ----- ----- ------- ---- -------
Balance at December 31,
1997................... 8,137,876 (769) -- (140) (642) (1) (1,552)
Exercise of stock
options, net of
shareholder loans..... 1,452,500 237 (212) -- -- -- 25
Stock options exchanged
for services.......... -- 9 -- -- -- -- 9
Deferred stock
compensation.......... -- 98 -- (98) -- -- --
Amortization of
deferred stock
compensation.......... -- -- -- 77 -- -- 77
Issuance of common
stock and options in
connection with
acquisition (Note 2).. 233,333 1,257 -- -- -- -- 1,257
Cumulative translation
adjustment............ -- -- -- -- -- 16 16
Preferred stock
accretion............. -- (911) -- -- -- -- (911)
Net loss............... -- -- -- -- (5,494) -- (5,494)
--------- ------ ----- ----- ------- ---- -------
Balance at September 30,
1998................... 9,823,709 $ (79) $(212) $(161) $(6,136) $ 15 $(6,573)
========= ====== ===== ===== ======= ==== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
ONYX SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
-------------------------- -------------------
1995 1996 1997 1997 1998
------- -------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) available
to common shareholders...... $ 523 $ 1,169 $ (3,467) $(2,377) $(6,405)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Preferred stock accretion.. -- 225 923 642 911
Depreciation and
amortization.............. 38 213 689 505 691
Accretion of discounts on
investments............... -- (28) (95) (44) (9)
Deferred income taxes...... 18 (54) 54 -- --
Noncash stock-based
compensation expense...... -- -- 14 -- 86
Changes in operating assets
and liabilities:
Accounts receivable...... (416) (2,728) (4,443) (2,431) (1,509)
Other assets............. (30) (229) (188) (335) (1,059)
Accounts payable and
accrued liabilities..... 144 526 1,255 992 1,158
Deferred revenue......... 188 813 1,773 1,052 2,576
Income taxes............. 119 416 (1,487) (1,222) 139
------ -------- -------- ------- -------
Net cash provided by (used
in) operating activities.... 584 323 (4,972) (3,218) (3,421)
INVESTING ACTIVITIES
Purchases of securities...... -- (1,996) (4,989) (4,989) --
Proceeds from maturity of
securities.................. -- -- 5,045 2,045 2,073
Acquisition of EnCyc......... -- -- -- -- (750)
Purchases of property and
equipment................... (302) (196) (410) (261) (681)
------ -------- -------- ------- -------
Net cash provided by (used
in) investing activities.... (302) (2,192) (354) (3,205) 642
FINANCING ACTIVITIES
Proceeds from exercise of
stock options............... -- 1 24 24 25
Proceeds from issuance of
short-term notes............ 5 -- -- -- --
Payments on capital lease
obligations................. -- (130) (486) (357) (429)
Payments on long-term debt... -- -- -- -- (156)
Net proceeds from issuance of
Series A preferred stock.... -- 2,977 -- -- --
Net proceeds from issuance of
Series B preferred stock.... -- -- 7,945 7,945 --
------ -------- -------- ------- -------
Net cash provided by (used
in) financing activities.... 5 2,848 7,483 7,612 (560)
Effect of exchange rate
changes on cash............. -- -- (1) -- 4
------ -------- -------- ------- -------
Net increase (decrease) in
cash and cash equivalents... 287 979 2,156 1,189 (3,335)
Cash and cash equivalents at
beginning of period......... 90 377 1,356 1,356 3,512
------ -------- -------- ------- -------
Cash and cash equivalents at
end of period............... $ 377 $ 1,356 $ 3,512 $ 2,545 $ 177
====== ======== ======== ======= =======
SUPPLEMENTAL CASH FLOW
DISCLOSURE
Interest paid................ $ 1 $ 18 $ 62 $ 41 $ 42
Income taxes paid............ 151 426 565 565 7
Fixed assets financed through
capital lease obligations... -- 808 439 320 317
Technology purchased through
long-term debt.............. -- -- -- -- 1,250
Acquisition purchased with
common stock and stock
options..................... -- -- -- -- 1,257
</TABLE>
See accompanying notes.
F-6
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
ONYX Software Corporation and subsidiaries (Company), is a leading provider
of Enterprise Relationship Management (ERM) solutions. The ONYX ERM solution
automates the key functions that enable enterprises to more effectively
acquire, manage and retain customers, partners and other relationships. The
majority of the Company's revenues are from the ONYX Customer Center product
family. The Company was incorporated in the State of Washington on February 13,
1994 under the name "Renaissance Software, Inc." and maintains its headquarters
in Bellevue, Washington.
Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of results that may be expected for the entire year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its foreign subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements. Changes in these
estimates and assumptions may have a material impact on the financial
statements. The Company has used estimates in determining certain provisions,
including uncollectible trade accounts receivable, useful lives for fixed
assets and intangibles, and tax liabilities.
Unaudited Interim Financial Information
The financial information for the nine months ended September 30, 1997 is
unaudited but includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
its financial position at such date and its operating results and cash flows
for that period.
Revenue Recognition
Statement of Position 97-2, Software Revenue Recognition (SOP 97-2), was
issued in October 1997 by the American Institute of Certified Public
Accountants and was amended by Statement of Position 98-4 (SOP 98-4). The
Company adopted SOP 97-2 effective January 1, 1998. Based upon their
interpretation of SOP 97-2 and SOP 98-4, the Company believes their current
revenue recognition policies and practices are consistent with SOP 97-2 and SOP
98-4. However, full implementation guidelines for this standard have not yet
been issued. Once available, such implementation guidance could lead to
unanticipated changes in current revenue accounting practices, and such changes
could materially adversely affect the Company's future revenues and earnings.
The Company generates revenues through two sources: (i) software license
revenues and (ii) service revenues. Software license revenues are generated
from licensing the rights to use the Company's products directly to end-users
and indirectly through sublicense fees from resellers and, to a lesser extent,
through third-party products the Company distributes. Service revenues are
generated from sales of post-contract support, consulting and training services
performed for customers that license the Company's products.
F-7
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
Revenues from software license agreements are recognized upon delivery of
software if persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed or determinable, and vendor-specific objective
evidence exists to allocate the total fee to elements of the arrangement.
Elements included in multiple element arrangements could consist of software
products, upgrades, enhancements, customer support services, or consulting
services. If an acceptance period is required, revenues are recognized upon the
earlier of customer acceptance or the expiration of the acceptance period. The
Company enters into reseller arrangements that typically provide for sublicense
fees based on a percentage of list price. Sublicense fees are generally
recognized as reported by the reseller upon relicensing of the Company's
products to end-users.
Revenues from customer support services are recognized ratably over the term
of the contract, typically one year. Consulting revenues are primarily related
to implementation services performed on a time-and-materials basis under
separate service arrangements related to the installation of the Company's
software products. Revenues from consulting and training services are
recognized as services are performed. If a transaction includes both license
and service elements, license fee revenues are recognized on shipment of the
software, provided services do not include significant customization or
modification of the base product, and the payment terms for licenses are not
subject to acceptance criteria. In cases where license fee payments are
contingent on the acceptance of services, the Company defers recognition of
revenues from both the license and the service elements until the acceptance
criteria are met.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at purchase to be cash equivalents. The Company's cash
equivalents consist of banker's acceptances with a maturity of three months or
less and money market funds.
Fair Values of Financial Instruments
At September 30, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, capital lease obligations and longterm debt. The carrying value of
cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximates their fair value based on the liquidity of these
financial instruments or based on their short-term nature. The carrying value
of capital lease obligations approximates fair value based on the market
interest rates available to the Company for debt of similar risk and
maturities. The carrying value of long-term debt is $1.1 million; the estimated
fair value of these obligations is $1.0 million based on the market interest
rates available to the Company for debt of similar risk and maturities.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation and amortization is provided using the straight-line method over
the estimated useful lives of the related assets (or over the lease term if it
is shorter for leasehold improvements), which range from two to seven years.
Leasehold improvements are amortized over the shorter of the lease term or
estimated useful life.
Purchased Technology and Goodwill
Purchased technology represents software source code and software licenses
acquired from third parties. Amortization of purchased technology is provided
on a product-by-product basis over the estimated economic
F-8
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
life of the software, generally three to five years, using the straight-line
method. Unamortized capitalized costs determined to be in excess of the net
realizable value of a product are expensed at the date of such determination.
Goodwill represents the excess of the purchase price over the fair value of
identifiable tangible and intangible assets acquired and is amortized using the
straight-line method over its estimated life of five years. Adjustments to the
carrying value of goodwill are made if the sum of expected future net cash
flows from the business acquired is less than book value.
Research and Development
Research and development costs, which consist primarily of software
development costs, are expensed as incurred. Financial accounting standards
provide for the capitalization of certain software development costs after
technological feasibility of the software is established. Under the Company's
current practice of developing new products and enhancements, the technological
feasibility of the underlying software is not established until substantially
all product development is complete, including the development of a working
model. No such costs have been capitalized because the impact of capitalizing
such costs would not be material.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to a concentration
of credit risk consist principally of accounts receivable. The Company's
customer base is dispersed across many different geographic areas throughout
North America, Europe, Asia Pacific and Latin America and consists of companies
in a variety of industries. During 1995, one customer accounted for 15% of
total revenues. During 1996, 1997 and for the nine months ended September 30,
1997 and 1998, no single customer accounted for 10% or more of total revenues.
The Company does not require collateral or other security to support credit
sales, but provides an allowance for bad debts based on historical experience
and specifically identified risks.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses
are translated at the average rates of exchange prevailing during the year. The
translation adjustment resulting from this process is shown within accumulated
other comprehensive income (loss) as a component of shareholders' equity. Gains
and losses on foreign currency transactions are included in the consolidated
statement of operations as incurred. To date, gains and losses on foreign
currency transactions have not been significant.
Income Taxes
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
expected to be realized.
F-9
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). APB
No. 25 provides that the compensation expense relative to the Company's
employee stock options is measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide a pro forma disclosure of the impact of applying the fair value method
of SFAS No. 123 (refer to Note 7).
Advertising
Advertising costs are expensed as incurred. Advertising expense was $170,000,
$704,000, and $1.6 million during the years ended December 31, 1995, 1996,
1997, respectively, and $1.0 million and $1.2 million for the nine months
ending September 30, 1997 and 1998, respectively.
Earnings Per Share and Pro Forma Earnings Per Share
Basic earnings per share is computed by dividing net income (loss) available
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities by including other common stock equivalents, including
stock options and convertible preferred stock, in the weighted average number
of common shares outstanding for a period, if dilutive.
Pro forma earnings per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding and the weighted average
redeemable convertible preferred stock outstanding as if such shares were
converted into common stock at the time of issuance.
Other Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
(SFAS No. 130), which establishes standards for reporting and display of
comprehensive income and its components in the financial statements. The only
item of other comprehensive income (loss) which the Company currently reports
is foreign currency translation adjustments. There was no significant
difference between net income (loss) as reported versus other comprehensive
income (loss).
Business Segments
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS No. 131), which establishes standards
for reporting information about operating segments in annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Information
related to SFAS No. 131 is contained in Note 11.
Derivatives
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities (SFAS No. 133), which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. Because the Company has never used nor currently intends to
use derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on earnings or the financial position
of the Company.
F-10
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
2. ACQUISITION
On September 14, 1998, the Company acquired EnCyc, Inc. (EnCyc), a privately-
held marketing encyclopedia software developer. In exchange for all the
outstanding shares of EnCyc, the Company issued 233,333 shares of its common
stock, paid $500,000 to EnCyc shareholders, and liquidated $250,000 of EnCyc's
existing long-term debt. In addition, in connection with the acquisition, the
Company issued options to EnCyc employees to purchase up to 75,000 shares of
common stock. These options have been treated as part of the purchase price,
resulting in a total purchase price of $2.3 million, including direct costs of
the acquisition. The acquisition was accounted for using the purchase method of
accounting, and, accordingly, the results of EnCyc's operations are included in
the Company's condensed consolidated financial statements from the date of
acquisition.
A summary of the purchase price for the acquisition is as follows (in
thousands):
<TABLE>
<S> <C>
Common stock......................................................... $1,167
Stock options........................................................ 90
Cash paid to shareholders............................................ 500
Cash paid to liquidate notes payable................................. 250
Accrued direct acquisition costs..................................... 280
------
$2,287
======
</TABLE>
The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Assets acquired...................................................... $ 248
Liabilities assumed.................................................. (145)
Purchased technology................................................. 1,670
Goodwill............................................................. 514
------
$2,287
======
</TABLE>
To determine the value of the developed technology, the expected future cash
flows of the existing technology products were discounted, taking into account
risks related to the characteristics and applications of each product, existing
and future markets, and assessments of the life cycle stage of each product.
Based on this analysis, the existing technology that had reached technological
feasibility was capitalized. Amounts attributable to purchased technology and
goodwill will be amortized over their estimated useful life of five years on a
straight-line basis.
The unaudited pro forma combined historical results of operations, as if
EnCyc had been acquired on January 1, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING NINE MONTHS ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
-------------------- --------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------- ----------- ------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues......................... $19,437 $19,776 $24,004 $24,381
Net loss available to common
shareholders.................... (3,467) (3,946) (6,405) (6,790)
Net loss per share (basic and
diluted)........................ $ (0.43) $ (0.48) $ (0.78) $ (0.81)
</TABLE>
The pro forma information does not purport to be indicative of the results
that would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
F-11
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer and office equipment................ $1,167 $1,755 $ 2,362
Purchased software........................... 77 170 434
Furniture and fixtures....................... 55 129 246
Leasehold improvements....................... 69 163 215
------ ------ -------
1,368 2,217 3,257
Less accumulated depreciation and
amortization................................ (264) (953) (1,644)
------ ------ -------
$1,104 $1,264 $ 1,613
====== ====== =======
</TABLE>
Included in property and equipment are assets acquired under capital lease
obligations with an original cost of approximately $788,000, $1.2 million, and
$1.5 million as of December 31, 1996, 1997, and September 30, 1998,
respectively. Accumulated amortization on the leased assets was approximately
$124,000, $635,000, and $1.1 million as of December 31, 1996 and 1997, and
September 30, 1998, respectively.
4. LINE OF CREDIT
Accounts Receivable Line of Credit
In August 1998, the Company entered into a revolving credit agreement with a
financial institution. The agreement allows the Company to borrow up to $8.0
million, with maximum borrowings not to exceed 80% of eligible receivables as
defined by the agreement. Interest on borrowings is, at the Company's
discretion, at the lender's prime rate or LIBOR plus 2.0%. Among other
provisions, the Company is required to maintain certain financial covenants,
and the agreement restricts the payment of dividends. The line of credit
agreement expires in June 2000. At September 30, 1998, there were no borrowings
outstanding under this credit facility.
Equipment Term Loan Facility
In August 1998, the Company entered into an agreement with a financial
institution providing a $3.0 million term loan facility, with maximum
borrowings not to exceed invoice amounts for equipment purchased after June 1,
1998, for the purpose of financing new capital equipment purchases. Interest on
borrowings is at the lender's prime rate plus 0.25%. The facility provides for
a twelve-month advance period with monthly payments of interest only, followed
by 36 monthly payments of principal plus interest. Among other provisions, the
Company is required to maintain certain financial covenants, and the agreement
restricts the payment of dividends. The equipment term loan facility expires in
August 2002. At September 30, 1998, there were no borrowings outstanding under
this credit facility.
Both credit facilities are cross-collateralized by liens against accounts
receivable and specific assets financed by lender, with a negative pledge on
other assets. The Company was in compliance with all financial covenants of the
credit facility at September 30, 1998.
F-12
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
5. LONG-TERM DEBT, COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its facilities under noncancelable operating lease
agreements that expire on various dates through June 2006. The Company leases
certain equipment under noncancelable capital and operating leases that expire
on various dates through July 2001.
Minimum future lease payments under noncancelable capital and operating
leases for the periods ended December 31 pursuant to leases outstanding as of
September 30, 1998 are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Three months ending December 31, 1998...................... $ 122 $ 665
Year ending December 31:
1999..................................................... 234 2,999
2000..................................................... 156 2,746
2001..................................................... 61 2,353
2002..................................................... -- 2,109
2003..................................................... -- 2,095
Thereafter............................................... -- 4,921
----- -------
573 $17,888
=======
Less amount representing interest.......................... (55)
-----
Present value of minimum capital lease obligations......... 518
Less current portion....................................... (295)
-----
Capital lease obligations, less current portion............ $ 223
=====
</TABLE>
Rental expense was approximately $46,000, $232,000, and $1.1 million in 1995,
1996, and 1997 and $701,000 and $1.7 million for the nine months ending
September 30, 1997 and 1998, respectively.
In June 1998, the Company signed a seven-year lease for a new corporate
headquarters in Bellevue, Washington, which is expected to commence July 1999.
The minimum lease payments associated with this lease are included in the
commitments above. The Company has the option to extend the lease for two
additional three-year terms. The Company must provide a $750,000 letter of
credit as security for the lease. If certain working capital requirements are
not met on the commencement date, the Company must provide an additional
$250,000 letter of credit. The letter of credit may be reduced annually by
specified amounts in the lease agreement upon the Company's achieving certain
economic goals. At September 30, 1998, there were no letters of credit
outstanding.
Purchased Technology Obligation
In June 1998, the Company entered into a non-cancelable agreement with a
third party software developer to license certain technology which will be
embedded in a future release of the Company's core product. The agreement calls
for eight quarterly payments of $156,000 totaling $1.25 million through January
2000. The initial cost of this technology of $1.25 million has been recorded as
purchased technology and as long-term debt ($625,000 as a current liability) in
the accompanying balance sheet. In addition to the installment
F-13
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
payments, the agreement calls for per user royalty payments. There are no
minimum per user royalty commitments in connection with this agreement.
Upon release of the product embedded with the third party technology, the
intangible will be expensed on the higher of a per user basis over the
projected product life or straight-line amortization of two years from date of
release.
Other Third-Party License Agreements
The Company has entered into various agreements that allow the Company to
incorporate licensed technology into its products or that allow the Company the
right to sell separately the licensed technology. The Company incurs royalty
fees under these agreements that are based on a predetermined fee per license
sold. Royalty costs incurred under these agreements are recognized as products
are licensed and are included in cost of license revenues. These amounts
totaled $0, $5,000, and $156,000 in 1995, 1996 and 1997 and $64,000 and
$470,000 for the nine months ended September 30, 1997 and 1998. As of September
30, 1998, future commitments under these arrangements were not significant.
Contingencies
The Company is subject to legal proceedings and claims in the ordinary course
of business. Onyx Computers, Inc. has filed a lawsuit against the Company
alleging trademark infringement in Canada. The Company is attempting to
negotiate a settlement, but any amount of loss is not estimable and no accrual
has been recorded in the financial statements. An adverse outcome could have a
material adverse effect on the Company's financial position, liquidity, and
results of operations.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The redeemable convertible preferred stock outstanding at December 31, 1996
and 1997 and September 30, 1998 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1996 1997 1998
----------- ------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Series A, par value $1.38 per
share, issued and outstanding
2,174,082 shares; net of $23,000
in offering costs, plus accretion
to redemption value.............. $ 3,202 $ 3,525 $ 3,791
Series B, par value $6.35 per
share, issued and outstanding
1,259,843 shares; net of $55,000
in offering costs, plus accretion
to redemption value.............. -- 8,545 9,190
----------- ------------ ------------
$3,202 $ 12,070 $ 12,981
=========== ============ ============
</TABLE>
Series A Redeemable Convertible Preferred Stock
In March 1996, the Company sold 2,174,082 shares of Series A Convertible and
Redeemable Preferred Stock (Series A) at $1.38 per share. Net proceeds from the
financing amounted to $2,977,000. Each share of Series A is convertible into
common stock at any time at the option of the holder using the formula provided
in the Articles of Incorporation (Articles) (currently at a ratio of one-to-
one) or automatically upon the closing of an initial public offering of the
Company's common stock from which the aggregate proceeds are not less than $20
million and at a price not less than $4.14 per share.
F-14
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
Holders of Series A have preferential rights over common shareholders to
dividends of $0.138 (10%) per share per annum, when and if declared, and are
entitled to the number of votes equal to the number of shares of common stock
into which their stock could be converted. The Company is not allowed to carry
out certain events, as specified in the Articles, without the advance consent
of the majority of the preferred shareholders, as specified in the Articles. In
the event of liquidation, the holders of Series A have preferential rights over
common shareholders to liquidation payments at the original purchase price,
plus declared but unpaid dividends. The Company has not declared any Series A
dividends to date. Holders of Series A have redemption rights on or after
February 1, 2000 that may require the Company to redeem their stock at the
original purchase price, plus declared but unpaid dividends, plus simple
interest at 10% per annum from the date of original issuance of such shares.
Series B Redeemable Convertible Preferred Stock
In March 1997, the Company completed an $8.0 million private placement of
1,259,843 shares of Series B Convertible and Redeemable Preferred Stock (Series
B) at $6.35 per share. Net proceeds from the financing amounted to $7,945,000.
In conjunction with the sales of Series B, the Company entered into amended
Investors' Rights, Voting, and Co-Sale, and Right of First Offer Agreements.
Each share of Series B is convertible into common stock at any time at the
option of the holder, using the formula provided in the Articles (currently at
a ratio of 1.079-to-one), or automatically upon the closing of an initial
public offering (see Note 12).
Under the terms of the agreement, Series B shareholders have rights in
preference to, but otherwise similar to those of Series A shareholders,
including dividends of $0.635 (10%) per share per annum, when and if declared.
Series B shareholders also have redemption rights on or after February 1, 2000
that may require the Company to redeem their stock at the original purchase
price, plus declared but unpaid dividends, plus simple interest at 10% per
annum from the date of original issuance of such shares. The Company has not
declared any Series B dividends to date.
7. SHAREHOLDERS' EQUITY
Notes Receivable from Officers
In July 1998, certain officers exercised options to purchase 1,300,000 shares
of common stock and paid the exercise price by issuing promissory notes to the
Company totaling $210,000. These notes, which have been offset against common
stock for financial statement presentation, are due in July 2001 and bear
interest at 5.39%, payable annually. These notes and the interest thereon are
full recourse.
1994 Combined Incentive and Nonqualified Stock Option Plan
Under the terms of the 1994 Combined Incentive and Nonqualified Stock Option
Plan (the Plan), the Board of Directors may grant incentive and nonqualified
stock options to employees, officers, directors, agents, consultants, and
independent contractors of the Company. There were 5,000,000 shares of common
stock reserved under the 1994 Plan. Generally, the Company grants stock options
with exercise prices equal to the fair market value of the common stock on the
date of grant, as determined by the Company's Board of Directors. Options
generally vest over a four and one-half year period; 25% are exercisable after
18 months, with 12.5% exercisable every six months thereafter. In December
1997, the Board of Directors made a special grant of 141,600 options to certain
key employees that vest 1.67% after 18 months, and an additional 1.67% at the
end of each month thereafter, with the result that 100% of the options are
vested six and one-half years
F-15
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
from the date of grant. Options generally expire ten years from the date of
grant. On October 23, 1998, the Board of Directors of ONYX suspended the 1994
Plan and determined that no further grants shall be made pursuant to the 1994
Plan (see Note 12).
Under APB No. 25, because the exercise price of the Company's employee stock
options generally equals the fair value of the underlying stock on the date of
grant, no compensation expense is recognized. Deferred compensation expense of
$140,000 and $98,000 was recorded in December 1997 and during 1998,
respectively, for those situations where the exercise price of an option was
lower than the deemed fair value for financial reporting purposes of the
underlying common stock. The deferred compensation is being amortized over the
vesting period of the underlying options.
Had the stock compensation expense for the Company's stock option plan been
determined based on the minimum value model, the Company's net income (loss)
would have been adjusted to these pro forma amounts:
<TABLE>
<CAPTION>
DECEMBER 31, NINE MONTHS ENDED
-------------------- SEPTEMBER 30,
1995 1996 1997 1998
----- ------ ------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income (loss) available to
common shareholders:
As reported..................... $ 523 $1,169 $(3,467) $(6,405)
SFAS No. 123 pro forma.......... $ 513 $1,136 $(3,526) $(6,484)
Diluted Earnings (loss) per share:
As reported--diluted............ $0.06 $ 0.14 $ (0.43) $ (0.78)
SFAS No. 123 pro forma.......... $0.06 $ 0.14 $ (0.44) $ (0.79)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997 1998
------- ------- ------- -------------
<S> <C> <C> <C> <C>
Expected dividend yield............. 0.0% 0.0% 0.0% 0.0%
Risk-free interest rate............. 6.5% 6.5% 5.3% 5.0%
Expected life....................... 7 years 7 years 5 years 5 years
</TABLE>
For purposes of the pro forma disclosures, the estimated weighted average
fair value of the options granted, estimated to be $0.07, $0.05, $0.15 and
$0.69 at December 31, 1995, 1996, and 1997 and September 30, 1998,
respectively, is amortized to expense over the options' vesting period.
Compensation expense recognized in providing pro forma disclosures may not be
representative of the effects on pro forma earnings for future years because
the amounts above include only the amortization for the fair value of 1995,
1996, 1997 and the nine months ended September 30, 1998 grants.
F-16
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------
SHARES WEIGHTED
AVAILABLE NUMBER AVERAGE
FOR OF EXERCISE
GRANT SHARES PRICES
---------- ---------- --------
<S> <C> <C> <C>
Balance at January 1, 1995................ 4,175,000 825,000 $0.10
Options granted......................... (638,000) 638,000 $0.20
---------- ----------
Balance at December 31, 1995
(exercisable--165,000)................... 3,537,000 1,463,000 $0.14
Options granted......................... (1,730,800) 1,730,800 $0.20
Options canceled........................ 75,000 (75,000) $0.16
Options exercised....................... -- (10,000) $0.12
---------- ----------
Balance at December 31, 1996
(exercisable--656,267)................... 1,881,200 3,108,800 $0.18
Options granted......................... (1,091,400) 1,091,400 $0.65
Options canceled........................ 241,248 (241,248) $0.26
Options exercised....................... -- (127,876) $0.19
---------- ----------
Balance at December 31, 1997
(exercisable--1,163,672)................. 1,031,048 3,831,076 $0.31
Options granted......................... (1,373,760) 1,373,760 $3.20
Options canceled........................ 400,209 (400,209) $0.60
Options exercised....................... -- (1,452,500) $0.16
---------- ----------
Outstanding at September 30, 1998
(exercisable--380,683)................... 57,497 3,352,127 $1.52
========== ==========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options at September 30, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------- ------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER OF CONTRACTUAL NUMBER OF EXERCISE
PRICES OPTIONS LIFE (YEARS) OPTIONS PRICE
-------- --------- ------------ --------- --------
<S> <C> <C> <C> <C>
$0.10--$0.12 188,500 5.83 36,000 $0.12
$0.20--$0.40 1,066,817 7.78 280,432 0.21
$0.70 767,500 8.31 22,376 0.70
$1.20--$1.50 168,400 9.46 -- --
$2.50--$3.50 686,910 9.69 -- --
$5.00 474,000 9.98 41,875 5.00
--------- -------
$0.10--$5.00 3,352,127 8.58 380,683 $0.76
========= =======
</TABLE>
Common Shares Reserved for Future Issuance
The Company has reserved shares of common stock as of September 30, 1998 as
follows:
<TABLE>
<S> <C>
Stock options...................................................... 3,409,624
Conversion of redeemable convertible preferred stock:
Series A......................................................... 2,174,082
Series B......................................................... 1,259,843
---------
6,843,549
=========
</TABLE>
F-17
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
8. EARNINGS PER SHARE
The following represents the calculations for earnings per share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net income (loss) (A)............................... $ 523 $ 1,394 $ (2,544) $ (1,735) $ (5,494)
Preferred stock accretion........................... -- (225) (923) (642) (911)
------- ------- -------- -------- --------
Income (loss) available to common shareholders (B).. $ 523 $ 1,169 $ (3,467) $ (2,377) $ (6,405)
======= ======= ======== ======== ========
Weighted average number of common shares (1)(C)..... 8,000 8,008 8,068 8,045 8,205
Effect of dilutive securities:
Stock options...................................... 322 382 ** ** **
Convertible preferred stock......................... -- ** ** ** **
------- ------- -------- -------- --------
Adjusted weighted average shares and assumed
conversions (D).................................... 8,322 8,390 8,068 8,045 8,205
======= ======= ========
Pro forma adjustment for convertible preferred
stock.............................................. 3,194 3,534
-------- --------
Pro forma weighted average shares (E)............... 11,262 11,739
======== ========
Earnings (loss) per share:
Basic (B)/(C)...................................... $ 0.07 $ 0.15 $ (0.43) $ (0.30) $ (0.78)
Diluted (B)/(D).................................... $ 0.06 $ 0.14 $ (0.43) $ (0.30) $ (0.78)
Pro forma basic and diluted (A)/(E)................ $ (0.23) $ (0.47)
</TABLE>
- --------
(1) For purposes of determining the weighted average number of common shares
outstanding, 1,300,000 shares of common stock acquired through the July
1998 exercise of stock options in exchange for promissory notes to the
Company are only considered in the calculation of diluted earnings per
share.
** Excluded from the computation of diluted earnings per share given the
effects are antidilutive. Outstanding stock options to purchase 799,764 and
3,831,076 shares of common stock at December 31, 1996 and 1997,
respectively, and 3,198,402 and 4,652,127 shares of common stock at
September 30, 1997 and 1998, respectively, were excluded from the
computation of diluted earnings per share because their effect was anti-
dilutive (see Note 7 for additional stock option information).
F-18
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
9. INCOME TAXES
Income (loss) before taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------
1995 1996 1997 1997 1998
---- ------ ------- ----------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
U.S. ............................ $811 $2,159 $(3,601) $(2,456) $(5,746)
Foreign.......................... -- 24 169 115 445
---- ------ ------- ------- -------
$811 $2,183 $(3,432) $(2,341) $(5,301)
==== ====== ======= ======= =======
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ----------------------
1995 1996 1997 1997 1998
-------------- --------- ------------ --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal................. $255 $800 $(1,007) $(708) $ --
State and local......... 15 37 5 3 --
Foreign................. -- 6 60 45 193
------ ------ --------- --------- --------
Total current income
taxes.................... 270 843 (942) (660) 193
Deferred--federal......... 18 (54) 54 54 --
------ ------ --------- --------- --------
Income tax provision (ben-
efit).................... $ 288 $789 $ (888) $(606) $ 193
====== ====== ========= ========= ========
</TABLE>
The effective rate differs from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- --------- ----------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income tax expense
(benefit) at statutory
rate of 34%.............. $276 $742 $ (1,167) $(796) $(1,802)
State taxes, net of fed-
eral benefit............. 10 24 3 1 --
Losses producing no cur-
rent tax benefit......... -- -- 276 189 1,995
Research and development
tax credit............... (13) (22) -- -- --
Other items, net.......... 15 44 -- -- --
------ ------ --------- ----- -------
Income tax provision (ben-
efit).................... $288 $788 $ (888) $(606) $ 193
====== ====== ========= ===== =======
</TABLE>
At September 30, 1998, the Company had a domestic net operating loss and
research and development carryforwards of $6.1 million and $453,000,
respectively, which begin to expire in 2017. Utilization of these carryforwards
depends on the recognition of future taxable income. The Company's ability to
utilize net operating loss carryforwards may be limited in the event that a
change in ownership, as defined in the Internal Revenue Code, occurs in the
future. To the extent that any single-year loss is not utilized to the full
amount of the limitation, such unused loss is carried forward to subsequent
years until the earlier of its utilization or the expiration of the relevant
carryforward period.
F-19
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
Deferred tax assets reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Book accruals in excess of tax.............. $ 144 $ 246 $ 209
Research and development credit
carryforward............................... -- 100 453
Net operating loss carryforward............. -- 170 2,084
----- ------ -------
Total gross deferred tax assets............... 144 516 2,746
Less valuation allowance...................... -- (315) (2,587)
----- ------ -------
144 201 159
Deferred tax liability--deductible basis in
fixed assets................................. (90) (201) (159)
----- ------ -------
Net deferred tax assets....................... $ 54 $ -- $ --
===== ====== =======
</TABLE>
Since the Company's utilization of these deferred tax assets is dependent on
future profits, which are not assured, a valuation allowance equal to the net
deferred tax assets has been provided. The valuation allowance for deferred tax
assets increased $315,000 and $2.3 million during the year ended December 31,
1997 and the nine months ended September 30, 1998, respectively.
10. EMPLOYEE BENEFIT PLAN
The Company maintains a profit-sharing retirement plan for eligible employees
under the provisions of Internal Revenue Code Section 401(k). Participants may
defer up to 15% of their annual compensation on a pretax basis, subject to
maximum limits on contributions prescribed by law. Contributions by the Company
are at the discretion of the Board of Directors. No discretionary contributions
have been made by the Company to date.
11. INTERNATIONAL OPERATIONS
The Company licenses and markets its products through direct and indirect
channels throughout the world. Information regarding revenues in different
geographic regions is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------
1995 1996 1997 1997 1998
------- ------- -------- ----------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
North America................... $ 2,196 $ 9,297 $ 18,272 $11,578 $19,850
Rest of World................... 1 348 1,165 699 4,154
------- ------- -------- ------- -------
Total Revenues.................. $ 2,197 $ 9,645 $ 19,437 $12,277 $24,004
======= ======= ======== ======= =======
</TABLE>
F-20
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
The Company reports operating results based on geographic areas. A summary of
key financial data by segment is as follows:
<TABLE>
<CAPTION>
NORTH REST OF
AMERICA WORLD TOTAL
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
NINE MONTHS ENDED
SEPTEMBER 30, 1998:
Revenues................ $19,850 $ 4,154 $24,004
Operating income
(loss)................. (3,421) (1,975) (5,396)
Interest, net........... 95 -- 95
Depreciation and
amortization........... 666 25 691
Purchases of property
and equipment.......... 562 119 681
Long-lived assets....... 5,032 439 5,471
Total assets............ 16,150 948 17,098
NINE MONTHS ENDED
SEPTEMBER 30, 1997
(UNAUDITED):
Revenues................ $11,578 $ 699 $12,277
Operating income
(loss)................. (1,892) (680) (2,572)
Interest, net........... 231 -- 231
Depreciation and
amortization........... 495 10 505
Purchases of property
and equipment.......... 215 46 261
Long-lived assets....... 1,225 63 1,288
Total assets............ 14,828 196 15,024
</TABLE>
12. SUBSEQUENT EVENTS
Initial Public Offering
On December 4, 1998, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit
the Company to offer its common stock to the public. On December 4, 1998, the
Board also approved, subject to shareholder approval, the amendment of the
Company's Articles and Bylaws, which included, among other things, an increase
in the capitalization of the Company to 40,000,000 shares of common stock and
10,000,000 shares of preferred stock, each with a par value of $0.01 per share,
effective upon the filing with the Secretary of State of Washington, and an
increase in the number of shares of common stock issuable upon conversion of
the Series B Redeemable Convertible Preferred Stock. The accompanying financial
statements reflect the increase in the capitalization of the Company. If the
offering is consummated under terms presently anticipated, each outstanding
share of redeemable convertible preferred stock will convert into 3,533,925
shares of common stock. Unaudited pro forma shareholders' equity reflects the
assumed conversion of the redeemable convertible preferred stock outstanding at
September 30, 1998 into common stock.
1998 Stock Incentive Compensation Plan
On October 23, 1998, the Board adopted the 1998 Stock Incentive Compensation
Plan (1998 Plan), which was approved by the Company's shareholders on November
24, 1998. The 1998 Plan provides for both stock options and restricted stock
awards to employees, officers, directors, agents, advisors, consultants and
independent contractors of the Company. Options granted under the 1998 plan
generally vest and become exercisable 25% 18 months after the date of grant,
and additional 12.5% shall vest at the end of each six-month period thereafter,
with the result that 100% of the options are vested four and one-half years
from the initiation date. As of November 30, 1998, the Company has reserved a
total of (i) 4,907,124 shares of common stock
F-21
<PAGE>
ONYX SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 IS UNAUDITED)
(1,518,872 shares of common stock from the 1998 Plan plus 3,388,252 shares
issuable upon exercise of options that were outstanding but unexercised under
the 1994 Plan), and (ii) an annual increase to be added on the first day of
each fiscal year beginning in 2000 equal to the lesser of 1,675,763 shares or
5% of the average common shares outstanding used to calculate fully diluted
earnings per share, as reported for the preceding year. Any shares returned to
the 1994 Plan as a result of termination of options or repurchase of shares by
the Company become available for future grant from the 1998 Plan. In
conjunction with the adoption of the 1998 Plan, the Company granted options to
acquire 66,700 shares of common stock at an exercise price of $9.00 per share
to employees from the 1994 Plan's remaining stock option pool, and options to
acquire 16,200 shares of common stock at an exercise price of $9.00 per share
to employees from the 1998 Plan.
1998 Employee Stock Purchase Plan
On December 4, 1998, the Board approved the 1998 Employee Stock Purchase Plan
(the ESPP), subject to approval by the Company's shareholders. If the ESPP is
approved by the shareholders, the Company will implement it upon the
effectiveness of the initial public offering. The ESPP permits eligible
employees of ONYX and its subsidiaries to purchase common stock through payroll
deductions of up to 10% of their compensation. Under the ESPP, no employee may
purchase common stock worth more than $25,000 in any calendar year, valued as
of the first day of each offering period. In addition, owners of 5% or more of
ONYX's or a subsidiary's common stock may not participate in the ESPP. The
Company authorized the issuance under the ESPP of a total of 500,000 shares of
common stock, plus an automatic annual increase, to be added on the first day
of the fiscal year beginning in 2000, equal to the lesser of (a) 200,000 shares
and (b) 1.2% of the average common shares outstanding as used to calculate
fully diluted earnings per share as reported in the Annual Report for the
preceding year, or a lesser amount determined by the Board of Directors. Any
shares from increases in previous years that are not actually issued shall be
added to the aggregate number of shares available for issuance under the ESPP.
We will implement the ESPP with six-month offering periods. The first
offering period will commence on the effectiveness of this offering. Subsequent
offering periods will begin on each January 1 and July 1. The price of the
common stock purchased under the ESPP will be the lesser of 85% of the fair
market value on the first day of an offering period and 85% of the fair market
value on the last day of an offering period, except that the purchase price for
the first offering period will be equal to the lesser of 100% of the initial
public offering price of the common stock and 85% of the fair market value on
June 30, 1999. The ESPP does not have a fixed expiration date, but ONYX's Board
of Directors may terminate it at any time. The Company has not yet issued any
shares of common stock under the ESPP.
F-22
<PAGE>
ERM
Enterprise Relationship Management
Front-office solutions for the real world
[ARTWORK]
Today's businesses increasingly face competitive and operational challenges such
as:
. Intense competition
. Constantly changing technologies
. Rapid growth
. High costs of customer acquisition and retention
ONYX ERM Solutions enable businesses to address these issues by:
. Improving the effectiveness of marketing, sales and service efforts
. Organizing data around relationships--not functional departments
. Leveraging recent technological developments.
<PAGE>
[LOGO OF ONYX SOFTWARE(R)]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown
are estimates, except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 9,911
NASD filing fee.................................................. 4,065
Nasdaq National Market listing fee............................... 95,000
Blue Sky fees and expenses....................................... 10,000
Printing and engraving expenses.................................. 150,000
Legal fees and expenses.......................................... 200,000
Accounting fees and expenses..................................... 175,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 96,024
--------
Total.......................................................... $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation
Act (the "WBCA") authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Restated Bylaws (Exhibit 3.2
hereto) provides for indemnification of the registrant's directors, officers,
employees and agents to the maximum extent permitted by Washington law. The
directors and officers of the registrant also may be indemnified against
liability they may incur for serving in that capacity pursuant to a liability
insurance policy maintained by the registrant for such purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a director's
liability to the corporation or its shareholders for monetary damages for acts
or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Section 5.2 of the registrant's Fourth Amended and Restated Articles
of Incorporation (Exhibit 3.1 hereto) contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the registrant and its shareholders.
The registrant has entered into certain indemnification agreements with its
officers and directors, the form of which is attached as Exhibit 10.11 to this
Registration Statement and incorporated herein by reference. The
indemnification agreements provide the registrant's officers and directors with
indemnification to the maximum extent permitted by the WBCA.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the Underwriters, for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in this
Registration Statement.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in February 1994, the registrant has issued and sold
unregistered securities as follows:
1. On March 29, 1996, the registrant issued 2,174,082 shares of Series A
Preferred Stock, which are convertible into 2,174,082 shares of common
stock, to two investors, Foundation Capital, L.P. and Foundation Capital
Entrepreneurs Fund, L.L.C., for a consideration of $1.38 per share of
Series A Preferred Stock, or an aggregate of $3,000,233. The foregoing
purchases and sales were exempt from registration under the Securities Act
pursuant to Section 4(2) thereof on the basis that the transactions did not
involve a public offering.
2. On March 31, 1997, the registrant issued 1,259,843 shares of Series B
Preferred Stock, which are convertible into 1,359,843 shares of common
stock, to eight investors, Foundation Capital, L.P., Foundation Capital
Entrepreneurs Fund, L.L.C., TCV II, V.O.F., Technology Crossover Ventures
II, L.P., TCV II (Q), L.P., TCV II Strategic Partners, L.P., Technology
Crossover Ventures II, C.V. and Hillman/Dover Limited Partnership, for a
consideration of $6.35 per share of Series B Preferred Stock, or an
aggregate of $8,000,003. The foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof on
the basis that the transactions did not involve a public offering.
3. From December 1995 through November 1998, the registrant granted stock
options to purchase 5,725,660 shares of common stock, with exercise prices
ranging from $.20 to $9.00 per share, to employees, consultants and
directors pursuant to its Amended and Restated 1994 Combined Incentive and
Nonqualified Stock Option Plan. Of these options, options for 744,532
shares have been canceled without being exercised, options for 1,592,876
shares have been exercised and options for 3,388,252 shares remain
outstanding. From October 23, 1998 through November 30, 1998, the
registrant granted stock options to purchase 16,200 shares of the
registrant's common stock, with an exercise price of $9.00 per share, to
employees and consultants pursuant to its 1998 Stock Incentive Compensation
Plan. Of these options, none have been canceled without being exercised,
none have been exercised and options for 16,200 shares remain outstanding.
4. In September 1998, pursuant to an Agreement and Plan of Merger by and
among the registrant, EnCyc Acquisition, Inc., EnCyc, Inc. ("EnCyc") and
the shareholders of EnCyc, the registrant issued 233,333 shares of common
stock in connection with the registrant's acquisition of all the issued and
outstanding shares of EnCyc. The form of the transaction was a merger,
whereby a wholly owned subsidiary of the registrant was merged with and
into EnCyc. The recipients of the common stock were the former shareholders
of EnCyc. The issuance of these securities was exempt from registration
under the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.
The sales and issuances of these securities were exempt from registration
under the Securities Act pursuant to Rule 701 promulgated thereunder on the
basis that these options were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to written contracts relating to
consideration, as provided by Rule 701, or pursuant to Section 4(2) of the
Securities Act on the basis that the transactions did not involve a public
offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Third Amended and Restated Articles of Incorporation of the
registrant, as further amended by Form of Articles of Amendment.
3.2 Form of Amended and Restated Bylaws of the registrant.
5.1* Opinion of Perkins Coie LLP as to the legality of the shares.
10.1* Amended and Restated Investors' Rights Agreement, dated as of March
31, 1997, by and among the registrant, Foundation Capital, L.P.,
Foundation Capital Entrepreneurs Fund, L.L.C., TCV II, V.O.F.,
Technology Crossover Ventures II, L.P., TCV II (Q), L.P., TCV II
Strategic Partners, L.P., Technology Crossover Ventures II, C.V.,
Hillman/Dover Limited Partnership, Brent Frei, Brian Janssen, Todd
Stevenson, Mary Forler, Ronald Frei, Glenda Frei, Barbara
Stevenson, Leon Stevenson, Michael Racine, Mary Winifred Racine,
Bettie Ruzicka, Larry L. Ruzicka, Colleen Chmelik, James Chmelik,
J. Michael Ellis and Barbara S. Ellis.
10.2 Lease Agreement, dated as of June 26, 1998, by and between WRC
Sunset North LLC and the registrant.
10.3 Sublease Agreement, as amended, dated as of March 6, 1996, by and
between WWC Holding Co., Inc. and the registrant.
10.4 Lease, as amended, dated as of February 4, 1997, by and between WRC
Properties, Inc. and the registrant.
10.5 Lease, dated as of February 19, 1998, by and between Teachers
Insurance & Annuity Association of America, Inc. and the
registrant.
10.6 Loan and Security Agreement, dated as of September 3, 1998, between
Silicon Valley Bank and the registrant.
10.7 Amended and Restated 1994 Combined Incentive and Nonqualified Stock
Option Plan.
10.8 1998 Stock Incentive Compensation Plan.
10.9 1998 Employee Stock Purchase Plan.
10.10* Offer of Employment, dated as of June 11, 1998, from the registrant
to Sarwat H. Ramadan.
10.11* Offer of Employment, dated as of September 14, 1997, from the
registrant to Keith Brown.
10.12 Form of Indemnification Agreement between the registrant and each
of its directors and executive officers.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Perkins Coie LLP (contained in the opinion filed as
Exhibit 5.1 hereto).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
99.1 Report of Ernst & Young LLP, Independent Auditors, on Financial
Statement Schedule
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
The following financial statement schedule is filed herewith:
Section II--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of
II-3
<PAGE>
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bellevue,
State of Washington, on the 8th day of December, 1998.
ONYX SOFTWARE CORPORATION
/s/ Brent R. Frei
By: _________________________________
Brent R. Frei,
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Brent R. Frei and Sarwat H. Ramadan, and each of them, with full power
of substitution and resubstitution and full power to act without the other, as
his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of each person, individually and
in each capacity stated below, and to file, any and all amendments to this
Registration Statement, including any and all post-effective amendments and
amendments thereto and any registration statement relating to the same offering
as this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, 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, and each of them, full power and authority to do and perform each
and every act and thing, ratifying and confirming all that said attorneys-in-
fact and agents or any of them or their or his substitute or substitutes may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 8th day of December, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Brent R. Frei President, Chief Executive Officer and
______________________________________ Chairman of the Board (Principal Executive
Brent R. Frei Officer)
/s/ Sarwat H. Ramadan Vice President, Chief Financial Officer,
______________________________________ Secretary and Treasurer (Principal
Sarwat H. Ramadan Financial and Accounting Officer)
/s/ Todd A. Stevenson Director
______________________________________
Todd A. Stevenson
/s/ William B. Elmore Director
______________________________________
William B. Elmore
/s/ Jay C. Hoag Director
______________________________________
Jay C. Hoag
/s/ Paul G. Koontz Director
______________________________________
Paul G. Koontz
/s/ Daniel R. Santell Director
______________________________________
Daniel R. Santell
</TABLE>
II-5
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ONYX SOFTWARE CORPORATION
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
----------------------
CHARGED TO
BALANCE OF CHARGED TO OTHER
BEGINNING COSTS AND ACCOUNTS -- DEDUCTION -- BALANCE AT
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE(1) END OF PERIOD
----------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1995 Deducted from
asset accounts:
Allowance for doubtful
accounts............. $ -- $ 30 $ -- $ -- $ 30
Year ended December 31,
1996 Deducted from
asset accounts:
Allowance for doubtful
accounts............. 30 314 -- (27) 317
Year ended December 31,
1997 Deducted from
asset accounts:
Allowance for doubtful
accounts............. 317 525 -- (289) 553
Nine months ended
September 30, 1998
Deducted from asset
accounts:
Allowance for doubtful
accounts............. 553 400 -- (551) 402
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Third Amended and Restated Articles of Incorporation of the
registrant, as further amended by Form of Articles of Amendment.
3.2 Form of Amended and Restated Bylaws of the registrant.
5.1* Opinion of Perkins Coie LLP as to the legality of the shares.
10.1* Amended and Restated Investors' Rights Agreement, dated as of March
31, 1997, by and among the registrant, Foundation Capital, L.P.,
Foundation Capital Entrepreneurs Fund, L.L.C., TCV II, V.O.F.,
Technology Crossover Ventures II, L.P., TCV II (Q), L.P., TCV II
Strategic Partners, L.P., Technology Crossover Ventures II, C.V.,
Hillman/Dover Limited Partnership, Brent Frei, Brian Janssen, Todd
Stevenson, Mary Forler, Ronald Frei, Glenda Frei, Barbara Stevenson,
Leon Stevenson, Michael Racine, Mary Winifred Racine, Bettie Ruzicka,
Larry L. Ruzicka, Colleen Chmelik, James Chmelik, J. Michael Ellis and
Barbara S. Ellis.
10.2 Lease Agreement, dated as of June 26, 1998, by and between WRC Sunset
North LLC and the registrant.
10.3 Sublease Agreement, as amended, dated as of March 6, 1996, by and
between WWC Holding Co., Inc. and the registrant.
10.4 Lease, as amended, dated as of February 4, 1997, by and between WRC
Properties, Inc. and the registrant.
10.5 Lease, dated as of February 19, 1998, by and between Teachers
Insurance & Annuity Association of America, Inc. and the registrant.
10.6 Loan and Security Agreement, dated as of September 3, 1998, between
Silicon Valley Bank and the registrant.
10.7 Amended and Restated 1994 Combined Incentive and Nonqualified Stock
Option Plan.
10.8 1998 Stock Incentive Compensation Plan.
10.9 1998 Employee Stock Purchase Plan.
10.10* Offer of Employment, dated as of June 11, 1998, from the registrant to
Sarwat H. Ramadan.
10.11* Offer of Employment, dated as of September 14, 1997, from the
registrant to Keith Brown.
10.12 Form of Indemnification Agreement between the registrant and each of
its directors and executive officers.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit
5.1 hereto).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
99.1 Report of Ernst & Young LLP, Independent Auditors, on Financial
Statement Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
THIRD AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ONYX SOFTWARE CORPORATION
Pursuant to the provisions of RCW 23B.10.070 of the Washington Business
Corporation Act, Onyx Software Corporation, a Washington corporation, hereby
restates its Articles of Incorporation as now and heretofore amended:
1. NAME
The name of the Company is Onyx Software Corporation (the "COMPANY").
2. SHARES
2.1. AUTHORIZED CAPITAL
The Company is authorized to issue 40,000,000 shares, consisting of
30,000,000 shares designated as common stock ("COMMON STOCK") and 10,000,000
shares designated as preferred stock ("PREFERRED STOCK"), the par value of each
of which is $0.01. Common Stock is subject to the rights and preferences of
Preferred Stock as hereinafter set forth. Except to the extent such rights are
granted to Preferred Stock or one or more series thereof, holders of shares of
Common Stock shall have unlimited voting rights and are entitled to receive the
net assets of the Company upon dissolution.
2.2. ISSUANCE OF PREFERRED STOCK IN SERIES
The Company's Board of Directors (the "BOARD") may designate one or more
series of Preferred Stock, and the designation and number of shares within each
series, and shall determine the preferences, limitations, and relative rights of
any shares of Preferred Stock, or of any series of Preferred Stock, before
issuance of any shares of that class or series. Preferred Stock, or any series
thereof, may have rights which are identical to those of Common Stock. Subject
to compliance with the provisions of any series of Preferred Stock, the Board is
also authorized to increase or decrease the number of shares of any series of
Preferred Stock prior or subsequent to the issue of that series, but not below
the number of shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting
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<PAGE>
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
2.3. DIVIDENDS
The holders of shares of Preferred Stock shall be entitled to receive
dividends, out of the funds of the Company legally available therefor, at the
rate and at the time or times, whether cumulative or noncumulative, as may be
provided by the Board in designating a particular series of Preferred Stock. If
such dividends on the Preferred Stock shall be cumulative, then if dividends
shall not have been paid, the deficiency shall be fully paid or the dividends
declared and set apart for payment at such rate, but without interest on
cumulative dividends, before any dividends on the Common Stock shall be paid or
declared and set apart for payment. Shares of one class or series may be issued
as a share dividend in respect to shares of another class or series.
2.4. REDEMPTION
Preferred Stock may be redeemable at such price, in such amount, and at
such time or times as may be provided by the Board in designating a particular
series of Preferred Stock. In any event, such Preferred Stock may be
repurchased by the Company to the extent legally permissible.
2.5. LIQUIDATION
In the event of any liquidation, dissolution, or winding up of the affairs
of the Company, whether voluntary or involuntary, then, before any distribution
shall be made to the holders of the Common Stock, the holders of the Preferred
Stock at the time outstanding shall be entitled to be paid the preferential
amount or amounts per share as may be provided by the Board in designating a
particular series of Preferred Stock and dividends accrued thereon to the date
of such payment. The holders of the Preferred Stock shall not be entitled to
receive any distributive amounts upon the liquidation, dissolution, or winding
up of the affairs of the Company other than the distributive amounts referred to
in this section, unless otherwise provided by the Board in designating a
particular series of Preferred Stock.
2.6. CONVERSION
Shares of Preferred Stock may be convertible into Common Stock of the
Company upon such terms and conditions, at such rate and subject to such
adjustments as may be provided by the Board in designating a particular series
of Preferred Stock.
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<PAGE>
2.7. VOTING RIGHTS
Holders of Preferred Stock shall have such voting rights as may be provided
by the Board in designating a particular series of Preferred Stock.
2.8. PREFERRED STOCK DESIGNATIONS
The Preferred Stock shall be divided into series, and 2,174,082 shares of
Preferred Stock are designated Series A Convertible Preferred Stock (the "SERIES
A STOCK") and 1,259,843 shares of Preferred Stock are designated Series B
Convertible Preferred Stock (the "SERIES B STOCK"). The rights, preferences,
restrictions and other matters relating to the Series A Stock and the Series B
Stock are set forth below.
2.8.1. DIVIDEND PREFERENCE
2.8.1.1. DIVIDEND RATE
Subject to the rights and preferences of any series of Preferred Stock
that may rank senior to the Series A Stock and Series B Stock as to dividends
and may from time to time come into existence, holders of shares of Series A
Stock and holders of shares of Series B Stock, respectively, shall be entitled
to receive dividends, payable when, if and as declared by the Board out of funds
that are legally available therefor a noncumulative cash dividend per annum of
$.138 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) and of $.635 per share (as adjusted for any stock
dividends, combinations or splits with respect to such shares), respectively, if
and when declared by the Board in its discretion. Such dividend, if and so
declared, shall be paid at such time or times as shall be determined by the
Board. No right shall accrue to holders of Series A Stock or Series B Stock by
reason of the fact that dividends on Series A Stock or Series B Stock are not
declared in any prior period. No dividend may be paid on any shares of Series A
Stock or Series B Stock unless a pro rata dividend is paid on the Series B Stock
or Series A Stock, respectively.
2.8.1.2. LIMITATION ON OTHER DIVIDENDS
So long as any shares of Series A Stock or shares of Series B Stock
shall remain outstanding, no dividend, whether in cash or property, shall be
paid or declared, nor shall any other distribution be made, on shares of Common
Stock or any shares of Preferred Stock having a preferential right to dividends
ranking junior to the rights of the Series A Stock, the Series B Stock or any
other series of Preferred Stock having a right to dividends ranking equal to
that of the Series A Stock and Series B Stock ("JUNIOR DIVIDEND STOCK") during
any fiscal year of the corporation
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<PAGE>
until dividends in the total amount payable at the rates of $.138 per share and
$.635 per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) on the Series A Stock and Series B Stock,
respectively, shall have been paid or set apart during that fiscal year and all
declared and unpaid dividends on the Series A Stock, Series B Stock and such
parity Preferred Stock shall have been paid.
2.8.1.3. DIVIDEND PARTICIPATION
No cash dividends shall be declared on the Junior Dividend Stock
unless or until a cash dividend in an amount equal to or greater than the
dividend declared on the Junior Dividend Stock shall have been paid to, or
declared and a sum sufficient for the payment thereof set apart for the Series A
Stock, Series B Stock and any other series of Preferred Stock having a right to
dividends ranking equal to that of the Series A Stock and the Series B Stock.
For purposes of this provision, dividends shall be compared on an as-converted-
to-Common-Stock basis.
2.8.2. LIQUIDATION PREFERENCE
Upon the voluntary or involuntary dissolution, liquidation or winding
up of the Company, the assets of the Company available for distribution to its
shareholders shall be distributed in the following order and amounts:
2.8.2.1. SENIOR LIQUIDATION PAYMENTS
First, the holders, if any, of any outstanding shares of Preferred
Stock of the Company having a preferential right to liquidation payments ranking
senior to the rights of holders of Series A Stock or Series B Stock shall be
entitled to receive the full preferential amount per share held by them (the
"SENIOR LIQUIDATION AMOUNT"). If the assets of the Company available for such
distribution shall be insufficient to permit the payment of the full Senior
Liquidation Amount, then the assets of the Company available for distribution
shall be distributed ratably among the holders of the shares of such senior
preferred stock in the same proportions as the full Senior Liquidation Amount
each such holder would otherwise be entitled to receive bears to the total of
the full Senior Liquidation Amount that would otherwise be payable to all
holders of such senior preferred stock.
2.8.2.2. PARITY LIQUIDATION PAYMENTS
If, upon completion of the distribution required by the prior
paragraph, assets available for distribution to shareholders remain in the
Company, the holders, if any, of any outstanding shares of preferred stock of
the Company having a preferential right to liquidation payments ranking equal to
the rights of the
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<PAGE>
holders of Series A Stock or Series B Stock (the "PARITY SHARES") shall be
entitled to receive the liquidation payment specified for such shares held by
them (the "PARITY LIQUIDATION AMOUNT"), the holders of shares of Series A Stock
shall be entitled to receive the amount of $1.38 per share, plus any declared
and unpaid dividends, for each share of Series A Stock (the "SERIES A
LIQUIDATION AMOUNT ") and the holders of shares of Series B Stock shall be
entitled to receive the amount of $6.35 per share, plus any declared and unpaid
dividends, for each share of Series B Stock (the "SERIES B LIQUIDATION AMOUNT
"). The Parity Liquidation Amount, the Series A Liquidation Amount and the
Series B Liquidation Amount shall be adjusted for any Extraordinary Common Stock
Event (as defined below). If the assets of the Company available for such
distribution shall be insufficient to permit the payment in full of the Parity
Liquidation Amount, the Series A Liquidation Amount and the Series B Liquidation
Amount, then the assets of the Company available for distribution shall be
distributed ratably among the holders of Parity Shares, the holders of Series A
Stock and the holders of Series B Stock in the same proportions as the aggregate
of the Parity Liquidation Amount, Series A Liquidation Amount and Series B
Liquidation Amount that each such holder would otherwise be entitled to receive
bears to the total Parity Liquidation Amount, Series A Liquidation Amount and
Series B Liquidation Amount that would otherwise be payable to all such holders.
2.8.2.3. JUNIOR AND PARTICIPATING LIQUIDATION PAYMENTS
Upon the completion of the distribution contemplated pursuant to the
foregoing two paragraphs, if assets remain in the Company, such remaining assets
shall be distributed ratably (on an as-converted-to-Common-Stock basis) to the
holders of Common Stock, the holders of Series A Stock, the holders of Series B
Stock and the holders of any other series of Preferred Stock that is entitled to
a ratable share in the residual assets of the Company. Notwithstanding the
foregoing sentence, at such point as a holder of Series A Stock or Series B
Stock has received an aggregate amount pursuant to this Section 2.8 equal to two
and one-half times the respective Series A Liquidation Amount or Series B
Liquidation Amount, then such holder's participation in any distribution of
assets in respect of such Series A Stock or Series B Stock shall cease and any
remaining assets shall be distributed ratably to the holders of Common Stock and
the holders, if any, of any other series of Preferred Stock that is entitled to
share in the residual assets of the Company.
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<PAGE>
2.8.2.4. TREATMENT OF CONSOLIDATIONS, MERGERS AND SALES OF
ASSETS
The sale of all or substantially all of the assets of the Company, or
the acquisition of the Company by another entity by means of merger,
consolidation, share exchange, reorganization or otherwise pursuant to which
shares of capital stock of the Company are converted into cash, securities or
other property of the acquiring entity or any of its affiliates shall be
regarded as a liquidation within the meaning of this Section 2.8.2; provided,
however, that each holder of Series A Stock, Series B Stock or other shares of
convertible Preferred Stock of the Company shall have the right to elect the
benefits of any applicable conversion provisions in lieu of receiving payment in
the event of the liquidation, dissolution or winding up of the Company pursuant
to this Section 2.8.2; provided, further, that this provision shall not apply if
the holders of voting capital stock of the Company immediately prior to such
merger, consolidation, share exchange, reorganization or sale of assets
beneficially own, directly or indirectly, a majority of the combined voting
power of the capital stock of the surviving entity resulting from such merger,
consolidation, share exchange or reorganization or the successor corporation in
any such sale of assets.
In the event the requirements of this Section 2.8.2.4 are not
complied with, the Company shall forthwith either:
(a) Cause the date of distribution to be postponed until such time as
the requirements of this Section 2.8.2.4 have been complied with; or
(b) Cancel such transaction, in which event the rights, preferences
and privileges of the holders of Series A Stock and Series B Stock shall revert
to those as existed immediately prior to the liquidation event.
2.8.2.5. DISTRIBUTIONS OTHER THAN CASH
Whenever the distribution provided for in this Section 2.8.2 shall be
payable in property other than cash, then the following provisions shall apply:
2.8.2.5.1. SECURITIES DISTRIBUTIONS
(a) Securities not subject to investment letter or other similar
restrictions on free marketability shall be valued as follows:
(i) If traded on a securities exchange or the Nasdaq National Market,
the value shall be deemed to be the average of the closing
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<PAGE>
prices of the securities on such exchange over the 30-day period ending three
business days prior to the date of distribution;
(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
days prior to the date of distribution; and
(iii) If there is no active public market, the value shall be the
fair market value thereof, as determined by the Board.
(b) Securities subject to investment letter or other restrictions on
free marketability (other than restrictions arising solely by virtue of a
shareholder's status as an affiliate or former affiliate) shall be valued as
described above less an appropriate discount from market value, as determined by
the Board, to reflect the transfer restrictions.
2.8.2.5.2. OTHER NONCASH DISTRIBUTIONS
In the event of any other noncash distribution, the Board shall
promptly engage independent appraisers to determine the value of the assets to
be distributed. The Company shall, upon receipt of such appraiser's valuation,
give prompt written notice to each holder of Preferred Stock of the appraiser's
valuation.
2.8.2.6. NOTICE OF LIQUIDATION TRANSACTION
The Company shall give each record holder of Series A Stock or Series
B Stock written notice (the "Liquidation Notice") of an impending liquidation
transaction subject to this Section 2.8.2 not later than 20 days before any
meeting of the Company's shareholders called to approve the liquidation
transaction or 20 days before the closing of the liquidation transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending liquidation transaction and the
provisions of this Section 2.8.2.6, and the Company shall thereafter give such
holders prompt notice of any material changes. The liquidation transaction
shall in no event take place sooner than 20 days after the Company has given the
first notice provided for herein or sooner than 10 days after the Company has
given notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the holders of
Preferred Stock that are entitled to such notice rights or similar notice rights
and that represent at least a majority of the voting power of all then
outstanding shares of each series of Preferred Stock.
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2.8.2.7. NO DEROGATION OF PROTECTIVE PROVISIONS
The provisions of Section 2.8.2 are in addition to the protective
provisions of Section 2.8.6.
2.8.3. REDEMPTION
2.8.3.1. REDEMPTION OPTION
The Company shall, upon receipt at any time on or after February 1,
2000 of the written request, respectively, of holders of not less than 60% of
the then outstanding Series A Stock or of holders of a majority of the then
outstanding Series B Stock, redeem any then unconverted shares of such series of
Preferred Stock.
2.8.3.2. NOTICE OF REDEMPTION REQUEST
Upon receipt of a request for redemption under this Section 2.8.3, the
Company shall promptly mail a written notice that such request has been made (a
"REDEMPTION REQUEST NOTICE"), postage prepaid, to each holder of record of
Preferred Stock at the address last shown on the records of the Company, with a
copy of the Redemption Request Notice to each such holder sent by facsimile
transmission, by tested or otherwise authenticated telex or by any similar
electronic communication. Within twenty days of the date of a Redemption
Request Notice, holders of the requisite percentage of any series of Preferred
Stock with redemption rights that are not subordinate to the redemption rights
of the series of Preferred Stock that requested redemption ("PARITY REDEMPTION
STOCK") may join in the redemption request. For purposes of this Section 2.8.3,
Series A Stock and Series B Stock are, with respect to each other, Parity
Redemption Stock. In the event that the applicable percentage of all series of
Parity Redemption Stock join in the original redemption request, the Company may
forgo issuance of a Redemption Request Notice.
2.8.3.3. NOTICE OF REDEMPTION DATES
After the earlier of the twenty-day period described in Section
2.8.3.2 or, if all series of Parity Redemption Stock joined in the initial
redemption request, receipt by the Company of such initial redemption request
(the "REQUEST INITIATION DATE"), the Company shall promptly mail a written
notice (a "REDEMPTION NOTICE") to each holder of record (at the close of
business on the business day next preceding the day on which the Redemption
Notice is given) of shares of Parity Redemption Stock specifying the date in
each of three successive years following the Request Initiation Date (each a
"REDEMPTION DATE") as the dates
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on which one third of the shares of the then outstanding Parity Redemption Stock
as to which redemption has been requested will be redeemed. The first Redemption
Date shall be a business day that is at least 20 and not more than 90 days from
the Request Initiation Date and the second and third Redemption Dates shall be
the day that is one year and two years, respectively, from the first Redemption
Date; provided, however, if any such day is not a business day, the next
business day thereafter shall be the Redemption Date. The Redemption Notice
shall also specify the applicable redemption price for each series of Parity
Redemption Stock to be redeemed, the number of shares of each series of Parity
Redemption Stock anticipated by the Company to be redeemed from such holder on
each Redemption Date (assuming no conversion of any shares of Parity Redemption
Stock) and the place where redemption shall be made. The Company shall deliver
the Redemption Notice, postage prepaid, to each holder of record of Parity
Redemption Stock at the address last shown on the records of the Company, with a
copy of the Redemption Notice to each such holder sent by facsimile
transmission, by tested or otherwise authenticated telex or by any similar
electronic communication. No defect in the Redemption Notice or in the mailing
or publication thereof shall affect the validity of the redemption proceeding
with respect to the Company or any holder of Parity Redemption Stock except as
to any holder that has not received actual notice of the redemption.
2.8.3.4. REDEMPTION PRICE
The redemption price per share of Series A Stock (the "SERIES A
REDEMPTION PRICE ") shall be $1.38, plus any declared but unpaid dividends
thereon, plus simple interest at 10% per annum from the date of original
issuance of such share of Series A Stock until such share is redeemed, all as
adjusted for any combinations, consolidations, stock distributions or stock
dividends with respect to any such shares. The redemption price per share of
Series B Stock (the "SERIES B REDEMPTION PRICE ") shall be $6.35, plus any
declared but unpaid dividends thereon, plus simple interest at 10% per annum
from the date of original issuance of such share of Series B Stock, all as
adjusted for any combinations, consolidations, stock distributions or stock
dividends with respect to any such shares. The Series A Redemption Price and
the Series B Redemption Price, together with the redemption price of any other
shares of Parity Redemption Stock, are collectively referred to in this Section
2.8.3.4 as the "REDEMPTION PRICE."
2.8.3.5. REDEMPTION OBLIGATION
Subject to limitations imposed by law, the Company shall redeem on each
Redemption Date the number of shares of Parity Redemption Stock held by each
holder thereof determined by dividing (a) the aggregate number of shares of
Parity
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Redemption Stock held by such holder by (b) the number of remaining Redemption
Dates (including the Redemption Date to which such calculation applies) (such
obligation to redeem shares of Parity Redemption Stock being referred to herein
as a "REDEMPTION OBLIGATION"). If the funds of the Company legally available for
redemption of shares of Parity Redemption Stock on a Redemption Date are
insufficient to fulfill a Redemption Obligation and redeem the total number of
shares of Parity Redemption Stock to be redeemed on such Redemption Date, the
holders of such shares shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts which would be
payable to them if the full number of shares to be redeemed on such Redemption
Date were actually redeemed, computed pro rata based on the aggregate Redemption
Price for the shares of Parity Redemption Stock held by such holder compared to
the aggregate Redemption Price for all the shares of Parity Redemption Stock to
be redeemed by the Company on the Redemption Date if the full number of shares
to be redeemed on such Redemption Date were actually redeemed (and the number of
shares of each series of Parity Redemption Stock to be redeemed from each holder
shall be computed pro rata based on the aggregate Redemption Price for the
shares of such series held by such holder compared to the aggregate Redemption
Price for all the shares of Parity Redemption Stock held by such holder).
2.8.3.6. SURRENDER OF STOCK
On or after each Redemption Date, each holder of shares of Parity
Redemption Stock shall surrender the certificate or certificates evidencing
shares of Parity Redemption Stock to be redeemed to the Company at any place
designated for such surrender in the Redemption Notice and shall then be
entitled to receive payment in cash, by wire transfer or by bank-certified check
of the Redemption Price for each share of Parity Redemption Stock to be
redeemed. If less than all of the shares represented by a share certificate are
to be redeemed, the Company shall issue a new certificate representing the
shares not redeemed.
2.8.3.7. FAILURE TO REDEEM
If and so long as any Redemption Obligation shall not fully be
satisfied, (a) each holder of shares of Parity Redemption Stock as to which a
Redemption Obligation has not been satisfied shall be entitled to convert such
shares into shares of Common Stock pursuant to the terms set forth elsewhere
herein, (b) the Company shall not, directly or indirectly, declare or pay any
dividend or make any distribution on, or purchase, redeem or satisfy any
mandatory redemption, sinking fund or other similar obligation in respect of,
any securities ranking junior to the Parity Redemption Stock with respect to
liquidation preference or warrants, rights or
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options exercisable for any such junior securities, and (c) the Company shall
not, directly or indirectly, declare or pay any dividend or make any
distribution on, or purchase, redeem, or satisfy any mandatory redemption,
sinking fund or other similar obligation in respect of, any Parity Redemption
Stock, unless such dividends or distributions on each share of Parity Redemption
Stock are declared and paid on a pro rata basis, or, in the event any mandatory
redemption, sinking fund or other similar obligation is then undischarged with
respect to such Parity Redemption Stock, unless the shares of Parity Redemption
Stock are redeemed on a pro rata basis. For purposes of this Section 2.8.3.7,
"PRO RATA BASIS" shall refer to the proportion that the distribution payable to
holders of each series of Parity Redemption Stock, respectively, bears to the
aggregate distribution payable to all holders of Parity Redemption Stock. The
shares of Parity Redemption Stock required to be redeemed but not so redeemed
shall remain outstanding and entitled to all rights and preferences provided
herein. At any time thereafter when additional funds of the Company are legally
available for the redemption of such shares, such funds will be used, at the end
of the next succeeding fiscal quarter, to redeem the balance of such shares, or
such portion thereof for which funds are then legally available, on the basis
set forth above.
2.8.3.8. STATUS OF REDEEMED SHARES
From and after each Redemption Date, unless default shall be made by
the Company in paying the Redemption Price at the time and place specified in
the Redemption Notice, no dividends on shares of Parity Redemption Stock to be
redeemed on such Redemption Date shall be declared or accrue and all rights of
holders of such shares shall cease, except the right of holders of such shares
to receive the applicable Redemption Price, against delivery of certificates
representing such shares and such shares shall cease to be outstanding.
2.8.4. CONVERSION RIGHTS
The holders of Series A Stock and Series B Stock shall have the
following rights with respect to the conversion of such shares into shares of
Common Stock (the "CONVERSION RIGHTS"):
2.8.4.1. RIGHT TO CONVERT
2.8.4.1.1. VOLUNTARY CONVERSION
Each share of Series A Stock and Series B Stock may, at the option of
the holder, be converted at any time, including after the delivery of a
Liquidation Notice, into such number of fully paid and nonassessable shares of
Common Stock as is equal to the product obtained by multiplying the applicable
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Series A Conversion Rate or Series B Conversion Rate (determined under Section
2.8.4.2) by the number of shares of Series A Stock or Series B Stock being
converted.
2.8.4.1.2. MANDATORY CONVERSION
Each outstanding share of Series A Stock and Series B Stock shall be
converted automatically, without any action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent, into the number of shares of Common Stock into
which such Series A Stock or Series B Stock is convertible pursuant to Section
2.8.4.1.1 upon the earliest of (a) the moment immediately prior to the closing
of a firmly underwritten, public offering of shares of Common Stock, registered
under the Securities Act of 1933, as amended, in which the aggregate gross
offering proceeds (before deduction of underwriters' discounts and commissions
and expenses of the offering) are in excess of $20,000,000 and (i) with respect
to the automatic conversion of shares of Series A Stock, the per share price at
which such shares of Common Stock are offered to the public is at least equal to
$4.14 (adjusted to reflect the occurrence of any Extraordinary Common Stock
Event (as defined below)), (ii) with respect to the automatic conversion of
shares of Series B Stock, (A) if the closing of such offering is on or before
September 30, 1998, the per share price at which such shares of Common Stock are
offered to the public is at least equal to $12.70 (adjusted to reflect the
occurrence of any Extraordinary Common Stock Event), or (B) thereafter, the per
share price at which such shares of Common Stock are offered to the public is at
least equal to $19.05 (adjusted to reflect the occurrence of any Extraordinary
Common Stock Event) or (b) the effectiveness of any consent to or vote in favor
of such conversion by holders of a majority of the then outstanding shares of
such series.
2.8.4.2. CONVERSION RATES
The conversion rate for Series A Stock in effect at any time (the
"SERIES A CONVERSION RATE") shall equal $1.38 divided by the Series A Conversion
Price, calculated as provided in Section 2.8.4.3. The conversion rate for
Series B Stock in effect at any time (the "SERIES B CONVERSION RATE") shall
equal $6.35 divided by the Series B Conversion Price, calculated as provided in
Section 2.8.4.3.
2.8.4.3. CONVERSION PRICES
The conversion price for Series A Stock in effect from time to time
shall initially be $1.38, subject to adjustment, in accordance with Section
2.8.4.4 (the "SERIES A CONVERSION PRICE"). The conversion price for Series B
Stock in effect from
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time to time shall initially be $6.35, subject to adjustment, in accordance with
Section 2.8.4.4 (the "SERIES B CONVERSION PRICE").
2.8.4.4. ADJUSTMENTS TO APPLICABLE CONVERSION PRICE
2.8.4.4.1. EXTRAORDINARY COMMON STOCK EVENT
Upon the happening of an Extraordinary Common Stock Event (as defined
below) after the date of the initial issuance of any shares of Series A Stock or
Series B Stock, the Series A Conversion Price and Series B Conversion Price, as
applicable, shall, simultaneously with the happening of such Extraordinary
Common Stock Event, be adjusted by multiplying the then effective Series A
Conversion Price or Series B Conversion Price, as applicable, by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Extraordinary Common Stock Event and the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after such Extraordinary Common Stock Event, and the product so obtained shall
thereafter be the Series A Conversion Price and Series B Conversion Price,
respectively. The Series A Conversion Price and Series B Conversion Price, as
so adjusted, shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event or Events. "EXTRAORDINARY COMMON
STOCK EVENT" shall mean (a) the issuance of additional shares of Common Stock as
a dividend or other distribution on outstanding Common Stock of the Company, (b)
a subdivision of outstanding shares of Common Stock into a greater number of
shares of Common Stock, or (c) a combination of outstanding shares of Common
Stock into a smaller number of shares of Common Stock.
2.8.4.4.2. SALE OF SHARES BELOW APPLICABLE CONVERSION PRICE
(a) If, at any time after March 31, 1997, the Company shall issue any
Additional Stock (as defined in Section 2.8.4.5) without consideration or for a
consideration per share less than the Series A Conversion Price or Series B
Conversion Price, as applicable, in effect immediately before the issuance of
such Additional Stock, the respective Series A Conversion Price and Series B
Conversion Price in effect upon issuance (except as otherwise provided in this
Section 2.8.4.4.2) shall be adjusted to a price equal to the quotient obtained
by dividing the total computed under clause (x) below by the total computed
under clause (y) below as follows:
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(x) an amount equal to the sum of (i) the result obtained by
multiplying the number of shares of Common Stock deemed outstanding immediately
prior to such issuance (which shall include the actual number of shares
outstanding plus all shares issuable upon the conversion or exercise of all
outstanding convertible securities, warrants and options) by the Series A
Conversion Price or Series B Conversion Price, as applicable, then in effect,
and (ii) the aggregate consideration, if any, received by the Company upon the
issuance of such Additional Stock;
(y) the number of shares of Common Stock of the Company outstanding
immediately after each issuance (including the shares deemed outstanding as
provided above).
(b) No adjustment of the Series A Conversion Price or Series B
Conversion Price shall be made in an amount less than $.01 per share; provided
that any adjustments that are not required to be made by reason of this sentence
shall be carried forward and shall be taken into account in any subsequent
adjustment made to the respective Series A Conversion Price or Series B
Conversion Price. Except as provided in Subsections 2.8.4.4.1 and
2.8.4.4.2(e)(iii) and (iv), no adjustment of the Series A Conversion Price or
Series B Conversion Price pursuant to this Section 2.8.4.4.2 shall have the
effect of increasing the respective Series A Conversion Price or Series B
Conversion Price above the respective Series A Conversion Price or Series B
Conversion Price in effect immediately before such adjustment.
(c) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any discounts, commissions or other expenses allowed, paid or incurred
by the Company for any underwriting or otherwise in connection with the issuance
and sale thereof.
(d) In the case of the issuance of Common Stock for consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined by the Board irrespective of
any accounting treatment.
(e) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe for
such convertible or exchangeable securities (which options, rights, or
convertible or exchangeable securities are not excluded from the definition of
Additional Stock), the following provisions shall apply:
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(i) the aggregate maximum number of shares of Common Stock deliverable
upon exercise of such options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time such options or rights
were issued for a consideration equal to the consideration (determined in the
manner provided in Subsections 2.8.4.4.2(c) and (d)) received by the Company
upon the issuance of such options or rights, plus the minimum purchase price
provided in such options or rights for the Common Stock covered thereby, but no
further adjustment to the Series A Conversion Price or Series B Conversion Price
shall be made for the actual issuance of Common Stock upon the exercise of such
options or rights in accordance with their terms;
(ii) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued for a
consideration equal to the consideration received by the Company for any such
securities and related options or rights, plus the additional consideration, if
any, to be received by the Company upon the conversion or exchange of such
securities or the exercise of any related options or rights (the consideration
in each case to be determined in the manner provided in Subsections 2.8.4.4.2(c)
and (d)), but no further adjustments to the Series A Conversion Price or Series
B Conversion Price shall be made for the actual issuance of Common Stock upon
the conversion or exchange of such securities in accordance with their terms;
(iii) if such options, rights, or convertible or exchangeable
securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Company, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the respective Series A Conversion Price or Series B
Conversion Price computed upon the original issue thereof, and any subsequent
adjustments based thereon, shall, upon such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease with respect to
such options, rights and securities not already exercised, converted or
exchanged before such increase or decrease became effective, but no further
adjustment to the Series A Conversion Price or Series B Conversion Price shall
be made for the actual issuance of Common Stock upon the exercise of any such
options or rights or the conversion or exchange of such securities in accordance
with their terms;
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(iv) upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange, or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Series A Conversion Price and Series B Conversion Price, as applicable, shall
forthwith be readjusted to such Series A Conversion Price and Series B
Conversion Price as would have been obtained had the adjustment that was made
upon the issuance of such options, rights, or securities or options or rights
related to such securities been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities; and
(v) if any such options or rights shall be issued in connection with
the issuance and sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is allocated to such
options or rights by the parties thereto, such options or rights shall be deemed
to have been issued for such consideration as determined in good faith by the
Board.
2.8.4.5. ADDITIONAL STOCK
"Additional Stock" shall mean any shares of Common Stock or securities
convertible into or exchangeable or exercisable for shares of Common Stock
issued (or deemed to have been issued pursuant to Subsection 2.8.4.4.2(e)) by
the Company after March 31, 1997 other than:
(a) Common Stock issued pursuant to a transaction for which the Series
A Conversion Price or Series B Conversion Price, as applicable, is adjusted
under Section 2.8.4.4.1;
(b) Common Stock issued or issuable (whether directly or pursuant to
stock options or warrants) to employees, consultants, directors or independent
contractors (if in transactions with primarily nonfinancing purposes) of the
Company so long as (i) the issuance of such shares or the grant of such options
or warrants is approved or ratified by a majority of the Board, including at
least two members of the Board elected or designated by, or representatives of,
holders of Preferred Stock, (ii) the plan pursuant to which any such issuance or
grant is made is approved or ratified, by a majority of the Board, including at
least two members of the Board elected or designated by, or representatives of,
holders of Preferred Stock, or (iii) the issuance of such shares or the grant of
such options or warrants is approved or ratified by a majority of the members of
a committee of the Board that has been duly authorized by the Board to act on
behalf of the Board in respect of compensation matters, provided that such
majority of such committee includes at least two members
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of the Board elected or designated by, or representatives of, holders of
Preferred Stock;
(c) Common Stock issued or issuable upon conversion of Series A Stock
or Series B Stock;
(d) Up to 100,000 shares of Common Stock issued or issuable to
licensors, lessors or vendors pursuant to lease financing arrangements
unanimously approved by the members of the Board elected at the direction of
holders of Preferred Stock pursuant to that certain Amended and Restated Voting
Agreement among the Company and certain holders of its shares of Common Stock
and Preferred Stock dated as of March 31, 1997;
(e) Common Stock issued or issuable upon conversion or exercise of any
securities convertible into or exchangeable or exercisable for shares of Common
Stock, provided that such securities are designated as excluded from the
definition of Additional Stock by the written consent of holders of a majority
of each of the Series A Stock and the Series B Stock, voting as two separate
classes; or
(f) Common Stock issued or issuable as a dividend or distribution on
Series A Stock or on Series B Stock or on any securities convertible into or
exchangeable or exercisable for shares of Common Stock, provided that such
securities are designated as excluded from the definition of Additional Stock by
the written consent of holders of a majority of each of the Series A Stock and
the Series B Stock, voting as two separate classes.
2.8.4.6. MECHANICS OF CONVERSION
Conversion shall be deemed to have been effected immediately prior to
the close of business on the Conversion Date (as defined below for voluntary
conversions and for mandatory conversions), and at such time, whether or not
certificates representing the shares being converted shall have been received by
the Company or its transfer agent in the case of a mandatory conversion, the
rights of the holder as holder of the converted shares of Series A Stock or
Series B Stock, as applicable, shall cease and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby.
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2.8.4.6.1. VOLUNTARY CONVERSION
Before any holder of shares of Series A Stock or Series B Stock shall
be entitled to voluntarily convert such shares to Common Stock pursuant to
Section 2.8.4.1.1, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for such shares and, if appropriate, shall give written notice by mail, postage
prepaid, addressed to the same location at which the certificate or certificates
were or will be surrendered, of the election to convert such shares and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. With respect to a voluntary conversion
pursuant to Section 2.8.4.1.1, the date when written notice of the holder's
election to convert is received by the Company or a transfer agent for the
shares to be converted, together with the certificate or certificates
representing the shares to be converted, shall be the "CONVERSION DATE."
2.8.4.6.2. MANDATORY CONVERSION
Holders of shares of Series A Stock or Series B Stock converted
pursuant to the mandatory conversion provisions of Section 2.8.4.1.2 shall
promptly surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or of any transfer agent for such shares and, if other
than the record holder of the converted shares, shall state the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. Whether or not such certificate or certificates have been so
surrendered, with respect to mandatory conversions pursuant to Section
2.8.4.1.2, the applicable date specified in Section 2.8.4.1.2 for automatic
conversion shall be the "CONVERSION DATE."
2.8.4.6.3. PARTIAL CONVERSION
In the event some but not all of the shares of Series A Stock or
Series B Stock represented by a certificate or certificates surrendered by a
holder are converted, the Company shall execute and deliver to or on the order
of the holder, at the expense of the Company, a new certificate representing the
shares of Series A Stock or Series B Stock, respectively, that were not
converted.
2.8.4.7. CAPITAL REORGANIZATION OR RECLASSIFICATION
If any capital reorganization or reclassification of the capital stock
of the Company shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made whereby each
holder of a share or shares of
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Series A Stock and Series B Stock shall thereupon have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series A Stock or Series B Stock, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore receivable
upon such conversion had such reorganization or reclassification not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the applicable
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of the Conversion Rights.
2.8.4.8. OTHER NOTICES
In case at any time:
(a) The Company shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of its
Common Stock;
(b) The Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other rights;
(c) There shall be any capital reorganization or reclassification of
the capital stock of the Company, or a consolidation or merger of the Company
with or into another entity or entities, or a sale, lease, abandonment, transfer
or other disposition of all or substantially all its assets; or
(d) There shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of said cases, the Company shall give, by delivery in
person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Series A Stock or Series B
Stock at the address of such holder as shown on the books of the Company, (i) at
least 20 days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution
or subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up and (ii) in the case of any such
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reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days' prior written notice
of the date when the same shall take place. Such notice in accordance with the
foregoing clause (i) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which holders of Common Stock
shall be entitled thereto and such notice in accordance with the foregoing
clause (ii) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding up, as the case may be.
2.8.4.9. ACCOUNTANT'S CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY
THE COMPANY.
In each case of an adjustment or readjustment of the Series A
Conversion Rate or Series B Conversion Rate, respectively, as soon as
practicable following the adjustment event, the Company at its expense will
furnish each holder of Series A Stock or Series B Stock, as applicable, with a
certificate, prepared by the Chief Financial Officer of the Company, showing
such adjustment or readjustment and stating in detail the facts upon which such
adjustment or readjustment is based.
2.8.4.10. RESERVATION OF COMMON STOCK
The Company 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 shares of the Series A Stock and Series B Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series A
Stock and Series B Stock 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 Stock and Series B Stock, the
Company shall immediately take such corporate action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
2.8.5. VOTING POWER
2.8.5.1. GENERAL
Each holder of Series A Stock or Series B Stock shall be entitled to
vote on all matters submitted to a vote of shareholders and shall be entitled to
that number of votes equal to the largest number of whole shares of Common Stock
into which such holder's shares of Series A Stock and Series B Stock,
respectively, could
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<PAGE>
be converted hereunder, at the record date for the determination of shareholders
entitled to vote on such matter, or, if no such record date is established, at
the date on which notice of the meeting of shareholders at which the vote is to
be taken is mailed, or the date any written consent of shareholders is solicited
if the vote is not to be taken at a meeting. Except as otherwise expressly
provided herein or by the Washington Business Corporation Act, as amended, the
holders of shares of the Series A Stock, Series B Stock and Common Stock shall
vote together as a single class on all matters submitted to a vote of
shareholders.
2.8.5.2. PREFERRED STOCK VOTING
So long as any shares of Preferred Stock remain outstanding, and
subject to the rights of any series of Preferred Stock that may from time to
time be authorized and outstanding, without the affirmative consent of the
holders of shares representing at least two-thirds (unless a greater number is
otherwise required by law) of the voting power of the Preferred Stock then
outstanding, acting together as a single class, given by written consent or by
vote at a meeting called for such purpose for which notice shall have been given
to the holders of Preferred Stock, the Company shall not:
(a) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Common Stock or Preferred Stock or any
series of Preferred Stock;
(b) amend or waive any provision of the Company's Articles of
Incorporation that has an adverse effect upon the rights of the Preferred Stock;
(c) increase the size of the Board to more than six members;
(d) declare or pay any cash dividend or distribution on shares of
Common Stock;
(e) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any of the Company's capital stock unless
such shares are:
(i) redeemed pursuant to the redemption provisions
hereof;
(ii) purchased or acquired from employees, officers,
directors, consultants or other persons performing services for the Company
-21-
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upon termination of the employment, consulting or other relationship between the
Company and such person pursuant to an employment or similar vesting agreement
or other stock repurchase agreement where the redemption or repurchase price
does not exceed the fair market value of such shares (as determined by the
Board, whose determination shall be conclusive) or, in the case of unvested
shares, the cost of such shares to the holder thereof; provided, however, that
the Company may repurchase shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Company or
any subsidiary regardless of whether such repurchase is pursuant to an
employment or similar vesting or other stock repurchase agreement so long as the
total amount of such repurchases does not exceed $25,000 during any 12-month
period; or
(iii) purchased pursuant to the exercise of the
Company's right of first offer pursuant to the Amended and Restated Co-Sale and
Right of First Offer Agreement among the Company and certain holders of its
Common Stock and Preferred Stock dated as of March 31, 1997 or the Company's
right of first offer pursuant to the Amended and Restated Investors' Rights
Agreement among the Company and certain holders of its Common Stock and
Preferred Stock dated as of March 31, 1997 upon a proposed transfer of such
capital stock;
(f) permit any subsidiary to issue or sell, or obligate itself to
issue or sell, except to the Company or any wholly owned subsidiary, any capital
stock of such subsidiary;
2.8.5.3. SERIES A STOCK VOTING
So long as no fewer than 1,449,388 shares of Series A Stock remain
outstanding, and subject to the rights of any series of Preferred Stock that may
from time to time be authorized and outstanding, without the affirmative consent
of the holders of shares representing a majority (unless a greater number is
otherwise required by law) of the voting power of the Series A Stock then
outstanding, acting separately as a class, given by written consent or by vote
at a meeting called for such purpose for which notice shall have been given to
the holders of Series A Stock, the Company shall not:
(a) amend or waive any provision of the Company's Articles of
Incorporation in any manner that has an adverse effect upon the preferences,
privileges, restrictions or other rights of Series A Stock compared to any other
series of Preferred Stock;
(b) amend or waive any provision of the Company's Bylaws in any manner
that has a material adverse effect upon the preferences,
-22-
<PAGE>
privileges, restrictions or other rights of the Series A Stock compared to any
other series of Preferred Stock;
(c) authorize or issue, or obligate itself to issue, any new class or
series of equity security or any security convertible into or exercisable for
any equity security having a preference over, or being on a parity with, the
Series A Stock with respect to redemption, voting, dividends or distributions
upon liquidation;
(d) approve or effect any liquidation or dissolution of the Company;
(e) effect any sale, lease, assignment, transfer or other conveyance
of all or substantially all of the assets of the Company to any person other
than a wholly owned subsidiary of the Company, or any consolidation or merger in
which the holders of the Company's equity securities do not hold at least a
majority of the voting securities of the surviving corporation;
(f) authorize any increase in the number of authorized shares of
Series A Stock; or
(g) declare or pay any dividends or other distributions on Series B
Stock.
2.8.5.4. SERIES B STOCK VOTING
So long as no fewer than 419,947 shares of Series B Stock remain
outstanding, and subject to the rights of any series of Preferred Stock that may
from time to time be authorized and outstanding, without the affirmative consent
of the holders of shares representing a majority (unless a greater number is
otherwise required by law) of the voting power of the Series B Stock then
outstanding, acting separately as a class, given by written consent or by vote
at a meeting called for such purpose for which notice shall have been given to
the holders of Series B Stock, the Company shall not:
(a) amend or waive any provision of the Company's Articles of
Incorporation in any manner that has an adverse effect upon the preferences,
privileges, restrictions or other rights of Series B Stock compared to any other
series of Preferred Stock;
(b) amend or waive any provision of the Company's Bylaws in any manner
that has a material adverse effect upon the preferences,
-23-
<PAGE>
privileges, restrictions or other rights of the Series B Stock compared to any
other series of Preferred Stock;
(c) authorize or issue, or obligate itself to issue, any new class or
series of equity security or any security convertible into or exercisable for
any equity security having a preference over, or being on a parity with, the
Series B Stock with respect to redemption, voting, dividends or distributions
upon liquidation;
(d) approve or effect any liquidation or dissolution of the Company;
(e) effect any sale, lease, assignment, transfer or other conveyance
of all or substantially all of the assets of the Company to any person other
than a wholly owned subsidiary of the Company, or any consolidation or merger in
which the holders of the Company's equity securities do not hold at least a
majority of the voting securities of the surviving corporation;
(f) authorize any increase in the number of authorized shares of
Series B Stock; or
(g) declare or pay any dividends or other distributions on Series A
Stock.
2.8.6. NO REISSUANCE OF STOCK
No share or shares of Series A Stock or Series B Stock converted, redeemed,
purchased or otherwise acquired by the Company shall be reissued, and all such
shares shall be canceled, retired and eliminated from the shares that the
Company shall be authorized to issue. The Company may from time to time take
such appropriate corporate action as may be necessary to reduce the authorized
number of shares of Series A Stock and Series B Stock accordingly.
3. PREEMPTIVE RIGHTS
Except as provided in Section 2.4 of that certain Amended and Restated
Investors' Rights Agreement among the Company and certain holders of its Common
Stock and Preferred Stock dated March 31, 1997, the shareholders of the Company
have no preemptive rights to acquire additional shares of the capital stock of
the Company.
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<PAGE>
4. CUMULATIVE VOTING
The shareholders of the Company shall not be entitled to cumulative voting
at any election of directors.
5. LIMITATION OF DIRECTOR LIABILITY
A director of the Company shall not be personally liable to the Company or
its shareholders for monetary damages for conduct as a director, except for
liability of the director (i) for acts or omissions that involve intentional
misconduct by the director or a knowing violation of law by the director, (ii)
for conduct violating RCW 23B.08.310 of the Washington Business Corporation Act,
or (iii) for any transaction from which the director will personally receive a
benefit in money, property or services to which the director is not legally
entitled. If the Washington Business Corporation Act is amended in the future
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall be
eliminated or limited to the full extent permitted by the Washington Business
Corporation Act, as so amended, without any requirement of further action by the
shareholders.
6. INDEMNIFICATION
The Company shall indemnify any individual made a party to a proceeding
because that individual is or was a director of the Company and shall advance or
reimburse the reasonable expenses incurred by such individual in advance of
final disposition of the proceeding, without regard to the limitations in RCW
23B.08.510 through 23B.08.550 of the Washington Business Corporation Act, or any
other limitation which may hereafter be enacted to the extent such limitation
may be disregarded if authorized by the Articles of Incorporation, to the full
extent and under all circumstances permitted by applicable law.
Any repeal or modification of this Article by the shareholders of the
Company shall not adversely affect any right of any individual who is or was a
director of the Company which existed at the time of such repeal or
modification.
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<PAGE>
EXECUTED this 2nd day of July, 1998.
ONYX SOFTWARE CORPORATION
By /s/ Brent Frei
--------------------------------
Brent Frei
President and Secretary
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FORM OF
ARTICLES OF AMENDMENT
OF
ONYX SOFTWARE CORPORATION
1. Section 2.1 of the Articles of Incorporation is deleted in its entirety
and amended to read as follows:
2.1. AUTHORIZED CAPITAL
The Company is authorized to issue 50,000,000 shares, consisting
of 40,000,000 shares designated as common stock ("COMMON STOCK") and
10,000,000 shares designated as preferred stock ("PREFERRED STOCK"),
the par value of each of which is $0.01. Common Stock is subject to
the rights and preferences of Preferred Stock as hereinafter set
forth. Except to the extent such rights are granted to Preferred
Stock or one or more series thereof, holders of shares of Common Stock
shall have unlimited voting rights and are entitled to receive the net
assets of the Company upon dissolution.
2. Section 2.8.4.1.1 of the Articles of Incorporation is deleted in its
entirety and amended to read as follows:
Each share of Series A Stock and Series B Stock may, at the
option of the holder, be converted at any time, including after the
delivery of a Liquidation Notice, into such number of fully paid and
nonassessable shares of Common Stock as is equal to the product
obtained by multiplying the applicable Series A Conversion Rate or
Series B Conversion Rate (determined under Section 2.8.4.2) by the
number of shares of Series A Stock or Series B Stock being converted
(rounded to the nearest whole number of shares, with .5 being rounded
up).
3. Section 2.8.4.1.2 of the Articles of Incorporation is deleted in its
entirety and amended to read as follows:
2.8.4.1.2. MANDATORY CONVERSION
Each outstanding share of Series A Stock and Series B Stock shall
be converted automatically, without any action by the holders of such
shares and whether or not the certificates representing such shares
are surrendered to the Company or its transfer agent, into the number
of shares of Common Stock into which such Series A Stock or Series B
Stock is convertible pursuant to Section 2.8.4.1.1 upon the earliest
of (a) the moment immediately prior to the closing of a firmly
underwritten public
<PAGE>
offering of shares of Common Stock, registered under the Securities
Act of 1933, as amended, in which, with respect to the automatic
conversion of the shares of Series A Stock only, the aggregate gross
offering proceeds (before deduction of underwriters' discounts and
commissions and expenses of the offering) are in excess of $20,000,000
or (b) the effectiveness of any consent to or vote in favor of such
conversion by holders of a majority of the then outstanding shares of
such series.
4. Section 2.8.4.3 of the Articles of Incorporation is deleted in its
entirety and amended to read as follows:
2.8.4.3. CONVERSION PRICES
The conversion price for Series A Stock in effect from time to
time shall initially be $1.38, subject to adjustment, in accordance
with Section 2.8.4.4 (the "SERIES A CONVERSION PRICE"). The
conversion price for Series B Stock in effect from time to time shall
initially be $5.883034327, subject to adjustment, in accordance with
Section 2.8.4.4 (the "SERIES B CONVERSION PRICE").
5. A new Section 2.8.7 of the Articles of Incorporation has been added to
read as follows:
2.8.7. ELIMINATION OF PREFERRED STOCK PROVISIONS UPON CONVERSION OF
OUTSTANDING SHARES
When, as a result of the conversion of the outstanding shares of
Preferred Stock into shares of Common Stock, no shares of Preferred
Stock remain outstanding (a "Full Conversion Event"), Section 2.8
shall no longer be in effect and operative.
6. Section 3 of the Articles of Incorporation is deleted in its entirety
and amended to read as follows:
3. PREEMPTIVE RIGHTS
The shareholders of the Company have no preemptive rights to
acquire additional shares of the capital stock of the Company.
2
<PAGE>
7. Section 5 of the Articles of Incorporation is deleted in its entirety
and amended to read as follows:
5. DIRECTORS
5.1. NUMBER; ELECTION; TERM
Following a Full Conversion Event, the number of Directors of the
Company shall be determined, and the Directors of the Company shall be
elected and removed from office, as provided in this Section 5.1.
The number of Directors of the Company shall be determined in the
manner provided by the Bylaws and may be increased or decreased from
time to time in the manner provided therein. Prior to the first
annual election of Directors following such a Full Conversion Event,
unless a Director earlier dies, resigns or is removed, his or her term
of office shall expire at the next annual meeting of shareholders. At
the first annual election of Directors following such a Full
Conversion Event, the Board shall be divided into three classes, with
said classes to be as equal in number as may be possible, with any
Director or Directors in excess of the number divisible by three being
assigned to Class 3 and Class 2, as the case may be. At the first
election of Directors to such classified Board, each Class 1 Director
shall be elected to serve until the next ensuing annual meeting of
shareholders, each Class 2 Director shall be elected to serve until
the second ensuing annual meeting of shareholders and each Class 3
Director shall be elected to serve until the third ensuing annual
meeting of shareholders. At each annual meeting of shareholders
following the meeting at which the Board is initially classified, the
number of Directors equal to the number of Directors in the class
whose term expires at the time of such meeting shall be elected to
serve until the third ensuing annual meeting of shareholders.
Notwithstanding any of the foregoing provisions of this Article,
Directors shall serve until their successors are elected and qualified
or until their earlier death, resignation or removal from office, or
until there is a decrease in the number of Directors.
3
<PAGE>
The Directors of the Company may be removed only for cause; such
removal shall be in the manner provided by the Bylaws.
5.2. LIMITATION OF DIRECTOR LIABILITY
A director of the Company shall not be personally liable to the
Company or its shareholders for monetary damages for conduct as a
director, except for liability of the director (i) for acts or
omissions that involve intentional misconduct by the director or a
knowing violation of law by the director, (ii) for conduct violating
RCW 23B.08.310 of the Washington Business Corporation Act, or (iii)
for any transaction from which the director will personally receive a
benefit in money, property or services to which the director is not
legally entitled. If the Washington Business Corporation Act is
amended in the future to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Company shall be eliminated or limited
to the full extent permitted by the Washington Business Corporation
Act, as so amended, without any requirement of further action by the
shareholders.
8. A new Section 7 has been added to read as follows:
7. SPECIAL VOTING REQUIREMENTS
Following a Full Conversion Event, in addition to any affirmative
vote required by law, by these Restated Articles of Incorporation or
otherwise, any "Business Combination" (as hereinafter defined)
involving the Company shall be subject to approval in the manner set
forth in this Section 7.
7.1. DEFINITIONS
For the purposes of this Section 7:
(a) "Business Combination" means (i) a merger, share exchange or
consolidation of the Company or any of its Subsidiaries with any other
corporation or entity; (ii) the sale, lease, exchange, mortgage,
pledge, transfer or other disposition or encumbrance, whether in one
transaction or a series of transactions, by the Company or any of its
Subsidiaries of all or a
4
<PAGE>
substantial part of the Company's assets otherwise than in the usual
and regular course of business; or (iii) any agreement, contract or
other arrangement providing for any of the foregoing transactions.
(b) "Continuing Director" means any member of the Board who was a
member of the Board on September 30, 1998 or who is elected to the
Board after September 30, 1998 upon the recommendation of a majority
of the Continuing Directors voting separately and as a subclass of
Directors on such recommendation.
(c) "Subsidiary" means a domestic or foreign corporation, a
majority of the outstanding voting shares of which are owned, directly
or indirectly, by the Company.
7.2. VOTE REQUIRED FOR BUSINESS COMBINATIONS
7.2.1. SUPERMAJORITY VOTE
Except as provided in Subsections 7.2.2 and 7.2.3, the
affirmative vote of the holders of not less than two-thirds of the
outstanding shares entitled to vote thereon and, to the extent, if
any, provided by resolution adopted by the Board authorizing the
issuance of a class or series of Common Stock or Preferred Stock, the
affirmative vote of the holders of not less than two-thirds of the
outstanding shares of such class or series, voting as a separate
voting group, shall be required for the adoption or authorization of a
Business Combination.
7.2.2. MAJORITY VOTE
Notwithstanding Subsection 7.2.1, if a Business Combination shall
have been approved by a majority of the Continuing Directors, voting
separately and as a subclass of Directors, and if such Business
Combination is otherwise required to be approved by the Company's
shareholders pursuant to the provisions of the Washington Business
Corporation Act or of these Restated Articles of Incorporation other
than this Section 7, then the affirmative vote of the holders of not
less than a majority of the outstanding shares entitled to vote
thereon and, to the extent, if any, provided by resolution adopted by
the Board authorizing the issuance of a class or series of Common
Stock or
5
<PAGE>
Preferred Stock, the affirmative vote of the holders of not less than
a majority of the outstanding shares of such class or series, voting
as a separate voting group, shall be required for the adoption or
authorization of such Business Combination.
7.2.3. NO SHAREHOLDER VOTE
Notwithstanding Subsection 7.2.1 or 7.2.2, if a Business
Combination shall have been approved by a majority of the Continuing
Directors, voting separately and as a subclass of Directors, and if
such Business Combination is not otherwise required to be approved by
the Company's shareholders pursuant to the provisions of the
Washington Business Corporation Act or of these Restated Articles of
Incorporation other than this Section 7, then no vote of the
shareholders of the Company shall be required for approval of such
Business Combination.
9. A new Section 8 of the Articles of Incorporation has been added to read
as follows:
8. SPECIAL MEETINGS OF SHAREHOLDERS
Following a Full Conversion Event, special meetings of the
shareholders shall be called in the manner set forth in this Section
8.
The Chairman of the Board, the President or the Board may call
special meetings of the shareholders for any purpose. Further, a
special meeting of the shareholders shall be held if the holders of
not less than twenty-five percent (25%) of all the votes entitled to
be cast on any issue proposed to be considered at such special meeting
have dated, signed and delivered to the Secretary of the Company no
later than 20 days prior to the date of such meeting one or more
written demands for such meeting, describing the purpose or purposes
for which it is to be held.
10. A new Section 9 of the Articles of Incorporation has been added to read
as follows:
9. Amendments to Restated Articles of Incorporation
The Company reserves, and the rights of the shareholders of the
Company are granted subject to, the right to amend or
6
<PAGE>
repeal any of the provisions contained in these Restated Articles of
Incorporation. Following a Full Conversion Event, the provisions
contained in these Restated Articles shall only be amended as follows:
9.1. SUPERMAJORITY VOTING
Except as provided in Section 9.2 or Section 9.3, the following
Sections and Subsections may be amended or repealed only upon the
affirmative vote of the holders of at least two-thirds of the
outstanding shares and, to the extent, if any, provided by resolution
adopted by the Board authorizing the issuance of a class or series of
Common Stock or Preferred Stock, by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of such class
or series, voting as a separate voting group:
Section 2.1 ("Shares--Authorized Capital")
Section 2.2 ("Shares--Issuance of Preferred Stock in Series")
Section 3 ("Preemptive Rights")
Section 4 ("Cumulative Voting")
Section 5 ("Directors")
Section 7 ("Special Voting Requirements")
Section 8 ("Special Meetings of Shareholders")
Section 9 ("Amendments to Restated Articles of Incorporation").
9.2. MAJORITY VOTING
Notwithstanding the provisions of Section 9.1, and except as
provided in Section 9.3, an amendment or repeal of a Section
identified in Section 9.1 that is approved by a majority of the
Continuing Directors (as defined in Section 9.1), voting separately
and as a subclass of Directors, shall require the affirmative vote of
the holders of at least a majority of the outstanding shares entitled
to vote thereon and, to the extent, if
7
<PAGE>
any, provided by resolution adopted by the Board authorizing the
issuance of a class or series of Common Stock or Preferred Stock, by
the affirmative vote of the holders of at least a majority of the
outstanding shares of such class or series, voting as a separate
voting group.
9.3. NO SHAREHOLDER VOTE
Notwithstanding the provisions of Section 9.1 or 9.2 hereof, if
the amendment or repeal of any Section not identified in Section 9.1
shall have been approved by a majority of the Continuing Directors,
voting separately and as a subclass of Directors, and if such
amendment or repeal is not otherwise required to be approved by the
Company's shareholders pursuant to the provisions of the Washington
Business Corporation Act or of these Restated Articles of
Incorporation other than this Section 9, then no vote of the
shareholders of the Company shall be required for approval of such
amendment or repeal.
11. A new Section 10 of the Articles of Incorporation has been added to
read as follows:
10. Restatement of Articles of Incorporation
Following a Full Conversion Event, the Board of Directors may, at
its discretion and without a vote of the shareholders of the Company,
cause the elimination of the provisions of these Restated Articles of
Incorporation which are no longer operative and in effect by reason of
such Full Conversion Event, including, without limitation, Section
2.8, and make such clerical amendments as are appropriate to
effectuate any amendments to the provisions of these articles of
incorporation that become effective upon such Full Conversion Event,
by providing for the filing of restated articles of incorporation
setting forth the provisions of these Restated Articles of
Incorporation, as they may be amended, which remain in effect and
operative.
8
<PAGE>
EXHIBIT 3.2
FORM OF AMENDED AND RESTATED
BYLAWS
OF
ONYX SOFTWARE CORPORATION
ORIGINALLY ADOPTED ON: MARCH 9, 1994
AMENDED AND RESTATED ON: NOVEMBER 24, 1998 AND DECEMBER __, 1998
Amendments are listed on page i
<PAGE>
AMENDMENTS
<TABLE>
<CAPTION>
SECTION EFFECT OF AMENDMENTS DATE OF AMENDMENT
- ------- -------------------- -----------------
<S> <C> <C>
2.2 Change percent required from 10% to 25% to December __, 1998
call special shareholder meetings
2.5 To implement changes to SEC shareholder December __, 1998
proposal rules
</TABLE>
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CONTENTS
--------
<TABLE>
<S> <C>
SECTION 1. OFFICES...................................................... 1
SECTION 2. SHAREHOLDERS................................................. 1
2.1 Annual Meeting.............................................. 1
2.2 Special Meetings............................................ 1
2.3 Meetings by Communications Equipment........................ 1
2.4 Date, Time and Place of Meeting............................. 2
2.5 Notice of Meeting........................................... 2
2.6 Business for Shareholders' Meetings......................... 2
2.6.1 Business at Annual Meetings......................... 2
2.6.2 Business at Special Meetings........................ 3
2.6.3 Notice to Corporation............................... 3
2.7 Waiver of Notice............................................ 3
2.8 Fixing of Record Date for Determining Shareholders.......... 4
2.9 Voting Record............................................... 4
2.10 Quorum...................................................... 4
2.11 Manner of Acting............................................ 5
2.12 Proxies..................................................... 5
2.13 Voting of Shares............................................ 5
2.14 Voting for Directors........................................ 5
2.15 Action by Shareholders Without a Meeting.................... 5
SECTION 3. BOARD OF DIRECTORS.......................................... 6
3.1 General Powers.............................................. 6
3.2 Number and Tenure........................................... 6
3.3 Annual and Regular Meetings................................. 6
3.4 Special Meetings............................................ 6
3.5 Meetings by Communications Equipment........................ 6
3.6 Notice of Special Meetings.................................. 7
3.6.1 Personal Delivery................................... 7
3.6.2 Delivery by Mail.................................... 7
3.6.3 Delivery by Private Carrier......................... 7
3.6.4 Facsimile Notice.................................... 7
3.6.5 Delivery by Telegraph............................... 7
3.6.6 Oral Notice......................................... 7
3.7 Waiver of Notice............................................ 8
3.7.1 In Writing.......................................... 8
3.7.2 By Attendance....................................... 8
3.8 Quorum...................................................... 8
3.9 Manner of Acting............................................ 8
3.10 Presumption of Assent....................................... 8
</TABLE>
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<TABLE>
<S> <C>
3.11 Action by Board or Committees Without a Meeting............. 9
3.12 Resignation................................................. 9
3.13 Removal..................................................... 9
3.14 Vacancies................................................... 9
3.15 Executive and Other Committees.............................. 10
3.15.1 Creation of Committees............................. 10
3.15.2 Authority of Committees............................ 10
3.15.3 Minutes of Meetings................................ 10
3.15.4 Removal............................................ 10
3.16 Compensation................................................ 10
SECTION 4. OFFICERS.................................................... 11
4.1 Appointment and Term........................................ 11
4.2 Resignation................................................. 11
4.3 Removal..................................................... 11
4.4 Contract Rights of Officers................................. 11
4.5 Chairman of the Board....................................... 11
4.6 President................................................... 12
4.7 Vice President.............................................. 12
4.8 Secretary................................................... 12
4.9 Treasurer................................................... 12
4.10 Salaries.................................................... 13
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS....................... 13
5.1 Contracts................................................... 13
5.2 Loans to the Corporation.................................... 13
5.3 Checks, Drafts, Etc......................................... 13
5.4 Deposits.................................................... 13
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER.................. 13
6.1 Issuance of Shares.......................................... 13
6.2 Certificates for Shares..................................... 14
6.3 Stock Records............................................... 14
6.4 Restriction on Transfer..................................... 14
6.5 Transfer of Shares.......................................... 15
6.6 Lost or Destroyed Certificates.............................. 15
</TABLE>
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<TABLE>
<S> <C>
SECTION 7. BOOKS AND RECORDS........................................... 15
SECTION 8. ACCOUNTING YEAR............................................. 16
SECTION 9. SEAL........................................................ 16
SECTION 10. INDEMNIFICATION............................................. 16
10.1 Right to Indemnification.................................... 16
10.2 Restrictions on Indemnification............................. 17
10.3 Advancement of Expenses..................................... 17
10.4 Right of Indemnitee to Bring Suit........................... 17
10.5 Procedures Exclusive........................................ 18
10.6 Nonexclusivity of Rights.................................... 18
10.7 Insurance, Contracts and Funding............................ 18
10.8 Indemnification of Employees and Agents of the Corporation.. 18
10.9 Persons Serving Other Entities.............................. 18
SECTION 11. AMENDMENTS.................................................. 19
</TABLE>
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AMENDED AND RESTATED BYLAWS
OF
ONYX SOFTWARE CORPORATION
SECTION 1. OFFICES
The principal office of the corporation shall be located at the principal
place of business or such other place as the Board of Directors ("BOARD") may
designate. The corporation may have such other offices as the Board may
designate or as the business of the corporation may require.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the shareholders shall be held on the second Tuesday
in the month of March in each year at 9:00 a.m., or at such other date or time
as may be determined by the Board of Directors for the purpose of electing
Directors and transacting such other business as may properly come before the
meeting. If the day fixed for the annual meeting is a legal holiday at the
place of the meeting, the meeting shall be held on the next succeeding business
day.
2.2 SPECIAL MEETINGS
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 25% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 MEETINGS BY COMMUNICATIONS EQUIPMENT
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall
constitute presence in person at a meeting.
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2.4 DATE, TIME AND PLACE OF MEETING
Except as otherwise provided in these Bylaws, all meetings of shareholders,
including those held pursuant to demand by shareholders, shall be held on such
date and at such time and place designated by or at the direction of the Board.
2.5 NOTICE OF MEETING
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting, except that notice of a meeting to act on an amendment to the Articles
of Incorporation, a plan of merger or share exchange, the sale, lease, exchange
or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than 20 or more than 60 days before such
meeting. If an annual or special shareholders' meeting is adjourned to a
different date, time or place, no notice of the new date, time or place is
required if they are announced at the meeting before adjournment. If a new
record date for the adjourned meeting is or must be fixed, notice of the
adjourned meeting must be given to shareholders entitled to notice of or to vote
as of the new record date.
Such notice may be transmitted by mail, private carrier, personal delivery,
telegraph, teletype or communications equipment that transmits a facsimile of
the notice. If these forms of written notice are impractical in the view of the
Board, the Chairman of the Board, the President or the Secretary, written notice
may be transmitted by an advertisement in a newspaper of general circulation in
the area of the corporation's principal office. If such notice is mailed, it is
effective when deposited in the official government mail, first-class postage
prepaid, properly addressed to the shareholder at such shareholder's address as
it appears in the corporation's current record of shareholders. Notice given in
any other manner is effective when dispatched to the shareholder's address,
telephone number or other number appearing on the records of the corporation.
Any notice given by publication is effective five days after first publication.
2.6 BUSINESS FOR SHAREHOLDERS' MEETINGS
2.6.1 BUSINESS AT ANNUAL MEETINGS
In addition to the election of directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board or (b)
brought before the meeting by a shareholder pursuant to written notice thereof,
in accordance with subsection 2.6.3 hereof, and received by the Secretary not
fewer than 90 nor more than 120 days prior to the anniversary date of the prior
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year's annual meeting. Any such shareholder notice shall set forth (i) the name
and address of the shareholder proposing such business; (ii) a representation
that the shareholder is entitled to vote at such meeting and a statement of the
number of shares of the corporation which are beneficially owned by the
shareholder; (iii) a representation that the shareholder intends to appear in
person or by proxy at the meeting to propose such business; and (iv) as to each
matter the Articles of Amendment proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting, the language of the
proposal (if appropriate), and any material interest of the shareholder in such
business. No business shall be conducted at any annual meeting of shareholders
except in accordance with this subsection 2.6.1. If the facts warrant, the
Board, or the chairman of an annual meeting of shareholders, may determine and
declare that (a) that a proposal does not constitute proper business to be
transacted at the meeting or (b) that business was not properly brought before
the meeting in accordance with the provisions of this subsection 2.6.1 and, if,
in either case, it is so determined, any such business shall not be transacted.
In addition to the procedures set forth in this subsection 2.6.1, shareholders
desiring to include a proposal in the Company's proxy statement must also comply
with the requirements set forth in Rule 14a-8 under Section 14 of the Securities
Exchange Act of 1934, as amended, or any successor provision.
2.6.2 BUSINESS AT SPECIAL MEETINGS
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.4
hereof, shall come before such meeting.
2.6.3 NOTICE TO CORPORATION
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 2.2, subsection 2.4, subsection 2.6.1 or
subsection 2.6.2 hereof must be given, either by personal delivery or by
registered or certified mail, postage prepaid, to the Secretary at the
corporation's principal executive offices in the City of Bellevue, State of
Washington.
2.7 WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver of notice in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting or before or after the action to be
taken by consent is effective, shall be the equivalent of the giving of such
notice. Further, notice of the time, place and purpose of any meeting will be
waived by any shareholder by attendance in person or by proxy, unless such
shareholder at the beginning of the meeting objects to holding the meeting or
transacting business at the meeting.
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2.8 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS
For the purpose of determining shareholders entitled (a) to notice of or to
vote at any meeting of shareholders or any adjournment thereof, (b) to demand a
special meeting, or (c) to receive payment of any dividend, or in order to make
a determination of shareholders for any other purpose, the Board may fix a
future date as the record date for any such determination. Such record date
shall be not more than 70 days, and, in case of a meeting of shareholders, not
less than 10 days, prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. If no record date is set for the
determination of shareholders entitled to receive payment of any stock dividend
or distribution (other than one involving a purchase, redemption, or other
acquisition of the corporation's shares) the record date shall be the date the
Board authorizes the stock dividend or distribution.
2.9 VOTING RECORD
At least 10 days before each meeting of shareholders, an alphabetical list
of the shareholders entitled to notice of such meeting shall be made, arranged
by voting group and by each class or series of shares, with the address of and
number of shares held by each shareholder. This record shall be kept at the
principal office of the corporation for 10 days prior to such meeting, and shall
be kept open at such meeting, for the inspection of any shareholder or any
shareholder's agent or attorney.
2.10 QUORUM
A majority of the votes entitled to be cast on a matter by the holders of
shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
are represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time. Any business may be transacted at a reconvened
meeting that might have been transacted at the meeting as originally called,
provided a quorum is present or represented at such meeting. Once a share is
represented for any purpose at a meeting other than solely to object to holding
the meeting or transacting business, it is deemed present for quorum purposes
for the remainder of the meeting and any adjournment (unless a new record date
is or must be set for the adjourned meeting) notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
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2.11 MANNER OF ACTING
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
2.12 PROXIES
A shareholder may vote by proxy executed in writing by the shareholder or
by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid 11 months after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle its holder to vote at any reconvened meeting following
adjournment of such meeting but shall not be valid after the final adjournment.
2.13 VOTING OF SHARES
Except as provided in the Articles of Incorporation or in Section 2.14,
each outstanding share entitled to vote with respect to a matter submitted to a
meeting of shareholders shall be entitled to one vote upon such matter.
2.14 VOTING FOR DIRECTORS
Each shareholder entitled to vote at an election of Directors may vote, in
person or by proxy, the number of shares owned by such shareholder for as many
persons as there are Directors to be elected and for whose election such
shareholder has a right to vote, or (unless otherwise provided in the Articles
of Incorporation), each such shareholder may cumulate such shareholder's votes
by distributing among one or more candidates as many votes as are equal to the
number of such Directors multiplied by the number of such shareholder's shares.
Unless otherwise provided in the Articles of Incorporation, the candidates
elected shall be those receiving the largest number of votes cast, up to the
number of Directors to be elected.
2.15 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action that may or is required to be taken at a meeting of the
shareholders may be taken without a meeting by unanimous consent if one or more
written consents setting forth the action so taken shall be signed by all the
shareholders entitled to vote with respect to the matter. Unless the consent
specifies a later effective date, actions taken by written consent of the
shareholders are effective when (a) consents sufficient to authorize taking the
action are in possession of the corporation and (b) the period of advance notice
required by the Articles of Incorporation to be given to any nonconsenting or
nonvoting shareholders has been
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satisfied. Any such consent shall be inserted in the minute book as if it were
the minutes of a meeting of the shareholders.
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board, except as may be otherwise provided in these Bylaws, the Articles
of Incorporation or the Washington Business Corporation Act.
3.2 NUMBER AND TENURE
The Board shall be composed of not less than 1 nor more than 11 Directors,
the specific number to be set by resolution of the Board. The number of
Directors may be changed from time to time by amendment to these Bylaws, but no
decrease in the number of Directors shall have the effect of shortening the term
of any incumbent Director. Unless a Director dies, resigns, or is removed, his
or her term of office shall expire at the next annual meeting of shareholders;
provided, however, that a Director shall continue to serve until his or her
successor is elected or until there is a decrease in the authorized number of
Directors. Directors need not be shareholders of the corporation or residents
of the state of Washington and need not meet any other qualifications.
3.3 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after and
at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee designated by the Board, may specify the time and place
for holding regular meetings without notice other than such resolution.
3.4 SPECIAL MEETINGS
Special meetings of the Board or any committee designated by the Board may
be called by or at the request of the Chairman of the Board, the President, the
Secretary or, in the case of special Board meetings, any Director and, in the
case of any special meeting of any committee designated by the Board, by its
Chairman. The person or persons authorized to call special meetings may fix any
place for holding any special Board or committee meeting called by them.
3.5 MEETINGS BY COMMUNICATIONS EQUIPMENT
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each
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other during the meeting. Participation by such means shall constitute presence
in person at a meeting.
3.6 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally, as
provided below. Neither the business to be transacted at nor the purpose of any
special meeting need be specified in the notice of such meeting.
3.6.1 PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be delivered to a
Director at least two days before the meeting.
3.6.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deposited in the
official government mail at least five days before the meeting, properly
addressed to a Director at his or her address shown on the records of the
corporation, with postage thereon prepaid.
3.6.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be dispatched to a
Director at his or her address shown on the records of the corporation at least
three days before the meeting.
3.6.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment that transmits a
facsimile of the notice, the notice shall be dispatched at least two days before
the meeting to a Director at his or her telephone number or other number
appearing on the records of the corporation.
3.6.5 DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be delivered to the
telegraph company for delivery to a Director at his or her address shown on the
records of the corporation at least three days before the meeting.
3.6.6 ORAL NOTICE
If notice is delivered orally, by telephone, in person or by wire or
wireless equipment that does not transmit a facsimile of the notice, the notice
shall be communicated to the Director at least two days before the meeting.
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3.7 WAIVER OF NOTICE
3.7.1 IN WRITING
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any regular or special meeting of the Board or any committee designated by
the Board need be specified in the waiver of notice of such meeting.
3.7.2 BY ATTENDANCE
A Director's attendance at or participation in a Board or committee meeting
shall constitute a waiver of notice of such meeting, unless the Director at the
beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business at such meeting and does not
thereafter vote for or assent to action taken at the meeting.
3.8 QUORUM
A majority of the number of Directors fixed by or in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice. A majority of the number of Directors composing any committee
of the Board, as established and fixed by resolution of the Board, shall
constitute a quorum for the transaction of business at any meeting of such
committee but, if less than a majority are present at a meeting, a majority of
such Directors present may adjourn the committee meeting from time to time
without further notice.
3.9 MANNER OF ACTING
If a quorum is present when the vote is taken, the act of the majority of
the Directors present at a Board or committee meeting shall be the act of the
Board or such committee, unless the vote of a greater number is required by
these Bylaws, the Articles of Incorporation or the Washington Business
Corporation Act.
3.10 PRESUMPTION OF ASSENT
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business at such meeting, (b) the Director's dissent or abstention from the
action taken is entered in the minutes of the meeting, or (c) the Director
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delivers written notice of the Director's dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation within a
reasonable time after adjournment of the meeting. The right of dissent or
abstention is not available to a Director who votes in favor of the action
taken.
3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action that could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.12 RESIGNATION
Any Director may resign from the Board or any committee of the Board at any
time by delivering either oral tender of resignation at any meeting of the Board
or any committee or written notice to the Chairman of the Board, the President,
the Secretary or the Board. Any such resignation is effective upon delivery
thereof unless the notice of resignation specifies a later effective date and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
3.13 REMOVAL
At a meeting of shareholders called expressly for that purpose, one or more
members of the Board, including the entire Board, may be removed with or without
cause (unless the Articles of Incorporation permit removal for cause only) by
the holders of the shares entitled to elect the Director or Directors whose
removal is sought if the number of votes cast to remove the Director exceeds the
number of votes cast not to remove the Director.
3.14 VACANCIES
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if the
Directors in office constitute fewer than a quorum, by the affirmative vote of a
majority of the remaining Directors. Any vacant office to be held by a Director
elected by the holders of one or more classes or series of shares entitled to
vote and be counted collectively thereon shall be filled only by the vote of the
holders of such class or series of shares. A Director elected to fill a vacancy
shall serve only until the next election of Directors by the shareholders.
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3.15 EXECUTIVE AND OTHER COMMITTEES
3.15.1 CREATION OF COMMITTEES
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members from its own number and
invest such committees with such powers as it may see fit, subject to such
conditions as may be prescribed by the Board, the Articles of Incorporation,
these Bylaws and applicable law. Each committee must have two or more members,
who shall serve at the pleasure of the Board.
3.15.2 AUTHORITY OF COMMITTEES
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions adopted in like manner, except that no
such committee shall have the authority to: (1) authorize or approve a
distribution except according to a general formula or method prescribed by the
Board, (2) approve or propose to shareholders actions or proposals required by
the Washington Business Corporation Act to be approved by shareholders, (3) fill
vacancies on the Board or any committee thereof, (4) amend the Articles of
Incorporation pursuant to RCW 23B.10.020, (5) adopt, amend or repeal Bylaws, (6)
approve a plan of merger not requiring shareholder approval, or (7) authorize or
approve the issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares except that the Board may authorize a committee or a senior
executive officer of the corporation to do so within limits specifically
prescribed by the Board.
3.15.3 MINUTES OF MEETINGS
All committees shall keep regular minutes of their meetings and shall cause
them to be recorded in books kept for that purpose.
3.15.4 REMOVAL
The Board may remove any member of any committee elected or appointed by it
but only by the affirmative vote of the greater of a majority of the Directors
then in office and the number of Directors required to take action in accordance
with these Bylaws.
3.16 COMPENSATION
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee
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member from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 4. OFFICERS
4.1 APPOINTMENT AND TERM
The officers of the corporation shall be those officers appointed from time
to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "EXECUTIVE OFFICER" shall mean the President, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board or the President
may appoint such other officers and assistant officers to hold office for such
period, have such authority and perform such duties as may be prescribed. The
Board may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the same person. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until his or her successor is appointed.
4.2 RESIGNATION
Any officer may resign at any time by delivering written notice to the
corporation. Any such resignation is effective upon delivery, unless the notice
of resignation specifies a later effective date, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective.
4.3 REMOVAL
Any officer may be removed by the Board at any time, with or without cause.
An officer or assistant officer, if appointed by another officer, may be removed
by any officer authorized to appoint officers or assistant officers.
4.4 CONTRACT RIGHTS OF OFFICERS
The appointment of an officer does not itself create contract rights.
4.5 CHAIRMAN OF THE BOARD
If appointed, the Chairman of the Board shall perform such duties as shall
be assigned to him or her by the Board from time to time, and shall preside over
meetings of the Board and shareholders unless another officer is appointed or
designated by the Board as Chairman of such meetings.
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4.6 PRESIDENT
If appointed, the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of a Chairman
of the Board, and, subject to the Board's control, shall supervise and control
all of the assets, business and affairs of the corporation. In general, the
President shall perform all duties incident to the office of President and such
other duties as are prescribed by the Board from time to time. If no Secretary
has been appointed, the President shall have responsibility for the preparation
of minutes of meetings of the Board and shareholders and for authentication of
the records of the corporation.
4.7 VICE PRESIDENT
In the event of the death of the President or his or her inability to act,
the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Vice Presidents shall perform such other
duties as from time to time may be assigned to them by the President or by or at
the direction of the Board.
4.8 SECRETARY
If appointed, the Secretary shall be responsible for preparation of minutes
of the meetings of the Board and shareholders, maintenance of the corporation
records and stock registers, and authentication of the corporation's records and
shall in general perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her by the President
or by or at the direction of the Board. In the absence of the Secretary, an
Assistant Secretary may perform the duties of the Secretary.
4.9 TREASURER
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer.
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4.10 SALARIES
The salaries of the officers shall be fixed from time to time by the Board
or by any person or persons to whom the Board has delegated such authority. No
officer shall be prevented from receiving such salary by reason of the fact that
he or she is also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board. Such authority may be general or confined to specific instances.
5.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, or agent or agents, of the corporation and in such
manner as is from time to time determined by resolution of the Board.
5.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR
TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
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6.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed, either
manually or in facsimile, by the President or any Vice President and by the
Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary
and shall include on their face written notice of any restrictions that may be
imposed on the transferability of such shares. All certificates shall be
consecutively numbered or otherwise identified.
6.3 STOCK RECORDS
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 RESTRICTION ON TRANSFER
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF L933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS, AND NO INTEREST MAY BE SOLD,
DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED
UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION
INVOLVING SAID SECURITIES, (B) THIS CORPORATION RECEIVES AN OPINION OF
LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS
CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION,
OR (C) THIS CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION."
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6.5 TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to
the corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and canceled.
6.6 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or damaged certificate, a new certificate
may be issued in its place upon such terms and indemnity to the corporation as
the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its shareholders
and the Board, a record of all actions taken by the shareholders or the Board
without a meeting, and a record of all actions taken by a committee of the Board
exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto as
currently in effect;
2. these Bylaws and all amendments thereto as currently in effect;
3. the minutes of all meetings of shareholders and records of all
action taken by shareholders without a meeting, for the past three years;
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4. the financial statements described in Section 23B.16.200(1) of the
Washington Business Corporation Act, for the past three years;
5. all written communications to shareholders generally within the
past three years;
6. a list of the names and business addresses of the current Directors
and officers; and
7. the most recent annual report delivered to the Washington Secretary
of State.
SECTION 8. ACCOUNTING YEAR
The accounting year of the corporation shall be the calendar year, provided
that if a different accounting year is at any time selected by the Board for
purposes of federal income taxes, or any other purpose, the accounting year
shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal that shall consist of the name
of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit, claim or proceeding, whether
civil, criminal, administrative or investigative and whether formal or informal
(hereafter a "PROCEEDING"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of the corporation as a Director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise (hereafter an "INDEMNITEE"),
whether the basis of a proceeding is alleged action in an official capacity or
in any other capacity while serving as such a Director, officer, partner,
trustee, employee or agent shall be indemnified and held harmless by the
corporation against all losses, claims, damages (compensatory, exemplary,
punitive or otherwise), liabilities and expenses (including attorneys' fees,
costs, judgments, fines, ERISA excise taxes or penalties, amounts to be paid in
settlement and any other expenses) actually and reasonably incurred or suffered
by such indemnitee in connection therewith and such indemnification shall
continue as to an indemnitee who has ceased to be a Director or officer of the
Company or a Director, officer partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and shall inure to the benefit of the indemnitee's
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heirs, executors and administrators. Except as provided in subsection 10.4 of
this Section with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if a proceeding (or part thereof) was authorized or ratified by the Board. The
right to indemnification conferred in this Section shall be a contract right.
10.2 RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of Section 23B.08.310 of the Washington Business Corporation Act,
for any transaction with respect to which it was finally adjudged that such
indemnitee personally received a benefit in money, property or services to which
the indemnitee was not legally entitled or if the corporation is otherwise
prohibited by applicable law from paying such indemnification. Notwithstanding
the foregoing, if Section 23B.08.560 or any successor provision of the
Washington Business Corporation Act is hereafter amended, the restrictions on
indemnification set forth in this subsection 10.2 shall be as set forth in such
amended statutory provision.
10.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Section shall include the
right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified.
10.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under subsection 10.1 or 10.3 of this Section is not paid in
full by the corporation within 60 days after a written claim has been received
by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the indemnitee
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim. If successful in whole or in part, in any such suit
or in a suit brought by the corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of litigating such suit. The indemnitee shall be presumed
to be entitled to indemnification under this Section upon submission of a
written claim (and, in an action brought to enforce a claim for an advancement
of expenses, when the required undertaking has been tendered to the corporation)
and thereafter the corporation shall have the burden of proof to overcome the
presumption that the indemnitee is so entitled.
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10.5 PROCEDURES EXCLUSIVE
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and the
advancement of expenses set forth in this Section are in lieu of the procedures
required by Section 23B.08.550 or any successor provision of the Washington
Business Corporation Act.
10.6 NONEXCLUSIVITY OF RIGHTS
Except as set forth in subsection 10.5, the right to indemnification and
the advancement of expenses conferred in this Section shall not be exclusive of
any other right that any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation or Bylaws of the corporation, general
or specific action of the Board or shareholders, contract or otherwise.
10.7 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any expense, liability or loss, whether
or not the corporation would have the authority or right to indemnify such
person against such expense, liability or loss under the Washington Business
Corporation Act or other law. The corporation may enter into contracts with any
Director, officer, partner, trustee, employee or agent of the corporation in
furtherance of the provisions of this Section and may create a trust fund, grant
a security interest or use other means (including, without limitation, a letter
of credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section.
10.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
In addition to the rights of indemnification set forth in subsection 10.1,
the corporation may, by action of the Board, grant rights to indemnification and
advancement of expenses to employees and agents or any class or group of
employees and agents of the corporation (a) with the same scope and effect as
the provisions of this Section with respect to indemnification and the
advancement of expenses of Directors and officers of the corporation; (b)
pursuant to rights granted or provided by the Washington Business Corporation
Act; or (c) as are otherwise consistent with law.
10.9 PERSONS SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the corporation,
is or was serving (a) as a Director, officer, employee or agent of another
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the corporation or (b) as a partner, trustee or
otherwise in an executive or management capacity in a partnership, joint
venture, trust, employee
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benefit plan or other enterprise of which the corporation or a majority owned
subsidiary of the corporation is a general partner or has a majority ownership
shall conclusively be deemed to be so serving at the request of the corporation
and entitled to indemnification and the advancement of expenses under
subsections 10.1 and 10.3 of this Section.
SECTION 11. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board, except that the Board may not repeal or amend any Bylaw
that the shareholders have expressly provided, in amending or repealing such
Bylaw, may not be amended or repealed by the Board. The shareholders may also
alter, amend and repeal these Bylaws or adopt new Bylaws. All Bylaws made by
the Board may be amended, repealed, altered or modified by the shareholders.
The foregoing Amended and Restated Bylaws were adopted by the Board of
Directors on December __, 1998.
_______________________________________
Secretary
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EXHIBIT 10.2
SUNSET NORTH CORPORATE CAMPUS
LEASE AGREEMENT
BETWEEN
WRC SUNSET NORTH LLC ("LANDLORD"),
AND
ONYX SOFTWARE CORPORATION ("TENANT")
<PAGE>
OFFICE LEASE AGREEMENT
This OFFICE LEASE AGREEMENT (THE "LEASE") IS MADE AND ENTERED INTO AS OF
THE 26TH DAY OF JUNE, 1998, BY AND BETWEEN WRC SUNSET NORTH LLC, A WASHINGTON
----
LIMITED LIABILITY COMPANY ("LANDLORD") AND ONYX SOFTWARE CORPORATION, A
WASHINGTON CORPORATION ("TENANT").
ARTICLE 1: BASIC LEASE INFORMATION; DEFINITIONS
A. The following are some of the basic lease information and defined
terms used in this Lease.
1. "Additional Base Rental" shall mean Tenant's Pro Rata Share of
Basic Costs and any other sums (exclusive of Base Rental) that are required to
be paid by Tenant to Landlord hereunder, which sums are deemed to be additional
rent under this Lease. Additional Base Rental and Base Rental are sometimes
collectively referred to herein as "Rent".
2. "Base Rental" shall mean Twenty-One Dollars ($21.00) per
rentable square foot of the Premises per year during years one (1) through five
(5) of the Lease Term. At the beginning of the sixth (6th) year of the Lease
Term, Base Rental shall be increased by the same percentage that the Index (as
defined below) has increased since the Commencement Date, provided that Base
Rental shall not be more than Twenty-Four and 80/100 Dollars ($24.80), nor be
less than Twenty-One Dollars ($21.00), per rentable square foot of the Premises
per year. Base Rental shall be payable by Tenant in monthly installments.
3. "Building" shall mean the office building commonly known as
Building 3 of Sunset North Corporate Campus, located at the Northeast corner of
139th Avenue Southeast and Southeast 32nd Street, Bellevue, King County,
Washington.
4. "Campus" means the Sunset North Corporate Campus located at
the Northeast corner of 139th Avenue Southeast and Southeast 32nd Street in
Bellevue, King County, Washington. The Campus contains the Building (commonly
known as Building 3), and the office buildings commonly known as Building 4 and
Building 5. All three of the buildings contain five (5) floors with
approximately thirty-one thousand five hundred (31,500) rentable square feet per
floor.
5. The "Commencement Date," "Initial Lease Term," "Lease Term"
and "Termination Date" shall have the following meanings: The "Initial Lease
Term" shall mean a period of eighty-four (84) months commencing on the later to
<PAGE>
occur of (1) May 21, 1999, (the "Target Commencement Date"); and (2) the date
upon which Landlord Work in the Premises has been substantially completed, as
such date is determined pursuant to Section 3(A) hereof (the later to occur of
such dates being defined as the "Commencement Date"). The "Termination Date"
shall, unless sooner terminated as provided herein, mean the last day of the
Lease Term. Notwithstanding the foregoing, if the Termination Date, as
determined herein, does not occur on the last day of a calendar month, the Lease
Term shall be extended by the number of days necessary to cause the Termination
Date to occur on the last day of the last calendar month of the Lease Term.
Tenant shall pay Base Rental and Additional Base Rental for such additional days
at the same rate payable for the portion of the last calendar month immediately
preceding such extension. Tenant has the option of extending the term of this
Lease beyond the Initial Lease Term pursuant to the provisions of Section 5(C)
below. The term of this Lease, as so extended, is referred to in this Lease as
the "Lease Term."
6. "Index" shall mean the "Consumer Price Index (United States City
Average for All Urban Consumers) - All Items (Reference Base 1982-84=100)"
published by the United States Department of Labor, Bureau of Labor Statistics.
In the event the Index shall hereafter be converted to a different standard
reference base or otherwise revised, the determination of the percentage
increase shall be made with the use of such conversion factor, formula or table
for converting such index as may be published by the Bureau of Labor Statistics
or, if said Bureau shall not publish the same, then with the use of such
conversion, factor, formula or table as may be published by Prentice Hall, Inc.
or any other nationally recognized publisher of similar statistical information.
In the event any such index shall cease to be published, then for the purposes
of this Section, there shall be substituted such other index as Landlord shall
reasonably determine. References to the Index as of a particular date shall
mean the Index most recently published on such date.
7. "Initial Premises" shall mean the area located on the third (3rd),
fourth (4th) and fifth (5th) floors of the Building, as outlined on Exhibit A
attached hereto and incorporated herein, containing approximately ninety-four
thousand one hundred and thirty-five (94,135) rentable square feet of area. The
Initial Premises shall not include the outdoor deck on the fifth (5th) floor of
the Building, which area contains approximately five hundred ten (510) rentable
square feet, unless that area is enclosed and made part of the Premises. The
area of the Premises may be adjusted or expanded in accordance with the
provisions of Section 5(A) below. The Initial Premises, as later modified or
expanded, is referred to in this Lease as the "Premises."
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8. "Permitted Use" shall mean only sales, general office, software
research, engineering, development and testing, and administration, together
with uses ancillary thereto (such as cafeteria).
9. "Rentable Area," "rentable square feet" and similar terms shall
mean Rentable Area as determined in accordance with the American National
Standard Method of measuring floor space in office buildings as published by the
Building Owners and Managers Association International dated June 7, 1996
("BOMA").
10. "Security Deposit" shall mean the amount described in
Article 9 below.
11. "Tenant's Pro Rata Share" shall mean sixty and 83/100 percent
(60.83%), which is the quotient (expressed as a percentage), derived by dividing
the Rentable Area of the Premises (94,135 square feet) by the Rentable Area of
the Building (154,742 square feet).
12. "Notice Addresses" shall mean the following addresses for
Tenant and Landlord, respectively:
Tenant: On and after the Commencement Date, notices shall be sent to
Tenant at the Premises, to the attention of the Chief Financial Officer, with a
copy to Facilities Manager.
Prior to the Commencement Date, notices shall be sent to Tenant at the
following address:
Onyx Software Corporation
330-120th Avenue NE; Suite C210
Bellevue, WA 98005
Attention: Chief Financial Officer
With a Copy To: Facilities Manager
Landlord: WRC Sunset North LLC
c/o Wright Runstad & Company
Suite 2000
1191 Second Avenue
Seattle, WA 98101
Attention: Jon F. Nordby
B. The following are additional definitions of some of the defined
terms used in the Lease.
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1. "Basic Costs" shall mean all costs and expenses paid or incurred
in connection with operating, maintaining, repairing, managing and owning the
Building and the Property, as more particularly described in Section 7(B)
hereof.
2. "Broker" means Broderick Group, Inc.
3. "Building Standard" shall mean the type, grade, brand, quality
and/or quantity of materials Landlord designates from time to time to be the
minimum quality and/or quantity to be used in the Building, provided that Tenant
may substitute non-Building Standard items with Landlord's prior written
approval, such approval not to be unreasonably withheld. Landlord may condition
any such approval upon the requirement that Tenant replace such non-Building
Standard items with Building Standard items at the expiration of the Lease Term.
4. "Business Day(s)" shall mean Mondays through Fridays exclusive of
the normal business holidays ("Holidays") of New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Landlord, from
time to time during the Lease Term, shall have the right to designate additional
Holidays, provided that such additional Holidays are commonly recognized by
other office buildings in the area where the Building is located.
5. "Common Areas" shall mean those areas provided for the common use
or benefit of all tenants generally and/or the public, such as corridors,
elevator foyers, common mail rooms, restrooms, vending areas, lobby areas
(whether at ground level or otherwise) and other similar facilities.
6. "Landlord Work" shall mean the construction of the shell and core
of the Building, including the Common Areas. The Landlord Work is described on
Exhibit D attached hereto.
7. "Normal Business Hours" for the Building shall mean 7:00 a.m. to
6:00 p.m. Mondays through Fridays, and 7:00 a.m. to 12 noon on Saturdays,
exclusive of Holidays.
8. "Prime Rate" shall mean the per annum interest rate publicly
announced by Seattle-First National Bank or any successor thereof from time to
time (whether or not charged in each instance) as its prime or base rate in
Seattle, Washington.
9. "Property" shall mean the Building and the parcel(s) of land on
which it is located and, at Landlord's discretion, the Building garage, if any,
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and all other improvements owned by Landlord and serving the Building and the
tenants thereof and the parcel(s) of land on which they are located.
10. "Initial Tenant Improvements" shall mean the tenant improvements
to be constructed in the Initial Premises pursuant to Tenant's plans and
specifications, as approved by Landlord pursuant to the terms of Exhibit D
attached hereto, and "Tenant Improvements" shall include the Initial Tenant
Improvements.
ARTICLE 2: LEASE GRANT
Subject to and upon the terms herein set forth, Landlord leases to Tenant
and Tenant leases from Landlord the Premises, together with the right, in common
with others, to use the Common Areas.
ARTICLE 3: ADJUSTMENT OF COMMENCEMENT DATE/POSSESSION
3.1 COMMENCEMENT DATE
Landlord and Tenant shall use their best efforts to complete the Building
and the Initial Tenant Improvements in accordance with Exhibit D hereto on the
Target Commencement Date or as soon thereafter as practicable.
The determination of the Commencement Date with respect to the Initial
Premises shall depend on which contractor is selected to construct the Initial
Tenant Improvements. If Tenant selects the contractor engaged by Landlord to
construct the shell and core of the Building (the "Shell and Core Contractor"),
Landlord shall use its commercially reasonable best efforts to cause the
Commencement Date to occur by May 21, 1999. If the Shell and Core Contractor's
bid is the lowest received by Tenant for the construction of the Tenant
Improvements, or is within two percent (2%) of the lowest bid received, and
Tenant chooses a contractor other than the Shell and Core Contractor, the
Commencement Date shall be deemed to occur on the date that it otherwise would
have occurred had the Shell and Core Contractor been chosen to construct the
Initial Tenant Improvements (as reasonably determined based on the Shell and
Core Contractor's proposed schedule included in its tenant work bid.) If the
Shell and Core Contractor is not the lowest bidder or within two percent (2%) of
the low bidder, and Tenant chooses such low bidder, the Commencement Date shall
be deemed to occur on the earlier of (i) the date five (5) weeks after that date
that it otherwise would have occurred had the Shell and Core Contractor been
chosen to construct the Initial Tenant Improvements (as reasonably determined
based on the Shell and Core Contractor's proposed schedule included in its
tenant work bid), or (ii) the date the Commencement Date would otherwise occur
pursuant to the
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following paragraph. All of the foregoing dates are subject to the delay
provisions contained in Section 3(d) below. The contractor so selected to
construct the Tenant Improvements shall be hereinafter referred to as the
"Tenant Improvements Contractor."
The Commencement Date with respect to the Initial Premises shall be deemed
to occur on (A) the later of (I) the completion date specified in the notice
("30 Day Notice") delivered to Tenant at least thirty (30) days prior to the
date that the Initial Premises will be completed for occupancy or (II) the date
the entirety of the Initial Premises is in fact delivered to Tenant with all of
Landlord's Work and the Initial Tenant Improvements substantially completed, or
(B) such earlier date as Landlord would have been able to so deliver the entire
Premises to Tenant but for Tenant Delay (defined below). Subject to Tenant
Delay or other causes beyond Landlord's control, Landlord shall use its best
efforts to deliver the Premises to Tenant no later than the completion date
specified in the 30 Day Notice. Notwithstanding the foregoing, the Commencement
Date shall be deemed to have occurred with respect to the Initial Premises on
the date Tenant first occupies the Initial Premises for normal business
operations, if such date is earlier than the dates described above.
The Commencement Date shall not be deemed to occur until the following
conditions shall have been satisfied by Landlord:
(1) The utility and other systems servicing the Building and necessary
for the operation of the Building or Tenant's occupancy and full enjoyment of
the Initial Premises (such as elevators, plumbing, heating, ventilating, air
conditioning, electrical and security systems) shall be completed and in good
order and operating condition except for (A) details of construction, decoration
and mechanical adjustments which do not materially interfere with Tenant's use
of the Initial Premises, and (B) any part thereof the non-completion of which
shall be due to Tenant Delay;
(2) Landlord (A) shall have obtained a temporary Certificate of
Occupancy for the Initial Premises, or (B) would have been entitled to the
issuance of a temporary Certificate of Occupancy for the Initial Premises, but
for Tenant Delay;
(3) The lobby of the Building and the entrances and public portions
(including the garage), stairways, corridors and elevators (including freight
elevators) of the Building, shall have been finished (except for details of
construction, decoration and mechanical adjustments which do not materially
detract from the appearance of such areas or materially interfere with their use
for normal purposes) and shall be in a clean and orderly condition affording
reasonable access to
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all portions of the Initial Premises, or would be in such condition but for
Tenant Delay; and
(4) The exterior of the Building (including the installation of glass
therein) shall have been completed except for (A) minor portions thereof which
in the aggregate do not materially affect Tenant's use of the Premises, and (B)
any part thereof the non-completion of which shall be due to Tenant Delay.
As used herein, the term "Tenant Delay" shall mean, as to any delay
experienced by Landlord in its work on the Building or the Tenant Improvements,
(a) any interference or delay caused by occurrences within the reasonable
control of Tenant; (b) any delay caused by Tenant's failure or refusal to
furnish plans, or approve or disapprove plans for the Tenant Improvements,
within the periods set out in Exhibit D; (c) any delay attributable to changes
in or additions to Landlord's plans requested by Tenant or Tenant's selection of
non-Building Standard Tenant Improvements; (d) any other delay in acts of Tenant
required under Exhibit D; or (e) any delay attributable to Tenant's selection as
the Tenant Improvement Contractor of a party other than the Shell and Core
Contractor, as described in this Section 3(A); provided that the foregoing
clauses (a) through (e) shall apply only to the extent that such delay impedes
or otherwise adversely affects Landlord's work or the schedule for preparing the
Premises for occupancy. Landlord shall notify Tenant as soon as reasonably
possible when Landlord becomes aware of an event constituting Tenant Delay.
The occurrence of the Commencement Date prior to the completion in full of
all work required to be performed by Landlord as provided herein shall not
relieve Landlord of its obligation thereafter to complete the same with due
dispatch and in a workmanlike manner. Without waiving any rights of Tenant,
Landlord, Tenant, and Landlord's and Tenant's architects shall prepare within
thirty (30) days after the Commencement Date or as soon thereafter as
practicable a "punch-list" which shall consist of the items that have not been,
but should have been, finished or furnished by Landlord in the Premises. Upon
presentation of such punch-list to Landlord, Landlord shall, with all due
diligence, proceed to complete and furnish all punch-list items. If such items
relate to shell and core work, they shall be completed at Landlord's sole cost
and expense. If such items relate to Tenant Improvements, they shall be paid in
the same manner that the costs of Tenant Improvements are paid. If within
thirty (30) days after presentation of the punch-list, Landlord shall not have
commenced, and be proceeding with due diligence, to complete and furnish such
items, or if Landlord thereafter fails to prosecute its work to completion with
due diligence, Tenant may deliver written notice of such failure to Landlord,
and if Landlord does not commence and proceed with due diligence to complete
such work within ten (10) days after
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Landlord's receipt of such notice, Tenant may complete such items and, to the
extent Landlord is responsible for such costs as set forth above, Landlord will
reimburse Tenant upon demand for the reasonable costs incurred by Tenant for
such work. If such costs are properly chargeable to Landlord and are not paid
within ten (10) days after demand, such costs shall be credited to and deducted
from Tenant's next monthly installments of Rent and Additional Rent payable
hereunder as an offset against such amounts owing by Tenant. Any such punch-list
items which do not materially interfere with Tenant's enjoyment of the portion
of the Premises involved shall not delay the Commencement Date with respect
thereto.
Landlord shall promptly correct all defects in Landlord's Work and Tenant
Improvement work performed by the Tenant Improvement Contractor, and all
failures of such work to conform to the plans and specifications for such work
which have been agreed upon by Landlord and Tenant, which defects or non-
conformities are discovered before or within one year after the date upon which
Tenant first occupies the Premises. Landlord shall bear all costs of correcting
Landlord's Work and, to the extent caused by the act or omission of Landlord,
Tenant Improvement work performed by the Tenant Improvement Contractor.
Landlord and Tenant shall each give the other prompt written notice after
discovering the existence of any such defects or non-conformities in Landlord's
work and Tenant Improvement work performed by the Tenant Improvement Contractor.
3.2 DELAYS
In the event, due to delays from any cause other than Tenant Delay or other
delays beyond the reasonable control of Landlord, the Initial Premises are not
available for occupancy by Tenant and the Commencement Date shall not have
occurred by July 1, 1999, then Landlord shall reimburse Tenant for any holdover
rent premium or other rent differential payable by Tenant in its current space
(excluding normal base rent and any consequential damages payable to Tenant's
current landlord), and Tenant shall in no event be required to pay rent
simultaneously for both its current space and the Premises, provided in no event
shall Landlord's liability as a result of such holdover exceed Forty Thousand
Dollars ($40,000) per month. In addition, in the event, due to delays from any
cause other than Tenant Delay, the Initial Premises are not available for
occupancy by January 1, 2000, Tenant may elect, within thirty (30) days
thereafter, to terminate this Lease.
3.3. INSTALLATION PERIOD
Tenant shall have the right to enter the Premises at no cost for up to
sixty (60) days prior to the Commencement Date for purposes of installing
furniture, fixtures, cabling, wiring and equipment (the "Installation Period"),
provided that the
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Installation Period shall not delay the Commencement Date. Tenant shall
coordinate its work with the Shell and Core Contractor and the Tenant
Improvements Contractor and shall not interfere with any such contractors or
their subcontractors. Tenant shall not be charged Rent during the Installation
Period unless Tenant has occupied the Premises during such period for normal
business operations.
3.4 CONFIRMATION OF COMMENCEMENT DATE
In the event the Commencement Date is established as a later or earlier
date than the Target Commencement Date, Landlord and Tenant shall confirm the
same in writing.
3.5 OWNERSHIP OF LAND
Tenant is aware that as of the date this Lease is signed, Landlord does not
own the Land. Landlord has a contractual right and obligation to purchase the
Land, and hereby represents to Tenant that Landlord shall acquire fee ownership
in the Land in sufficient time to perform all of its obligations hereunder.
ARTICLE 4: TERMINATION
A Landlord anticipates that commencement of construction (as defined
in Section 4(B)) on the Building shall occur on or before June 15, 1998. If
Landlord has not commenced construction of the Building by August 1, 1998, or
has not commenced construction of the Tenant Improvements by April 1, 1999,
then, in either such event, at its option, Tenant may, by notice in writing to
Landlord within thirty (30) days thereafter, terminate this Lease without any
liability whatsoever to Landlord, except that any amounts Tenant has deposited
with Landlord shall be returned to Tenant. Termination under the preceding
sentence shall be the sole remedy at law or equity of Tenant. In addition to
the foregoing, if Landlord has not commenced construction of the Building by
February 15, 1999 for reasons beyond the reasonable control of Landlord, either
Landlord or Tenant may, by delivery of written notice to the other, elect to
terminate this Lease without any liability to the other, except that any amounts
Tenant has deposited with Landlord shall be returned to Tenant. Termination
under the preceding sentence shall be the sole remedy at law or equity of Tenant
or Landlord. All of the foregoing dates shall be extended for delays caused by
Tenant Delay, but not for delays caused by Force Majeure or other causes beyond
Landlord's control.
B. For the purposes of this Lease, "commencement of construction,"
"commenced construction," construction has commenced," "commencement of
construction has occurred" and "commencing construction" shall mean, with
respect
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to the Building, that Landlord has acquired the Land, obtained the
building permit for construction of the Building, and commenced excavation of
the underground garage (and not merely surface grading), and with respect to the
Initial Tenant Improvements, that Landlord has issued a release for construction
to the Tenant Improvements Contractor.
ARTICLE 5: PREMISES
5.1 INITIAL PREMISES
The Initial Premises are depicted on Exhibit A attached hereto and contain
approximately ninety-four thousand one hundred thirty-five (94,135) rentable
square feet of area. The precise square footage of the Initial Premises shall
be determined during Tenant's space planning process. The rentable area of the
Initial Premises may be increased (subject to space availability) by an amount
up to ten percent (10%) of the rentable area of the Initial Premises. If Tenant
elects to so increase the Initial Premises, Tenant shall deliver written notice
to Landlord no later than the date four (4) months after commencement of
construction of the Building (as defined in Section 4(B) above). Any such
increase shall be subject to Landlord's approval of Tenant's space plan for such
modified space, such approval not to be unreasonably withheld.
5.2. EXPANSION OPTION
Landlord hereby grants Tenant an option to expand ("Expansion Option") in
accordance with the provisions of this Section 5(B). Landlord shall provide
Tenant the option to lease between ten thousand (10,000) and twenty thousand
(20,000) rentable square feet of area in the Building contiguous to the
Premises, with such space being made first available to Tenant no sooner than
the thirtieth (30th) month of the Lease Term and no later than the forty-eighth
(48th) month of the Lease Term. Landlord shall provide Tenant with written
notice of the availability of such space at least twelve (12) months prior to
the date such space will first be available. Such notice shall also include the
size and location of such space and the lease terms upon which Landlord offers
such space for lease. All such terms shall be at the fair market rate for a
comparable lease with a comparable lease term in comparable first class
buildings in the area. All such space shall be offered to Tenant in its
current, "as is" condition, unless such space has not been previously improved,
in which case the tenant improvement allowance provisions of Section 5(E) below
shall apply. Tenant may elect to lease such space by delivering written notice
to Landlord no later than the date nine (9) months prior to the date such space
is available to Tenant. Provided Landlord has delivered timely notice of the
availability of such space to Tenant, Tenant's failure to deliver such notice by
such date shall be deemed a waiver of
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Tenant's election to exercise the Expansion Option. If Tenant elects to lease
such space but Landlord and Tenant are unable to agree upon the terms of such
lease by the date thirty (30) days after delivery of Tenant's notice to lease
such space, the lease terms shall be determined by arbitration in accordance
with the provisions of Section 5(C) below (except the rate so determined shall
not be a renewal rate).
5.3 OPTION TO EXTEND
Landlord hereby grants Tenant the option to extend the Lease Term for two
(2) periods of three (3) years each, upon all of the terms and conditions
contained in this Lease, except for Base Rent. The Base Rent shall be one
hundred percent (100%) of the projected net fair market rental rate on the
effective date of such renewal for comparable term extensions for comparable
space in comparable first class buildings in the area (the "Fair Market Renewal
Rate"), provided that in no event shall the Fair Market Renewal Rate be less
than the then current Base Rent being paid by Tenant. If Tenant wishes to
exercise this extension option, Tenant shall provide written notice of its
intent to extend at least twelve (12) months prior to the expiration of the then
current Lease Term. Within thirty (30) days after receipt of such notice,
Landlord shall inform Tenant of the proposed Base Rent and other extension
terms. If Landlord and Tenant cannot agree on a Base Rent within sixty (60)
days after Tenant's receipt of Landlord's notice, then Tenant may either (i)
elect not to so extend the Lease Term; or (ii) irrevocably elect to extend the
Lease Term with the market rent to be determined in accordance with the
following binding arbitration provisions.
(1) Within fifteen (15) days after Tenant's irrevocable election to
extend the Lease term, Landlord and Tenant shall each identify an impartial
person to act as a valuation expert and notify the other thereof. The expert
specified in each such notice must be a commercial real estate professional
having not less than ten (10) years' active experience as a real estate
professional in the downtown and suburban office leasing market in Bellevue,
Washington. If either party fails to appoint an expert within such fifteen (15)
day period, then the determination of the expert first appointed shall be final,
conclusive and binding on both parties.
(2) The named experts shall together determine the Fair Market Renewal
Rate. If the experts fail to agree on the Fair Market Renewal Rate within
thirty (30) days of their appointment and the difference in their conclusions
about Fair Market Renewal Rate is ten percent (10%) or less of the lower of the
two determinations, Fair Market Renewal Rate shall be the average of the two
determinations.
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(3) If the two experts fail to agree on Fair Market Renewal Rate and
the difference between the two determinations exceeds ten percent (10%) of the
lower of the two determinations, then the experts shall appoint a third expert,
similarly impartial and qualified, to determine the Fair Market Renewal Rate.
Such third expert shall determine the Fair Market Renewal Rate within thirty
(30) days of his or her appointment, and the average of the determinations of
the two closest experts is final, conclusive and binding on Landlord and Tenant.
Landlord and Tenant shall each execute and deliver an agreement confirming
annual rent for the extended term.
(4) Landlord and Tenant shall each pay the fees of any expert
appointed by Landlord and Tenant, respectively, and Landlord and Tenant shall
each pay one-half ( 1/2) of the fees of the third expert, if any.
5.4 RIGHT OF FIRST OFFER
Landlord hereby grants Tenant a continuing right of first offer in
accordance with the provisions of this Section 5(D). Tenant shall have a right
of first offer on all space in the Building which is currently available or
which becomes available during the Lease Term. In the event Landlord is
prepared to issue or issues a proposal to a third-party tenant for space in the
Building, or receives an unsolicited offer from a third-party tenant on terms
Landlord is willing to accept (but excluding responses to proposals of Landlord
that have already been submitted to Tenant or that are received during the 60-
day period described below), Landlord shall deliver a notice ("Landlord's
Notice") to Tenant identifying the space subject to such proposal and the lease
terms (including rent and tenant improvement allowance) that Landlord is
offering to such third-party tenant. Tenant shall have five (5) business days
after receipt of Landlord's Notice to elect to lease such space upon the terms
and conditions contained in Landlord's Notice or, alternatively, to elect to
lease such space at the then fair market rental value for such space. If Tenant
elects to lease such space at its then fair market rental value and Landlord and
Tenant are unable to agree on the fair market rental value of such space within
thirty (30) days after Tenant's election to lease such space, the fair market
rental value shall be determined in the same matter that the Fair Market Renewal
Rate is determined in Section C above, except the rate shall be for expansion,
as opposed to renewal, leases. If Tenant elects not to lease such space, or if
Tenant fails to respond within such five (5) business day period, Landlord shall
be free to lease such space (including space subject to any first offer, first
refusal, expansion or option rights included in Landlord's Notice for such
third-party tenant) to another party on any terms and conditions Landlord and
such other party may agree upon. The space addressed in Landlord's Notice shall
be resubmitted to Tenant under this Section 5(D) (i) if such space is not
leased, pursuant to a signed
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lease agreement, with a party selected by Landlord within sixty (60) days after
delivery of Landlord's Notice to Tenant (i.e. the selection of the party must
occur within such 60-day period); and (ii) upon expiration of the term of the
lease, including any extensions, of the party selected by Landlord within the
60-day period after delivery of Landlord's Notice. In addition to the foregoing,
if Tenant is leasing at least one hundred thousand (100,000) square feet of
rentable space in the Campus, Tenant shall have a right of first offer on the
terms contained in this Section 5(D) over all space in Building 4 and Building 5
which is currently available or which becomes available during the Lease Term,
provided that any other tenant in Building 4 or Building 5 that leases twenty
thousand (20,000) rentable square feet or more may be granted additional (apart
from those contained in such tenant's original lease) expansion rights, first
offer rights or first refusal rights in Building 4 or Building 5 which will be
prior to Tenant's right of first offer described herein. Landlord shall notify
Tenant if any such rights are granted to other tenants.
5.5 FURTHER EXPANSIONS
Apart from Tenant's Expansion Option and Right of First Offer described
above, if Tenant agrees to expand into and occupies any other space in the
Building, Building 4 or Building 5 prior to the end of the twelfth (12th) month
of the Lease Term, Rent for such space shall be at the same rate as Rent for the
Initial Premises, the Lease Term with respect to that expansion space shall be
coterminous with that of the Initial Premises, and the Allowance will be the
same as provided for the Initial Premises. If Tenant expands into such other
space after the end of the twelfth (12th) month of the Lease Term, the Rent for
such space shall be at the then fair market rental rate for comparable space in
comparable buildings in the area of the Building, as Landlord and Tenant may
agree, and if the space is unimproved, Landlord shall grant Tenant an Allowance
of Thirty-Five Dollars ($35.00) per square foot of rentable area, prorated based
on the portion of the Initial Term remaining. For example, if Tenant occupies
and commences paying rent on space at the beginning of the third (3rd) year of
the Lease Term, Tenant shall be entitled to an Allowance of $25.00 per rentable
square foot of such space ($35 x 5/7). If such expansion space has previously
been improved, then Tenant shall take such space in an "as is" condition and no
Allowance will be granted to Tenant for such space unless otherwise agreed.
Rent shall commence on any such previously-improved space on the earlier to
occur of (i) the date four (4) weeks after such space is delivered to Tenant; or
(ii) the date Tenant occupies such space for normal business operations.
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5.6 PARKING
Landlord shall provide Tenant with no fewer than 3.4 unassigned parking
spaces in the parking garage serving the Building, and/or Buildings 4 and 5 if
Tenant has expanded into those Buildings, for each one thousand (1,000) usable
square feet of leased space in the Premises, as expanded. The number of spaces
provided to Tenant hereunder shall change as the area of the Premises changes.
Tenant may change the number of spaces Tenant wishes to use from time to time,
subject to the above maximum, provided Tenant gives Landlord at least thirty
(30) days prior notice of such change and the changes are effective on the first
day of a calendar month. The rate for monthly parking for each such space
during the first five (5) years of the Initial Term shall be Forty-Five Dollars
($45.00) per month per space plus Washington State sales tax, and shall be
increased, beginning in the sixth (6th) year of the Lease Term, by the same
percentage that the Index has increased since the Commencement Date. A
designated limited number of executive parking spaces will be located directly
below the Building on the top garage level. The exact size of this area will
depend upon how many parkers desire this service. The cost for stalls for these
executive parking spaces will be Sixty-Five Dollars ($65.00) per month per stall
plus Washington State sales tax. "Usable square feet" means "usable area" as
defined in BOMA. No reserved stalls will be available.
5.7 LANDLORD'S REPRESENTATIONS AND WARRANTIES
Landlord hereby represents and warrants to Tenant that (i) Landlord has the
current contractual right to acquire the Land; (ii) Landlord shall acquire the
Land in sufficient time for Landlord to perform all of its obligations
hereunder; (iii)Landlord has obtained Administrative Design Review for the
Building from the City of Bellevue and has submitted applications for all
building permits.
ARTICLE 6: TENANT IMPROVEMENTS
A. Tenant Improvements for the Initial Premises ("Initial Tenant
Improvements") shall be constructed pursuant to Tenant's plans for the Premises
approved by Landlord to the extent and in the manner set forth in Exhibit D.
Landlord shall enter into the contract with the Initial Tenant Improvements
contractor, who shall be selected in accordance with the provisions of Exhibit
D. Tenant is aware that its selection of an Initial Tenant Improvements
contractor other than the Shell and Core Contractor may result in delays in
completion of the Initial Tenant Improvements.
B. Landlord shall provide Tenant with an allowance ("Allowance") of
Thirty-Three Dollars ($33.00) per square foot of rentable area in the Initial
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Premises. Any unused portion of the Allowance may be taken as a credit against
Rent or may be applied to additional build-out, wiring or cabling costs, as
Tenant may elect. Any costs of constructing Tenant Improvements in excess of
the Allowance shall be borne solely by Tenant.
C. Landlord and Tenant shall mutually agree on the selection of an
architect to plan, design, and complete construction documents for the Initial
Tenant Improvements. The cost for such services (with the exception of an
initial space plan to be provided by Landlord at Landlord's expense and in
addition to the Allowance, not to exceed fifteen cents ($0.15) per rentable
square foot of the Initial Premises) as well as engineering costs attributable
to the same, shall be charged against the Allowance.
D. All disputes, controversies and claims arising out of or relating
to the construction of the Tenant Improvements in the Initial Premises shall be
settled by expedited mandatory arbitration as set forth in this Section 6.D.
All statutes of limitations which would otherwise be applicable and any
limitations upon claims set forth in this Agreement shall apply to any
arbitration proceeding under this Section 6.D.
6.1 NOTICE OF DEMAND
Either party may demand arbitration by notifying the other party in writing
in accordance with the notice provisions of Section 34. The notice shall
describe the reasons for such demand, the amount involved, if any, and the
particular remedy sought. The notice shall also list the name of one arbitrator
qualified in accordance with subsection 3.
6.2 RESPONSE
The party that has not demanded arbitration shall respond to the notice of
demand within five (5) calendar days of receipt of such notice by delivering a
written response in accordance with the notice provisions of Section 34. The
response shall list the name of a second arbitrator qualified in accordance with
Subsection 3. The response shall also describe counterclaims, if any, the
amount involved, and the particular remedy sought. If a party fails to respond
timely to the notice of demand, the arbitrator selected by the party making such
demand under Subsection 1 shall resolve the dispute, controversy or claim within
seven (7) calendar days of the deadline for response.
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6.3 QUALIFIED ARBITRATOR
Any arbitrator selected in accordance with Subsections 1 and 2 shall be any
natural person not employed by either of the parties or any parent or affiliated
partnership, corporation or other enterprise thereof, who shall also be a
construction professional with at least ten (10) years experience in the
downtown Seattle or Bellevue or the outlying Bellevue real estate markets.
6.4 APPOINTMENT OF THIRD ARBITRATOR
If a party responds timely to a notice of demand for expedited arbitration
under Subsection 2 the two arbitrators shall appoint a third arbitrator who
shall be qualified in accordance with subsection 3. Such third arbitrator shall
be appointed within seven (7) calendar days of receipt by the party demanding
arbitration of notice of response provided for under Subsection 3. If the two
arbitrators fail to timely appoint a third arbitrator, the third arbitrator
shall be appointed by the parties if they can agree within a period of five (5)
calendar days. If the parties cannot timely agree, then either party may
request the appointment of such third arbitrator by the Presiding Judge of the
Superior Court of King County, Washington; provided that the other party shall
not raise any question as to the court's full power and jurisdiction to
entertain such application and to make such appointment.
6.5 ARBITRATION HEARING; DISCOVERY; VENUE
The arbitration hearing shall commence within five (5) calendar days of
appointment of the third arbitrator as described in Subsection 4. The hearing
shall in no event last longer than two (2) calendar days. There shall be no
discovery or dispositive motion practice (such as motions for summary judgment
or to dismiss or the like) except as may be permitted by the arbitrators; and
any such discovery or dispositive motion practice permitted by the arbitrators
shall not in any way conflict with the time limits contained herein. The
arbitrators shall not be bound by any rules of civil procedure or evidence, but
rather shall consider such writings and oral presentations as reasonable
business persons would use in the conduct of their day to day affairs, and may
require the parties to submit some or all of their case by written declaration
or such other manner of presentation as the arbitrators may determine to be
appropriate. It is the intention of the parties to limit live testimony and
cross examination to the extent absolutely necessary to insure a fair hearing to
the parties on significant and material issues. Venue of any arbitration
hearing conduct pursuant to this agreement shall be in Seattle, Washington. It
is also the intention of the parties that any such arbitration shall not
interfere with the continued construction of the Tenant Improvements, and unless
the dispute in question makes it impossible for such
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construction to continue, the pending arbitration shall not affect such
construction schedule.
6.6 DECISION
The arbitrators' decision shall be made in no event later than seven (7)
calendar days of the commencement of the arbitration hearing described in
Subsection 5. If three (3) arbitrators are appointed, a majority decision shall
prevail. The award shall be final and judgment may be entered in any court
having jurisdiction thereof. The arbitrators may award specific performance of
this Agreement. The arbitrators may also require remedial measures as part of
any award. The arbitrators may award attorneys' fees and costs to the more
prevailing party.
ARTICLE 7: RENT
A. Tenant shall pay to Landlord, throughout the Lease Term, the Base
Rental, in equal monthly installments on the first day of each calendar month,
without demand, notice or offset. In addition, during each calendar year, or
portion thereof, falling within the Lease Term, Tenant shall pay to Landlord as
Additional Base Rental hereunder Tenant's Pro Rata Share of Basic Costs (as
defined below) for the applicable calendar year. Prior to the Commencement Date
and prior to January 1 of each calendar year during the Lease Term, or as soon
thereafter as practical, Landlord shall make a good faith estimate of Basic
Costs for the applicable calendar year and Tenant's Pro Rata Share thereof. On
or before the first day of each month during such calendar year, Tenant shall
pay to Landlord, as Additional Base Rental, a monthly installment equal to one-
twelfth of Tenant's Pro Rata Share of Landlord's estimate of Basic Costs.
Landlord shall have the right from time to time during any such calendar year,
if it reasonably believes the costs will vary by more than five percent (5%), to
revise the estimate of Basic Costs for such year and provide Tenant with a
revised statement therefor, and thereafter the amount Tenant shall pay each
month shall be based upon such revised estimate. If Landlord does not provide
Tenant with an estimate of the Basic Costs by January 1 of any calendar year,
Tenant shall continue to pay a monthly installment based on the previous year's
estimate until such time as Landlord provides Tenant with an estimate of Basic
Costs for the current year. Upon receipt of such current year's estimate, an
adjustment shall be made for any month during the current year with respect to
which Tenant paid monthly installments of Additional Base Rental based on the
previous year's estimate. Tenant shall pay to Landlord for any underpayment
within ten (10) days after demand. Any overpayment shall, at Landlord's option,
be refunded to Tenant or credited against the installment of Base Rental due for
the months immediately following the furnishing of such estimate. Any amounts
paid by Tenant based on any estimate shall be subject to
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adjustment pursuant to the immediately following paragraph when actual Basic
Costs are determined for such calendar year.
As soon as is practical following the end of each calendar year during the
Lease Term, Landlord shall furnish to Tenant a statement of Landlord's actual
Basic Costs for the previous calendar year. If the amount of estimated Basic
Costs actually paid by Tenant for the prior year is in excess of Tenant's actual
Pro Rata Share of Basic Costs for such prior year, then Landlord shall apply
such overpayment against Base Rental due or to become due hereunder, provided if
the Lease Term expires prior to the determination of such overpayment, Landlord
shall refund such overpayment to Tenant after first deducting the amount of any
Rent due hereunder. Likewise, Tenant shall pay to Landlord, within ten (10) days
after demand, any underpayment with respect to the prior year, whether or not
the Lease has terminated prior to receipt by Tenant of a statement for such
underpayment, it being understood that this clause shall survive the expiration
of the Lease.
Notwithstanding the foregoing, in no event shall Controllable Operating
Costs exceed Four Dollars and Seventy-Five Cents ($4.75) per rentable square
foot per annum for 1999, nor increase by more than five percent (5%) per annum,
compounded, thereafter throughout the Initial Term. For purposes of this
Section VI A, "Controllable Operating Costs" shall mean the total Basic Costs
less Basic Costs attributable to energy consumption (including gas, oil and
electricity), utilities and Taxes.
B. "Basic Costs" shall mean all reasonable and customary costs and
expenses paid or incurred in each calendar year in connection with operating,
maintaining, repairing, managing and owning the Building and the Property,
including, but not limited to, the following:
1. All labor costs for all persons at or below the grade of Building
manager performing services required or utilized in connection with the
operation, repair, replacement and maintenance of and control of access to the
Building and the Property, including but not limited to amounts incurred for
wages, salaries and other compensation for services, payroll, social security,
unemployment and other similar taxes, workers' compensation insurance, uniforms,
training, disability benefits, pensions, hospitalization, retirement plans,
group insurance or any other similar or like expenses or benefits.
2. All management fees (not to exceed 4% of gross rents), the cost of
equipping and maintaining a management office at the Building (but excluding
rent), accounting services, legal fees (subject to the exclusions described
below), and all other administrative costs relating to the Building and the
Property. If
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management services are not provided by a third party, Landlord shall be
entitled to a management fee comparable to that due and payable to third parties
provided Landlord or management companies owned by, or management divisions of,
Landlord perform actual management services of a comparable nature and type as
normally would be performed by third parties.
3. All rental and/or purchase costs of materials, supplies, tools and
equipment used in the operation, repair, replacement and maintenance and the
control of access to the Building and the Property.
4. All amounts charged to Landlord by contractors and/or suppliers
for services, replacement parts, components, materials, equipment and supplies
furnished in connection with the operation, repair, maintenance, replacement of
and control of access to any part of the Building, or the Property generally,
including the heating, air conditioning, ventilating, plumbing, electrical,
elevator and other systems and equipment. At Landlord's option, major repair
items may be amortized over their useful lives, not to exceed the Lease Term.
5. All premiums and deductibles paid by Landlord for fire and
extended coverage insurance, earthquake and extended coverage insurance,
liability and extended coverage insurance, rental loss insurance, elevator
insurance, boiler insurance and other insurance customarily carried from time to
time by landlords of comparable office buildings or required to be carried by
Landlord's Mortgagee.
6. Charges for water, gas, steam and sewer, but excluding those
charges for which Landlord is otherwise reimbursed by tenants, and charges for
Electrical Costs. For purposes hereof, the term "Electrical Costs" shall mean:
(i) all charges paid by Landlord for electricity supplied to the Building,
Property and Premises, regardless of whether such charges are characterized as
distribution charges, transmission charges, generation charges, public good
charges, disconnection charges, competitive transaction charges, stranded cost
recoveries or otherwise; and (ii) except to the extent otherwise included in
Basic Costs, any costs incurred in connection with the energy management program
for the Building, Property and Premises, including any costs incurred for the
replacement of lights and ballasts and the purchase and installation of sensors
and other energy saving equipment. Notwithstanding the foregoing, Electrical
Costs shall be adjusted as follows: (a) any amounts received by Landlord as
reimbursement for above standard electrical consumption shall be deducted from
Electrical Costs, (b) the cost of electricity incurred in providing overtime
HVAC to specific tenants shall be deducted from Electrical Costs, it being
agreed that the electrical component of overtime HVAC Costs shall be calculated
as a reasonable percentage of the total HVAC costs charged to such tenants, and
(c) if
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Tenant is billed directly for the cost of electricity to the Premises as
a separate charge in addition to Base Rental and Basic Costs, the cost of
electricity to individual tenant spaces in the Building shall be deducted from
Electrical Costs.
7. "Taxes", which for purposes hereof, shall mean: (a) all real
estate taxes and assessments on the Property, the Building or the Premises, and
taxes and assessments levied in substitution or supplementation in whole or in
part of such taxes, (b) all personal property taxes for the Building's personal
property, including license expenses, (c) all taxes imposed on services of
Landlord's agents and employees, (d) all other taxes, fees or assessments now or
hereafter levied by any governmental authority on the Property, the Building or
its contents or on the operation and use thereof (except as relate to specific
tenants), and (e) all costs and fees incurred in connection with seeking
reductions in or refunds in Taxes including, without limitation, any costs
incurred by Landlord to challenge the tax valuation of the Building, but
excluding income or franchise taxes. For the purpose of determining real estate
taxes and assessments for any given calendar year, the amount to be included in
Taxes for such year shall be as follows: (1) with respect to any special
assessment that is payable in installments, Taxes for such year shall include
the amount of the installment (and any interest) due and payable during such
year; and (2) with respect to all other real estate taxes, Taxes for such year
shall include the amount due and payable for such year. If a reduction in
Taxes is obtained for any year of the Lease Term during which Tenant paid its
Pro Rata Share of Basic Costs, then Basic Costs for such year will be
retroactively adjusted and Landlord shall provide Tenant with a credit, if any,
based on such adjustment.
8. All landscape expenses and costs of maintaining, repairing,
resurfacing and striping of the parking areas and garages of the Property and
the Campus.
9. Cost of all maintenance service agreements, including those for
equipment, alarm service, window cleaning, drapery or venetian blind cleaning,
janitorial services, pest control, uniform supply, plant maintenance,
landscaping, and any parking equipment.
10. Cost of all other repairs, replacements and general maintenance
of the Property and Building neither specified above nor directly billed to
tenants, and all similar common area costs of the Campus allocable to the
Building.
11. The amortized cost of capital improvements made to the Building
or the Property after the Commencement Date which are: (a) primarily for the
purpose of reducing operating expense costs or otherwise improving the operating
efficiency of the Property or Building; or (b) required to comply with any laws,
rules
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or regulations of any governmental authority enacted after the Commencement Date
or a requirement of Landlord's insurance carrier enacted after the Commencement
Date. At Landlord's option, the cost of such capital improvements shall be
amortized over their useful lives (not to exceed the Lease Term) and shall, at
Landlord's option, include interest at a rate that is reasonably equivalent to
the interest rate that Landlord would be required to pay to finance the cost of
the capital improvement in question as of the date such capital improvement is
performed, provided if the payback period for any capital improvement is less
than five (5) years, Landlord may amortize the cost of such capital improvement
over the payback period.
12. All common area costs of the Campus, including, without
limitation Taxes, allocable to the Property through recorded covenants or
otherwise.
13. Any other expense or charge of any nature whatsoever which, in
accordance with general industry practice with respect to the operation of a
first-class office building, would be construed as an operating expense. Basic
Costs shall not include (I) costs of any special services rendered to individual
tenants for which a separate charge is collected; (II) leasing commissions and
other leasing expenses; (III) the cost of capital improvements (except as set
forth above); (IV) executives' salaries above the grade of Building manager; (V)
amounts received by Landlord through proceeds of insurance to the extent the
proceeds are compensation for expenses which were previously included in Basic
Costs hereunder; (VI) cost of repair or replacements incurred by reason of fire
or other casualty or by the exercise of the right of eminent domain; (VII)
consulting fees, marketing fees, advertising and promotional expenditures;
(VIII) legal fees in connection with the negotiation and preparation of leases
of space or legal fees in connection with the sale of all or any portion of the
Building in which the Premises are located, or an interest therein, or the
financing or refinancing of Landlord's interest in all or any portion of the
Building in which the Premises are located, or in connection with disputes with
tenants, and legal and auditing fees, other than legal and auditing fees
reasonably incurred in connection with the maintenance and operation of all or
any portion of such Building or in connection with the preparation of the
statements required pursuant to additional rent or lease escalation provisions
contained in leases of space in such Building; (IX) depreciation or loan
payments; (X) costs resulting from the correction of any latent construction
defects in all or any portion of the Premises or Building; (XI) penalties due to
any violation of law by Landlord or other tenants; (XII) costs of preparing
tenant space for tenant occupancy; (XIII) costs allocable to properties in which
Landlord has an interest other than the Building; (XIV) damages incurred by
Landlord for any default, breach, claim, judgment or settlement; and (XV)
structural replacements (including replacements to the roof and foundations).If
the Building is not at least ninety-five percent (95%) occupied during any
calendar year of the Lease
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Term or if Landlord is not supplying services to at least ninety-five percent
(95%) of the total Rentable Area of the Building at any time during any calendar
year of the Lease Term, actual Basic Costs for purposes hereof shall, at
Landlord's option, be determined as if the Building had been ninety-five percent
(95%) occupied and Landlord had been supplying services to ninety-five percent
(95%) of the Rentable Area of the Building during such year. Any necessary
extrapolation of Basic Costs under this Article shall be performed by adjusting
the cost of those components of Basic Costs that are impacted by changes in the
occupancy of the Building (including, at Landlord's option, Taxes) to the cost
that would have been incurred if the Building had been ninety-five percent (95%)
occupied and Landlord had been supplying services to ninety-five percent (95%)
of the Rentable Area of the Building. In no event shall Landlord be entitled to
collect more than the actual Basic Costs incurred.
C. Tenant, within ninety (90) days after receiving Landlord's
statement of actual Basic Costs for a particular calendar year, shall have the
right to provide Landlord with written notice (the "Review Notice") of its
intent to review Landlord's books and records relating to the Basic Costs for
such calendar year. Within a reasonable time after receipt of a timely Review
Notice, Landlord shall make such books and records available to Tenant or
Tenant's agent for its review at either Landlord's home office or at the office
of the Building, provided that if Tenant retains an agent to review Landlord's
books and records for any calendar year, such agent must be CPA firm licensed to
do business in the state in which the Building is located. Tenant shall be
solely responsible for any and all costs, expenses and fees incurred by Tenant
or Tenant's agent in connection with such review, provided that if such review
determines that Basic Costs were overstated by ten percent (10%) or more,
Landlord shall pay the cost of such review. If Tenant elects to review
Landlord's books and records, within thirty (30) days after such books and
records are made available to Tenant, Tenant shall have the right to give
Landlord written notice stating in reasonable detail any objection to Landlord's
statement of actual Basic Costs for such calendar year. If Tenant fails to give
Landlord written notice of objection within such thirty (30) day period or fails
to provide Landlord with a Review Notice within the ninety (90) day period
provided above, Tenant shall be deemed to have approved Landlord's statement of
Basic Costs in all respects and shall thereafter be barred from raising any
claims with respect thereto. Upon Landlord's receipt of a timely objection
notice from Tenant, Landlord and Tenant shall work together in good faith to
resolve the discrepancy between Landlord's statement and Tenant's review. If
Landlord and Tenant determine that Basic Costs for the calendar year in question
are less than reported, Landlord shall provide Tenant with a credit against
future Base Rental in the amount of any overpayment by Tenant. Likewise, if
Landlord and Tenant determine that Basic Costs for the calendar year in question
are greater than reported, Tenant shall forthwith pay to Landlord the amount of
underpayment by Tenant. Any
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information obtained by Tenant pursuant to the provisions of this Section shall
be treated as confidential. Notwithstanding anything herein to the contrary,
Tenant shall not be permitted to examine Landlord's books and records or to
dispute any statement of Basic Costs unless Tenant has paid to Landlord the
amount due as shown on Landlord's statement of actual Basic Costs, said payment
being a condition precedent to Tenant's right to examine Landlord's books and
records.
D. Tenant covenants and agrees to pay to Landlord during the Lease
Term, without any setoff or deduction whatsoever except as otherwise set forth
in this Lease, the full amount of all Base Rental and Additional Base Rental due
hereunder. In addition, Tenant shall pay and be liable for, as additional rent,
all rental, sales and use taxes or other similar taxes, if any, levied or
imposed by any city, state, county or other governmental body having authority,
such payments to be in addition to all other payments required to be paid to
Landlord by Tenant under the terms and conditions of this Lease. Any such
payments shall be paid concurrently with the payments of the Rent on which the
tax is based. The Base Rental, Tenant's Pro Rata Share of Basic Costs and any
recurring monthly charges due hereunder shall be due and payable in advance on
the first day of each calendar month during the Lease Term without demand,
provided that the installment of Base Rental for the first full calendar month
of the Lease Term shall be payable two (2) days after Landlord gives Tenant the
30-Day Notice described in Section 3(A) above. All other items of Rent shall be
due and payable by Tenant on or before ten (10) days after billing by Landlord.
If the Lease Term commences on a day other than the first day of a calendar
month, then the monthly Base Rental and Tenant's Pro Rata Share of Basic Costs
for such month shall be prorated for the number of days in such month occurring
within the Lease Term based on a fraction, the numerator of which is the number
of days of the Lease Term that fell within such calendar month and the
denominator of which is the number of days in such month. All such payments
shall be by a good and sufficient check in lawful money of the United States.
No payment by Tenant or receipt or acceptance by Landlord of a lesser amount
than the correct amount of Rent due under this Lease shall be deemed to be other
than a payment on account of the earliest Rent due hereunder, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment be deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance or
pursue any other available remedy. The acceptance by Landlord of any Rent on a
date after the due date of such payment shall not be construed to be a waiver of
Landlord's right to declare a default for any other late payment. Tenant's
covenant to pay Rent shall be independent of every other covenant set forth in
this Lease.
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E. All Rent not paid within five (5) days of the date it is due and
payable shall bear interest from the date due until paid at fourteen percent
(14%) per annum. In addition, if Tenant fails to pay any installment of Rent
within five (5) days after receipt of written notice that it is overdue and
payable hereunder, a service fee equal to four percent (4%) of such unpaid
amount will be due and payable immediately by Tenant to Landlord.
F. In lieu of requiring Tenant to pay Rent by good and sufficient
check in the manner described in Section 7(D). above, and subject to Tenant's
approval (which may be withheld in Tenant's sole discretion),Tenant shall pay
Rent by means of an automated debit system (the "Automatic Debit System")
whereby any or all payments of Rent shall be debited from Tenant's account in a
bank or financial institution designated by Tenant and credited to Landlord's
account in a bank or financial institution designated by Landlord. In the event
Landlord elects to have Tenant pay all or any portion of Rent by means of the
Automatic Debit System, Tenant, within thirty (30) days after written request by
Landlord, shall execute and deliver to Landlord any authorizations, certificates
or other documentation as may be required to establish and give effect to the
Automatic Debit System. If Landlord elects to have less than all items of Rent
paid by the Automatic Debit System, Landlord shall advise Tenant in writing as
to those items of Rent that will be paid by the Automatic Debit System (e.g.
Base Rental only or Base Rental and Tenant's Pro Rata Share of Basic Costs
only). Either party shall have the right to change its bank or financial
institution from time to time, provided that Tenant, no less than thirty (30)
days prior to the effective date of any such change, shall provide Landlord with
written notice of such change and any and all authorizations, certificates or
other documentation as may be required to establish and give effect to the
Automatic Debit System at Tenant's new bank or financial institution. Tenant
shall promptly pay all service fees and other charges imposed upon Landlord or
Tenant in connection with the Automatic Debit System, including, without
limitation, any charges resulting from insufficient funds in Tenant's bank
account. In the event that any Rent is not paid on time as a result of
insufficient funds in Tenant's account, Tenant shall be liable for any interest
and/or service fee in accordance with Section 7(E). above. Tenant shall remain
liable to Landlord for all payments of Rent due hereunder regardless of whether
Tenant's account is incorrectly debited in any given month, it being agreed that
a debit of less than the full amount of Rent due shall not be construed as a
waiver by Landlord of its right to receive any unpaid balance of Rent.
ARTICLE 8: USE
The Premises shall be used for the Permitted Use and for no other purpose.
Tenant agrees not to use or permit the use of the Premises for any purpose which
is
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illegal, dangerous to life, limb or property or which, in Landlord's reasonable
opinion, creates a nuisance or which would increase the cost of insurance
coverage with respect to the Building. Tenant shall conduct its business and
control its agents, servants, contractors, employees, customers, licensees, and
invitees in such a manner as not to interfere with, annoy or disturb other
tenants, or in any way interfere with Landlord in the management and operation
of the Building. Tenant will maintain the Premises in a clean and healthful
condition, and comply with all laws, ordinances, orders, rules and regulations
of any governmental entity with reference to the operation of Tenant's business
and to the use, condition, configuration or occupancy of the Premises, including
without limitation, the Americans with Disabilities Act (collectively referred
to as "Laws"). Landlord will maintain the Building and the Common Areas in a
clean and healthful condition, and comply with all laws, ordinances, orders,
rules and regulations of any governmental entity with reference to the use,
condition, configuration or occupancy of the Building, including without
limitation, the Laws. Tenant, within ten (10) days after receipt thereof, shall
provide Landlord with copies of any notices it receives with respect to a
violation or alleged violation of any Laws. Tenant will comply with the rules
and regulations of the Building attached hereto as Exhibit B and such other
rules and regulations adopted and altered by Landlord from time to time and will
cause all of its agents, servants, contractors, employees, customers, licensees
and invitees to do so. All changes to such rules and regulations will be
reasonable and shall be sent by Landlord to Tenant in writing.
ARTICLE 9: SECURITY DEPOSIT
A. Tenant shall deposit with Landlord the following amounts on the
dates set forth below to serve as a security deposit under this Lease
(collectively the "Security Deposit"):
1. $250,000 on or before October 1, 1998;
2. An additional $500,000 on or before April 1, 1999; and
3. An additional $250,000 on the Commencement Date, provided that
if on the Commencement Date Tenant can demonstrate to Landlord's reasonable
satisfaction that Tenant then has Working Capital reserves of at least
$2,000,000, the requirement to make such final $250,000 deposit shall be waived.
B. As used herein, "Working Capital" means from time to time the
amount determined by subtracting the aggregate of all current liabilities,
accounts payable and accrued expenses of Tenant from the aggregate of Tenant's
cash, cash equivalent assets and accounts receivable that are reasonably
expected to be collected
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within ninety (90) days from the date of such determination. For purposes of
this definition, deferred revenue shall not be considered a current liability.
C. All such deposits constituting the Security Deposit shall be made
in the form of cash or in the form of a letter of credit issued by a financial
institution, and upon such terms, as may be reasonably approved by Landlord.
Any letter of credit delivered by Tenant shall have a minimum term of one (1)
year, and shall be renewed by Tenant on an annual basis for so long as Tenant
elects to deposit a letter of credit instead of cash hereunder. If Landlord is
not provided notice of such renewal at least fifteen (15) days prior to the
expiration date of the then-current letter of credit, Landlord may draw down the
entire amount of the current letter of credit. Without limiting the foregoing,
the issuing bank must have assets of at least $100,000,000, and such letter of
credit must be irrevocable and subject to no conditions other than Landlord's
presentation thereof to the issuing bank with a demand for payment that
certifies that an Event of Default (as defined in this Lease) has occurred under
this Lease and that Landlord is entitled to draw on the letter of credit in
accordance with and pursuant to this Lease.
D. Once established, the Security Deposit shall be reduced by twenty
percent (20%) of its maximum balance on each of the first through fifth
anniversaries of the Commencement Date, provided that on each such anniversary
date Tenant has Working Capital of at least $2,000,000. Such reduction shall be
cumulative, so that if a reduction is not made in one year but is made in the
subsequent year, the reduction in the second year shall be forty percent (40%)
of the maximum amount of the Security Deposit. In no event shall a reduction in
the Security Deposit be made if Tenant is then in default hereunder or if there
exists a state of circumstances which with the giving of notice or passage of
time or both would constitute a default hereunder. Provided Tenant is not in
default at the end of the fifth (5th) year of the Lease Term, Tenant shall have
no further obligation to make the Security Deposit for the remainder of the
Lease Term, and Landlord shall return the Security Deposit to Tenant, regardless
of the level of Tenant's Working Capital at such date.
E. The Security Deposit shall, to the extent such deposit is made in
cash, be held by Landlord in an interest-bearing account reasonably satisfactory
to Tenant (and any interest which accrues thereon shall be disbursed to Tenant
at least on an annual basis) and as security for the performance of Tenant's
obligations under this Lease. All such interest shall be taxable income of
Tenant. The Security Deposit shall not be considered an advance payment of Rent
or a measure of Tenant's liability for damages. Landlord may, from time to time
after an Event of Default, without prejudice to any other remedy, use all or a
portion of the Security Deposit to make
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good any arrearage of Rent, to repair damages to the Premises, to clean the
Premises upon termination of this Lease or otherwise to satisfy any other
covenant or obligation of Tenant hereunder. Following any such application of
the Security Deposit, Tenant shall pay to Landlord on demand (or deliver a
replacement letter of credit) the amount so applied in order to restore the
Security Deposit to its original amount. If Tenant is not in default at the
termination of this Lease, after Tenant surrenders the Premises to Landlord in
accordance with this Lease and all amounts due Landlord from Tenant are finally
determined and paid by Tenant or through application of the Security Deposit,
the balance of the Security Deposit remaining after any such application shall
be returned to Tenant. If Landlord transfers its interest in the Premises during
the Lease Term, Landlord shall assign the Security Deposit to the transferee and
thereafter shall have no further liability for the return of such Security
Deposit. Tenant agrees to look solely to such transferee or assignee for the
return of the Security Deposit. Landlord and its successors and assigns shall
not be bound by any actual or attempted assignment or encumbrance of the
Security Deposit by Tenant, provided, however, if Tenant's interest in this
Lease has been assigned, Landlord shall, provided that Landlord has been
furnished with a fully executed copy of the agreement assigning such Security
Deposit, return the Security Deposit to such assignee in accordance with the
terms and conditions hereof. If Landlord returns the Security Deposit to
Tenant's assignee as aforesaid, Landlord will have no further obligation to any
party with respect thereto. Landlord shall not be required to keep the Security
Deposit separate from its other accounts. In no event shall the Security Deposit
serve as a limitation on the damages payable by Tenant as a result of its
default under this Lease.
ARTICLE 10: SERVICES TO BE FURNISHED BY LANDLORD
A. Landlord, as part of Basic Costs (except as otherwise provided),
agrees to furnish Tenant the following services:
1. Hot and cold water for use in the lavatories on the floor(s)
on which the Premises is located. If Tenant desires water in the Premises for
any approved reason, including a private lavatory or kitchen, cold water shall
be supplied, at Tenant's sole cost and expense, from the Building water main
through a line and fixtures installed at Tenant's sole cost and expense with the
prior reasonable consent of Landlord. If Tenant desires hot water in the
Premises, Tenant, at its sole cost and expense and subject to the prior
reasonable consent of Landlord, may install a hot water heater in the Premises.
Tenant shall be solely responsible for maintenance and repair of any such hot
water heater.
2. Central heat, ventilating and air conditioning in season
during Normal Business Hours, at such temperatures and in such amounts as are
considered by Landlord, in its reasonable judgment, to be standard for first-
class
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<PAGE>
office buildings of similar class, size, age and location, or as required by
governmental authority. In the event that Tenant requires central heat,
ventilation or air conditioning at hours other than Normal Business Hours, such
central heat, ventilation or air conditioning shall be furnished only upon the
request of Tenant (which may be by telephone or in person) delivered to Landlord
at the office of the Building prior to 3:00 p.m. of the same day. Tenant shall
pay Landlord, as Additional Base Rental, the actual direct utility costs of
additional service and a reasonable charge for the extra wear and tear on
Building equipment, provided such charge shall not exceed fifteen percent (15%)
of the actual direct utility costs of such additional service.
3. Maintenance and repair of all Common Areas in the manner and to
the extent reasonably deemed by Landlord to be standard for first-class office
buildings of similar class, size, age and location.
4. Janitorial services, consistent with those provided to other first
class office buildings in Bellevue, Washington, Monday through Friday nights;
provided, however, if Tenant's use, floor covering or other improvements require
special services, Tenant shall pay the additional cost reasonably attributable
thereto as Additional Base Rental. Landlord shall attempt to have such
janitorial services provided between 6:00 p.m. and 10:00 p.m. Landlord shall
also use its commercially reasonable best efforts to implement a recycling
program.
5. Passenger elevator service in common with other tenants of
the Building.
6. Electricity to the Premises for general office use, in accordance
with and subject to the terms and conditions set forth in Article 14 of this
Lease.
7. Landlord shall provide, at Landlord's expense, a multi-level card
key security system that will control access to the Building and the garage and
elevators therein. Tenant shall have access to the Premises 24 hours a day, 7
days a week. Additional card readers may be installed in the stairwells to
facilitate controlled access between Tenant's floors by way of the stairwells.
Tenant shall bear the cost of any such additional card readers or other security
measures.
B. The failure by Landlord to any extent to furnish, or the
interruption or termination of, any services in whole or in part, resulting from
adherence to laws, regulations and administrative orders, wear, use, repairs,
improvements, alterations or any causes beyond the reasonable control of
Landlord shall not render Landlord liable in any respect nor be construed as a
constructive
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eviction of Tenant, nor give rise to an abatement of Rent, nor relieve Tenant
from the obligation to fulfill any covenant or agreement hereof, provided that
if any such interruption or termination continues for seventy-two (72) hours,
Rent shall thereafter abate to the extent the Premises are rendered untenantable
as a result thereof. Should any of the equipment or machinery used in the
provision of such services for any cause cease to function properly, Landlord
shall use reasonable diligence to repair such equipment or machinery.
C. Tenant expressly acknowledges that if Landlord, from time to time,
elects to provide security services, Landlord shall not be deemed to have
warranted the efficiency of any security personnel, service, procedures or
equipment and Landlord shall not be liable in any manner for the failure of any
such security personnel, services, procedures or equipment to prevent or
control, or apprehend anyone suspected of personal injury, property damage or
any criminal conduct in, on or around the Property.
D. Landlord shall engage Wright Runstad Associates Limited
Partnership as the manager of the Building for at least two (2) years after the
Commencement Date.
ARTICLE 11: LEASEHOLD IMPROVEMENTS
Any trade fixtures, unattached and movable equipment or furniture, or other
personalty brought into the Premises by Tenant ("Tenant's Property") shall be
owned and insured by Tenant. Tenant shall remove all such Tenant's Property
from the Premises in accordance with the terms of Article 37 hereof. Any and
all alterations, additions and improvements to the Premises, including any
built-in furniture (collectively, "Leasehold Improvements") shall be owned and
insured by Landlord and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant. Landlord may, nonetheless, if
Landlord so notifies Tenant at the time of initial consent to Tenant's plans,
require Tenant to remove any Leasehold Improvements performed by or for the
benefit of Tenant and all electronic, phone and data cabling as are designated
by Landlord (the "Required Removables") at Tenant's sole cost. In the event
that Landlord so elects, Tenant shall remove such Required Removables prior to
the expiration or earlier termination of this Lease or Tenant's right to
possession. In addition to Tenant's obligation to remove the Required
Removables, Tenant shall repair any damage caused by such removal and perform
such other work as is reasonably necessary to restore the Premises to a "move
in" condition. If Tenant fails to remove any specified Required Removables or
to perform any required repairs and restoration within the time period specified
above, Landlord, at Tenant's sole cost and expense, may remove, store, sell
and/or dispose of the Required Removables and perform such required repairs and
restoration work.
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Tenant, within five (5) days after demand from Landlord, shall reimburse
Landlord for any and all reasonable costs incurred by Landlord in connection
with the Required Removables.
ARTICLE 12: SIGNAGE
Tenant shall be entitled to install two (2) signs on the exterior of the
Building, provided such sign complies with the Signage Criteria attached as
Exhibit E hereto and with all applicable laws and codes. The cost of such
exterior sign shall be borne by Tenant, which Tenant may pay from the Allowance.
Landlord shall provide Tenant identification on the Building directory, at
Landlord's expense. So long as Tenant leases one hundred percent (100%) of the
Building, Tenant shall be entitled to place an additional sign bearing its name
above the main entrance to the Building, provided such sign complies with the
signage criteria attached hereto as Exhibit E and with all applicable laws and
codes. Tenant shall have first choice of the signage locations on the Building
exterior, which locations may be on the South and West facades of the Building,
as depicted on Exhibit E.
ARTICLE 13: REPAIRS AND ALTERATIONS
A. Except to the extent such obligations are imposed upon Landlord
hereunder, Tenant, at its sole cost and expense, shall perform all maintenance
and repairs to the Premises as are necessary to keep the same in good condition
and repair throughout the entire Lease Term, reasonable wear and tear excepted.
Tenant's repair and maintenance obligations with respect to the Premises shall
include, without limitation, any necessary repairs with respect to: (1) any
carpet or other floor covering, (2) any interior partitions, (3) any doors, (4)
the interior side of any demising walls, (5) any telephone and computer cabling
that serves Tenant's equipment exclusively, (6) any supplemental air
conditioning units, private showers and kitchens, including any plumbing in
connection therewith, and similar facilities serving Tenant exclusively, and (7)
any alterations, additions or improvements performed by contractors retained by
Tenant. All such work shall be performed in accordance with Section 13(B) below
and the rules, policies and procedures reasonably enacted by Landlord from time
to time for the performance of work in the Building. If Tenant fails to make
any necessary repairs to the Premises within a reasonable time after written
notice from Landlord (except in case of emergency), Landlord may, at its option,
make such repairs, and Tenant shall pay the cost thereof to the Landlord on
demand as Additional Base Rental, together with an administrative charge in an
amount equal to ten percent (10%) of the cost of such repairs. Landlord shall,
at its expense (except as included in Basic Costs), keep and maintain in good
repair and working order and make all repairs to and perform necessary
maintenance
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upon: (a) all structural elements of the Building (including the roof and roof
membrane, and foundations); and (b) all elevator, mechanical, electrical and
plumbing systems that serve the Building in general; and (c) the Common Areas
and Building facilities common to all tenants including, but not limited to, the
ceilings, walls and floors in the Common Areas.
B. Tenant shall not make or allow to be made any alterations,
additions or improvements to the Premises without first obtaining the written
consent of Landlord in each such instance, which consent Landlord shall not
unreasonably withhold. Landlord's consent shall be deemed granted if Landlord
does not respond to Tenant's written request for approval within ten (10)
business days. Tenant shall be obligated to remove non-Building Standard items
only if Landlord specifically requires such removal in writing at the time
Landlord approves the improvements or alterations incorporating such items.
Prior to commencing any such work and as a condition to obtaining Landlord's
consent, Tenant must furnish Landlord with plans and specifications reasonably
acceptable to Landlord; names and addresses of contractors reasonably acceptable
to Landlord; copies of contracts; necessary permits and approvals; evidence of
contractor's and subcontractor's insurance in accordance with Section 19(B)
hereof; and payment bond or other security, all in form and amount satisfactory
to Landlord. All such improvements, alterations or additions shall be
constructed in a good and workmanlike manner using Building Standard materials
or other new materials of equal or greater quality. Landlord, to the extent
reasonably necessary to avoid any disruption to the tenants and occupants of the
Building, shall have the right to designate the time when any such alterations,
additions and improvements may be performed and to otherwise designate
reasonable rules, regulations and procedures for the performance of work in the
Building. Upon completion, Tenant shall furnish "as-built" plans, contractor's
affidavits and full and final waivers of lien and receipted bills covering all
labor and materials. All improvements, alterations and additions shall comply
with all insurance requirements, codes, ordinances, laws and regulations,
including without limitation, the Americans with Disabilities Act. Tenant shall
reimburse Landlord upon demand as Additional Base Rental for all sums, if any,
expended by Landlord for third party examination of the architectural,
mechanical, electric and plumbing plans for any alterations, additions or
improvements. In addition, if Landlord so requests, Landlord shall be entitled
to oversee the construction of any alterations, additions or improvements that
may affect the structure of the Building or any of the mechanical, electrical,
plumbing or life safety systems of the Building. In the event Landlord elects
to oversee such work, Landlord shall be entitled to receive a fee for such
oversight in an amount equal to the actual time reasonably spent by Landlord's
engineers at a rate of $150 per hour. Landlord's approval of Tenant's plans and
specifications for any work performed for or on behalf of Tenant shall not be
deemed to be a representation by Landlord that
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such plans and specifications comply with applicable insurance requirements,
building codes, ordinances, laws or regulations or that the alterations,
additions and improvements constructed in accordance with such plans and
specifications will be adequate for Tenant's use.
Notwithstanding the foregoing, Tenant may make nonstructural alterations,
additions or improvements to the interior of the Premises, including wiring
within the Premises, nonstructural partitioning, and painting and redecorating,
without the necessity of obtaining Landlord's consent, provided in all such
cases (other than cabling, painting or decoration solely within the Premises)
Tenant shall give Landlord five (5) business days' prior written notice of such
modifications. Any such alterations, additions or improvements shall be
installed by Tenant at its sole cost and in compliance with all laws, orders and
regulations of any applicable governing body and Tenant at its expense shall
furnish to Landlord drawings for such work to enable the Building's record
drawings to be updated to reflect such changes.
ARTICLE 14: USE OF ELECTRICAL SERVICES BY TENANT
A. All electricity used by Tenant in the Premises shall be paid for
by Tenant by a separate charge billed directly to Tenant by Landlord and payable
by Tenant as Additional Base Rental within ten (10) days after billing. It is
understood that electrical service to the Premises may be furnished by one or
more companies providing electrical generation, transmission and/or distribution
services and that the cost of electricity may be billed as a single charge or
divided into and billed in a variety of categories such as distribution charges,
transmission charges, generation charges, public good charges or other similar
categories. Landlord shall have the exclusive right to select the company(ies)
providing electrical service to the Building, Premises and Property, to
aggregate the electrical service for the Building, Premises and Property with
other buildings, to purchase electricity for the Building, Premises and Property
through a broker and/or buyers group and to change the providers and/or manner
of purchasing electricity from time to time.
B. Tenant's use of electrical service in the Premises shall not
exceed, either in voltage, rated capacity, or overall load, the design
specifications for the Building as determined in Exhibit F attached hereto. In
the event Tenant shall consume (or request that it be allowed to consume)
electrical service in excess of the design specifications set out on Exhibit F,
Landlord may refuse to consent to such excess usage or may condition its consent
to such excess usage upon such conditions as Landlord reasonably elects
(including the installation of utility service upgrades, submeters, air handlers
or cooling units), and all such additional usage (to the extent permitted by
law), installation and maintenance thereof shall be paid for by Tenant as
Additional Base Rental. Landlord, at any time during the Lease Term, shall have
the
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right to separately meter electrical usage for the Premises or to measure
electrical usage by survey or any other method that Landlord, in its reasonable
judgment, deems to be appropriate.
C. Notwithstanding Section A above to the contrary, if Landlord
permits Tenant to purchase electrical power for the Premises from a provider
other than Landlord's designated company(ies), such provider shall be considered
to be a contractor of Tenant and Tenant shall indemnify and hold Landlord
harmless from such provider's acts and omissions while in, or in connection with
their services to, the Building or Premises in accordance with the terms and
conditions of Article 18. In addition, at the request of Landlord, Tenant shall
allow Landlord to purchase electricity from Tenant's provider at Tenant's rate
or at such lower rate as can be negotiated by the aggregation of Landlord's and
Tenant's requirements for electricity power.
ARTICLE 15: ENTRY BY LANDLORD
Landlord and its agents or representatives shall have the right to enter
the Premises to inspect the same, or to show the Premises to prospective
purchasers, mortgagees, tenants (during the last twelve months of the Lease Term
or earlier in connection with a potential relocation) or insurers, or to clean
or make repairs, alterations or additions thereto, including any work that
Landlord deems necessary for the safety, protection or preservation of the
Building or any occupants thereof, or to facilitate repairs, alterations or
additions to the Building or any other tenants' premises. Except for any entry
by Landlord in an emergency situation or to provide normal cleaning and
janitorial service, Landlord shall provide Tenant with reasonable prior notice
of any entry into the Premises, which notice may be given verbally. If
reasonably necessary for the protection and safety of Tenant and its employees,
Landlord shall have the right to temporarily close the Premises to perform
repairs, alterations or additions in the Premises, provided that Landlord shall
use reasonable efforts to perform all such work on weekends and after Normal
Business Hours. Entry by Landlord hereunder shall not constitute a constructive
eviction or entitle Tenant to any abatement or reduction of Rent by reason
thereof.
ARTICLE 16: ASSIGNMENT AND SUBLETTING
A. Tenant shall not assign, sublease, transfer or encumber this Lease
or any interest therein or grant any license, concession or other right of
occupancy of the Premises or any portion thereof or otherwise permit the use of
the Premises or any portion thereof by any party other than Tenant (any of which
events is hereinafter called a "Transfer") without the prior written consent of
Landlord, which consent shall not be unreasonably withheld with respect to any
proposed assignment or subletting.
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Landlord's consent shall not be considered unreasonably withheld if: (1) the
proposed transferee's financial responsibility does not meet the same criteria
Landlord uses to select Building tenants; (2) the proposed transferee's business
is not suitable for the Building considering the business of the other tenants
or would result in a violation of an exclusive right granted to another tenant
in the Building; (3) the proposed use is different than the Permitted Use; (4)
the proposed transferee is a government agency; (5) Tenant is in Default; or (6)
any portion of the Building or Premises would become subject to additional or
different governmental laws or regulations as a consequence of the proposed
Transfer and/or the proposed transferee's use and occupancy of the Premises in a
way that would have a material adverse effect on the Premises or Building.
Tenant acknowledges that the foregoing is not intended to be an exclusive list
of the reasons for which Landlord may reasonably withhold its consent to a
proposed Transfer. Any attempted Transfer in violation of the terms of this
Article shall, at Landlord's option, be void. Consent by Landlord to one or more
Transfers shall not operate as a waiver of Landlord's rights as to any
subsequent Transfers. In addition, Tenant shall not, without Landlord's consent,
publicly advertise the proposed rental rate for any Transfer.
B. Notwithstanding the foregoing, Tenant may assign this Lease or
sublet all or any portion of the Premises to any subsidiary or affiliate of
Tenant, provided that Tenant shall not be released from of its obligations under
this Lease.
C. If Tenant requests Landlord's consent to a Transfer, Tenant,
together with such request for consent, shall provide Landlord with the name of
the proposed transferee and the nature of the business of the proposed
transferee, the term, use, rental rate and all other material terms and
conditions of the proposed Transfer, including, without limitation, a copy of
the proposed assignment, sublease or other contractual documents and evidence
satisfactory to Landlord that the proposed transferee is financially
responsible. Notwithstanding Landlord's agreement to act reasonably under
Section 16(A). above, Landlord may, within ten (10) days after its receipt of
all information and documentation required herein, either, (1) consent to or
reasonably refuse to consent to such Transfer in writing; or (2) subject to
first obtaining Tenant's approval thereto, cancel and terminate this Lease, in
whole or in part as appropriate, upon thirty (30) days' notice and recapture of
the space proposed for such subletting or assignment. If Landlord fails to
respond within such 10-day period, Tenant may send a second written notice
requesting Landlord's consent, and if Landlord fails to respond within five (5)
business days after its receipt of such second notice, Landlord shall be deemed
to have approved such assignment or subletting. In the event Landlord consents
to any such Transfer, the Transfer and consent thereto shall be in a form
approved by Landlord, and Tenant shall bear all costs and expenses incurred by
Landlord in connection with the review
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and approval of such documentation, which costs and expenses shall be deemed to
be at least Two Hundred Fifty Dollars ($250.00), and not to exceed One Thousand
Five Hundred Dollars ($1,500.00).
D. Tenant hereby covenants and agrees to pay to Landlord one half (
1/2) of all rent and other consideration which it receives which is in excess of
the Rent payable hereunder, after deduction of Tenant's reasonable costs of
subletting or assignment, within ten (10) days following receipt thereof by
Tenant. In addition to any other rights Landlord may have, Landlord shall,
after Default by Tenant, have the right to contact any transferee and require
that all payments made pursuant to the Transfer shall be made directly to
Landlord.
E. If Tenant is a corporation, limited liability company or similar
entity, and if at any time during the Lease Term the entity or entities who own
the voting shares at the time of the execution of this Lease cease for any
reason (including but not limited to merger, consolidation or other
reorganization involving another corporation) to own a majority of such shares,
or if Tenant is a partnership and if at any time during the Lease Term the
general partner or partners who own the general partnership interests in the
partnership at the time of the execution of this Lease, cease for any reason to
own a majority of such interests (except as the result of transfers by gift,
bequest or inheritance to or for the benefit of members of the immediate family
of such original shareholder[s] or partner[s]), such an event shall be deemed to
be a Transfer. The preceding sentence shall not apply whenever Tenant is a
corporation, the outstanding stock of which is listed on a recognized security
exchange, or if at least eighty percent (80%) of its voting stock is owned by
another corporation, the voting stock of which is so listed.
F. Notwithstanding anything herein to the contrary, Landlord hereby
consents to an assignment of this Lease, or a subletting of all or part of the
Premises, to (i) the parent of Tenant or to a wholly owned subsidiary of Tenant
or of such parent, (ii) any corporation in whom or with which Tenant may be
merged or consolidated, or (iii) any entity to whom Tenant sells all or
substantially all of its assets, provided that in each such instance such entity
expressly assumes all of Tenant's obligations hereunder and has a net worth at
least equal to the greater of (A) the net worth of Tenant on the date hereof or
(B) the net worth of Tenant immediately prior to such assignment or transaction.
With respect to the transactions described in Subsections (i) and (ii) above,
such net worth may be on a consolidated basis with Tenant's affiliated entity.
An initial public offering of Tenant's stock and any subsequent transfers shall
not be considered a Transfer hereunder.
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G. Any Transfer consented to by Landlord in accordance with this
Article 16 shall be only for the Permitted Use and for no other purpose. In no
event shall any Transfer release or relieve Tenant from any obligations under
this Lease.
ARTICLE 17: LIENS
Tenant will not permit any mechanic's liens or other liens to be placed
upon the Premises or Tenant's leasehold interest therein, the Building, or the
Property. Landlord's title to the Building and Property is and always shall be
paramount to the interest of Tenant, and nothing herein contained shall empower
Tenant to do any act that can, shall or may encumber Landlord's title. In the
event any such lien does attach, Tenant shall, within ten (10) days of notice of
the filing of said lien, either discharge or bond over such lien to the
satisfaction of Landlord and Landlord's Mortgagee (as hereinafter defined), and
in such a manner as to remove the lien as an encumbrance against the Building
and Property. If Tenant shall fail to so discharge or bond over such lien,
then, in addition to any other right or remedy of Landlord, Landlord may, but
shall not be obligated to bond over or discharge the same. Any amount paid by
Landlord for any of the aforesaid purposes, including reasonable attorneys' fees
(if and to the extent permitted by law) shall be paid by Tenant to Landlord on
demand as Additional Base Rental. Landlord shall have the right to post and keep
posted on the Premises any notices that may be provided by law or which Landlord
may deem to be proper for the protection of Landlord, the Premises and the
Building from such liens.
ARTICLE 18: INDEMNITY AND WAIVER OF CLAIMS
A. Tenant shall indemnify, defend and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors, employees,
Mortgagee(s) and agents, and the respective principals and members of any such
agents (collectively the "Landlord Related Parties") harmless against and from
all liabilities, obligations, damages, penalties, claims, costs, charges and
expenses, including, without limitation, reasonable attorneys' fees and other
professional fees (if and to the extent permitted by law), which may be imposed
upon, incurred by, or asserted against Landlord or any of the Landlord Related
Parties and arising, directly or indirectly, out of or in connection with the
use, occupancy or maintenance of the Premises by, through or under Tenant
including, without limitation, any of the following: (1) any work or thing done
in, on or about the Premises or any part thereof by Tenant or any of its
transferees, agents, servants, contractors, employees, customers, licensees or
invitees; (2) any use, non-use, possession, occupation, condition, operation or
maintenance of the Premises or any part thereof; (3) any act or omission of
Tenant or any of its transferees, agents, servants, contractors, employees,
customers, licensees or invitees,
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regardless of whether such act or omission occurred within the Premises; (4) any
injury or damage to any person or property occurring in, on or about the
Premises or any part thereof; or (5) any failure on the part of Tenant to
perform or comply with any of the covenants, agreements, terms or conditions
contained in this Lease with which Tenant must comply or perform. In case any
action or proceeding is brought against Landlord or any of the Landlord Related
Parties by reason of any of the foregoing, Tenant shall, at Tenant's sole cost
and expense, resist and defend such action or proceeding with counsel approved
by Landlord or, at Landlord's option, reimburse Landlord for the cost of any
counsel retained directly by Landlord to defend and resist such action or
proceeding.
B. Landlord and the Landlord Related Parties shall not be liable for,
and Tenant hereby waives, all claims for loss or damage to Tenant's business or
damage to person or property sustained by Tenant or any person claiming by,
through or under Tenant [including Tenant's principals, agents and employees
(collectively, the "Tenant Related Parties")] resulting from any accident or
occurrence in, on or about the Premises, the Building or the Property,
including, without limitation, claims for loss, theft or damage resulting from:
(1) the Premises, Building, or Property, or any equipment or appurtenances
becoming out of repair; (2) wind or weather; (3) any defect in or failure to
operate, for whatever reason, any sprinkler, heating or air-conditioning
equipment, electric wiring, gas, water or steam pipes; (4) broken glass; (5) the
backing up of any sewer pipe or downspout; (6) the bursting, leaking or running
of any tank, water closet, drain or other pipe; (7) the escape of steam or
water; (8) water, snow or ice being upon or coming through the roof, skylight,
stairs, doorways, windows, walks or any other place upon or near the Building;
(9) the falling of any fixture, plaster, tile or other material; (10) any act,
omission or negligence of other tenants, licensees or any other persons or
occupants of the Building or of adjoining or contiguous buildings, or owners of
adjacent or contiguous property or the public, or by construction of any
private, public or quasi-public work; or (11) any other cause of any nature
except, as to items 19, where such loss or damage is due to Landlord's
negligence or willful misconduct, or due to Landlord's willful failure to make
repairs required to be made pursuant to other provisions of this Lease, after
the expiration of a reasonable time after written notice to Landlord of the need
for such repairs. To the maximum extent permitted by law, Tenant agrees to use
and occupy the Premises, and to use such other portions of the Building as
Tenant is herein given the right to use, at Tenant's own risk.
C. Landlord shall indemnify, defend and hold Tenant harmless from and
against all liabilities, damages, losses, claims, and expenses, including
reasonable attorneys' fees arising from any negligent act of Landlord or its
officers, contractors, licensees, agents, employees, clients, or customers in or
about the Building or
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Premises, or arising from any breach or default under this Lease by Landlord.
Landlord shall not be liable for any act or neglect of Tenant or any other
tenant or occupant of the Building or any third parties. In no event shall
Landlord be liable to Tenant for any damage to the Premises or for any loss,
damage or injury to any property therein or thereon occasioned by bursting,
rupture, leakage or overflow of any plumbing or other pipes (including, without
limitation, water, steam and/or refrigerant lines), sprinklers, tanks, drains,
drinking fountains or washstands or other similar cause in, above, upon or about
the Premises or the Building, unless due to the negligence or willful misconduct
of Landlord or its officers, contractors, licensees, agents, employees, clients
or customers.
ARTICLE 19: TENANT'S INSURANCE
A. At all times commencing on and after the earlier of the
Commencement Date and the date Tenant or its agents, employees or contractors
enters the Premises for any purpose, Tenant shall carry and maintain, at its
sole cost and expense:
1. Commercial General Liability Insurance applicable to the
Premises and its appurtenances providing, on an occurrence basis, a minimum
combined single limit of Two Million Dollars ($2,000,000.00), with a contractual
liability endorsement covering those of Tenant's indemnity obligations under
this Lease customarily covered by such policies.
2. All Risks of Physical Loss Insurance written at replacement
cost value and with a replacement cost endorsement covering all of Tenant's
Property in the Premises.
3. Workers' Compensation Insurance as required by the state of
Washington and in amounts as may be required by applicable statute, and
Employers' Liability Coverage of One Million Dollars ($1,000,000.00) per
occurrence.
B. Except for items for which Landlord is responsible under Exhibit
D, the Work Letter Agreement, before any repairs, alterations, additions,
improvements, or construction are undertaken by or on behalf of Tenant, Tenant
shall carry and maintain, at its expense, or Tenant shall require any contractor
performing work on the Premises to carry and maintain, at no expense to
Landlord, in addition to Workers' Compensation Insurance as required by the
jurisdiction in which the Building is located, All Risk Builder's Risk Insurance
in the amount of the replacement cost of any alterations, additions or
improvements (or such other amount reasonably required by Landlord) and
Commercial General Liability Insurance
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(including, without limitation, Contractor's Liability coverage, Contractual
Liability coverage and Completed Operations coverage,) written on an occurrence
basis with a minimum combined single limit of Two Million Dollars
($2,000,000.00) and adding "the named Landlord hereunder (or any successor
thereto) and its respective members, principals, beneficiaries, partners,
officers, directors, employees, agents and any Mortgagee(s)", and other
designees of Landlord as the interest of such designees shall appear, as
additional insureds (collectively referred to as the "Additional Insureds").
C. Any company writing any insurance which Tenant is required to
maintain or cause to be maintained pursuant to the terms of this Lease (all such
insurance as well as any other insurance pertaining to the Premises or the
operation of Tenant's business therein being referred to as "Tenant's
Insurance"), as well as the form of such insurance, shall at all times be
subject to Landlord's reasonable approval, and each such insurance company shall
have an A.M. Best rating of "A-" or better and shall be licensed and qualified
to do business in the state in which the Premises is located. All policies
evidencing Tenant's Insurance (except for Workers' Compensation Insurance) shall
specify Tenant as named insured and the Additional Insureds as additional
insureds. Provided that the coverage afforded Landlord and any designees of
Landlord shall not be reduced or otherwise adversely affected, all of Tenant's
Insurance may be carried under a blanket policy covering the Premises and any
other of Tenant's locations. All policies of Tenant's Insurance shall contain
endorsements that the insurer(s) will give to Landlord and its designees at
least thirty (30) days' advance written notice of any cancellation, termination
or lapse of said insurance. Tenant shall be solely responsible for payment of
premiums for all of Tenant's Insurance. Tenant shall deliver to Landlord at
least fifteen (15) days prior to the time Tenant's Insurance is first required
to be carried by Tenant, and upon renewals at least fifteen (15) days prior to
the expiration of any such insurance coverage, a certificate of insurance of all
policies procured by Tenant in compliance with its obligations under this Lease.
The limits of Tenant's Insurance shall in no event limit Tenant's liability
under this Lease.
D. Tenant shall not do or fail to do anything in, upon or about the
Premises which will: (1) violate the terms of any of Landlord's insurance
policies; (2) prevent Landlord from obtaining policies of insurance acceptable
to Landlord or any Mortgagees; or (3) result in an increase in the rate of any
insurance on the Premises, the Building, any other property of Landlord or of
others within the Building. In the event of the occurrence of any of the events
set forth in this Section, Tenant shall pay Landlord upon demand, as Additional
Base Rental, the cost of the amount of any increase in any such insurance
premium, provided that the acceptance by Landlord of such payment shall not be
construed to be a waiver of any rights by Landlord in connection with a default
by Tenant under the Lease. If Tenant fails to
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obtain the insurance coverage required by this Lease, Landlord may, at its
option, obtain such insurance for Tenant, and Tenant shall pay, as Additional
Base Rental, the cost of all premiums thereon and all of Landlord's costs
associated therewith.
ARTICLE 20: SUBROGATION
Notwithstanding anything set forth in this Lease to the contrary, Landlord
and Tenant do hereby waive any and all right of recovery, claim, action or cause
of action against the other, their respective principals, beneficiaries,
partners, officers, directors, agents, and employees, for any loss or damage
that may occur to Landlord or Tenant or any party claiming by, through or under
Landlord or Tenant, as the case may be, with respect to their respective
property, the Building, the Property or the Premises or any addition or
improvements thereto, or any contents therein, by reason of fire, the elements
or any other cause, regardless of cause or origin, including the negligence of
Landlord or Tenant, or their respective principals, beneficiaries, partners,
officers, directors, agents and employees, which loss or damage is (or would
have been, had the insurance required by this Lease been carried) covered by
insurance. Since this mutual waiver will preclude the assignment of any such
claim by subrogation (or otherwise) to an insurance company (or any other
person), Landlord and Tenant each agree to give each insurance company which has
issued, or in the future may issue, policies of insurance, with respect to the
items covered by this waiver, written notice of the terms of this mutual waiver,
and to have such insurance policies properly endorsed, if necessary, to prevent
the invalidation of any of the coverage provided by such insurance policies by
reason of such mutual waiver. For the purpose of the foregoing waiver, the
amount of any deductible applicable to any loss or damage shall be deemed
covered by, and recoverable by the insured under the insurance policy to which
such deductible relates. In the event that Tenant is permitted to and self-
insures any risk which would have been covered by the insurance required to be
carried by Tenant pursuant to Article 19 of the Lease, or if Tenant fails to
carry any insurance required to be carried by Tenant pursuant to Article 19 of
this Lease, then all loss or damage to Tenant, its leasehold interest, its
business, its property, the Premises or any additions or improvements thereto or
contents thereof shall be deemed covered by and recoverable by Tenant under
valid and collectible policies of insurance.
ARTICLE 21: LANDLORD'S INSURANCE
Landlord shall procure and maintain commercial general liability insurance
with broad form general liability endorsement covering all claims with respect
to injuries or damages to persons or property sustained in, on or about the
Building and the appurtenances thereto, including the sidewalks and alleyways
adjacent thereto, with limits of liability no less than five million dollars
($5,000,000) combined single
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limit per occurrence and in the aggregate. Such limits may be achieved through
the use of umbrella liability insurance otherwise meeting the requirements of
this Article 21.
Landlord will procure and maintain physical damage insurance covering all
real and personal property, excluding property paid for by tenants and not
reimbursed by Landlord or paid for by Landlord for which tenants have reimbursed
Landlord, (but including the Tenant Improvements to the extent paid for by the
Allowance) located on or in, or constituting a part of, the Building in an
amount equal to at least ninety percent (90%) of replacement value of all such
property with a coinsurance waiver. Such insurance shall afford coverage for
damages resulting from (i) perils covered by what is commonly referred to as
"all risk" coverage insurance (but excluding earthquake and flood if, in light
of the costs and deductibles applicable to such coverage in the then current
insurance market, the exclusion of such perils would be considered reasonable),
and (ii) boilers and machinery coverage as appropriate for apparatus located in
the Building.
ARTICLE 22: CASUALTY DAMAGE
If the Premises or any part thereof shall be damaged by fire or other
casualty, Tenant shall give prompt written notice thereof to Landlord. In case
the Building shall be so damaged that in Landlord's reasonable judgment,
substantial alteration or reconstruction of the Building shall be required
(whether or not the Premises has been damaged by such casualty) or in the event
Landlord will not be permitted by applicable law to rebuild the Building in
substantially the same form and area as existed prior to the fire or casualty or
in the event the Premises has been materially damaged and there is less than two
(2) years of the Lease Term remaining on the date of such casualty or in the
event any Mortgagee should require that the insurance proceeds in excess of
$250,000 payable as a result of a casualty be applied to the payment of the
mortgage debt or in the event of any material uninsured loss to the Building
(meaning an uninsured loss of $250,000 or more, unless Tenant pays for any
uninsured loss in excess of that amount), Landlord may, at its option, terminate
this Lease by notifying Tenant in writing of such termination within ninety (90)
days after the date of such casualty, provided such election to terminate must
be made in good faith and not merely as a means to re-lease the Premises at
rates more favorable than those set forth in this Lease. Such termination shall
be effective as of the date of fire or casualty, with respect to any portion of
the Premises that was rendered untenantable, and the effective date of
termination specified in Landlord's notice, with respect to any portion of the
Premises that remained tenantable. If Landlord does not elect to terminate this
Lease, Landlord shall commence and proceed with reasonable diligence to restore
the Building (provided that Landlord shall not be required to
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restore any unleased premises in the Building) and the Tenant Improvements (but
excluding any improvements, alterations or additions made by Tenant in violation
of this Lease) located within the Premises, if any, which Landlord has insured
to substantially the same condition they were in immediately prior to the
happening of the casualty. Notwithstanding the foregoing, Landlord's obligation
to restore the Building, and the Tenant Improvements, if any, shall not require
Landlord to expend for such repair and restoration work more than the insurance
proceeds actually received by the Landlord as a result of the casualty. Tenant
shall have the right to terminate this Lease if (i) any such restoration of the
Premises is not completed within 180 days after the date of such casualty and
such delays prevent Tenant from occupying the Premises for Tenant's normal
business operations; or (ii) the Premises are damaged within the last two (2)
years of the Lease Term and such damage prevents Tenant from occupying the
Premises for Tenant's normal business operations. When repairs to the Premises
have been completed by Landlord, Tenant shall complete the restoration or
replacement of all Tenant's Property necessary to permit Tenant's reoccupancy of
the Premises, and Tenant shall present Landlord with evidence satisfactory to
Landlord of Tenant's ability to pay such costs prior to Landlord's commencement
of repair and restoration of the Premises. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting in any way from such damage or the repair thereof, except that,
subject to the provisions of the next sentence, Landlord shall allow Tenant a
fair diminution of Rent on a per diem basis during the time and to the extent
any damage to the Premises causes the Premises to be rendered untenantable and
not used by Tenant. If the Premises or any other portion of the Building is
damaged by fire or other casualty resulting from the negligence of Tenant or any
Tenant Related Parties, the Rent hereunder shall not be diminished during any
period during which the Premises, or any portion thereof, is untenantable
(except to the extent Landlord is entitled to be reimbursed by the proceeds of
any rental interruption insurance), and Tenant shall be liable to Landlord for
the cost of the repair and restoration of the Building caused thereby to the
extent such cost and expense is not covered by insurance proceeds. Landlord and
Tenant hereby waive the provisions of any law from time to time in effect during
the Lease Term relating to the effect upon leases of partial or total
destruction of leased property. Landlord and Tenant agree that their respective
rights in the event of any damage to or destruction of the Premises shall be
those specifically set forth herein.
ARTICLE 23: INTENTIONALLY DELETED
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ARTICLE 24: CONDEMNATION
If (a) the whole or any substantial part of the Premises or (b) any portion
of the Building or Property which would leave the remainder of the Building
unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, then Landlord may, at its
option, terminate this Lease effective as of the date the physical taking of
said Premises or said portion of the Building or Property shall occur. If any
taking or condemnation materially impairs Tenant's ability to use the Premises
for Tenant's uses, Tenant may elect to terminate this Lease effective as of the
date of such taking by delivering written notice to Landlord. In the event this
Lease is not terminated, the Rentable Area of the Building, the Rentable Area of
the Premises and Tenant's Pro Rata Share shall be appropriately adjusted. In
addition, Rent for any portion of the Premises so taken or condemned shall be
abated during the unexpired term of this Lease effective when the physical
taking of said portion of the Premises shall occur. All compensation awarded
for any such taking or condemnation, or sale proceeds in lieu thereof, shall be
the property of Landlord, and Tenant shall have no claim thereto, the same being
hereby expressly waived by Tenant, except for any portions of such award or
proceeds which are specifically allocated by the condemning or purchasing party
for the taking of or damage to trade fixtures of Tenant, which Tenant
specifically reserves to itself.
ARTICLE 25: EVENTS OF DEFAULT
The following events shall be deemed to be events of default under this
Lease:
A. Tenant shall fail to pay when due any Base Rental, Additional Base
Rental or other Rent under this Lease and such failure shall continue for three
(3) business days after receipt of written notice from Landlord (hereinafter
sometimes referred to as a "Monetary Default").
B. Any failure by Tenant (other than a Monetary Default) to comply
with any term, provision or covenant of this Lease, including, without
limitation, the rules and regulations, which failure is not cured within thirty
(30) days after receipt of notice of the occurrence of such failure, provided
that if any such failure creates a hazardous condition, such failure must be
cured immediately, and further provided, however, that with respect to any such
non-hazardous default capable of being cured by Tenant which cannot be cured
within thirty (30) days, the default shall not be deemed to be uncured if Tenant
commences to cure within thirty (30) days and for so long as Tenant is
diligently pursuing the cure thereof.
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C. Tenant shall become insolvent, or shall make a transfer in fraud
of creditors, or shall commit an act of bankruptcy or shall make an assignment
for the benefit of creditors, or Tenant shall admit in writing its inability to
pay its debts as they become due.
D. Tenant shall file a petition under any section or chapter of the
United States Bankruptcy Code, as amended, pertaining to bankruptcy, or under
any similar law or statute of the United States or any State thereof, or Tenant
shall be adjudged bankrupt or insolvent in proceedings filed against Tenant
thereunder; or a petition or answer proposing the adjudication of Tenant as a
debtor or its reorganization under any present or future federal or state
bankruptcy or similar law shall be filed in any court and such petition or
answer shall not be discharged or denied within sixty (60) days after the filing
thereof.
E. A receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant or of the Premises or of any of Tenant's Property
located thereon in any proceeding brought by Tenant, or any such receiver or
trustee shall be appointed in any proceeding brought against Tenant and shall
not be discharged within sixty (60) days after such appointment or Tenant shall
consent to or acquiesce in such appointment.
F. The leasehold estate hereunder shall be taken on execution or
other process of law or equity in any action against Tenant.
G. The liquidation, termination, dissolution, forfeiture of right to
do business, or death of Tenant.
ARTICLE 26: REMEDIES
A. Upon the occurrence of any event or events of default under this
Lease, Landlord shall have the option to pursue any one or more of the following
remedies without any notice (except as expressly prescribed in Article 25 above)
or demand whatsoever (and without limiting the generality of the foregoing,
Tenant hereby specifically waives notice and demand for payment of Rent or other
obligations due [except as expressly prescribed in Article 25 above] and waives
any and all other notices or demand requirements imposed by applicable law):
1. Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord. If Tenant fails to surrender the Premises
upon termination of the Lease hereunder, Landlord may without prejudice to any
other remedy which it may have, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying said
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Premises, or any part thereof, and Tenant hereby agrees to pay to Landlord on
demand the amount of all loss and damage, including consequential damage, which
Landlord may suffer by reason of such termination, whether through inability to
relet the Premises on satisfactory terms or otherwise, specifically including
but not limited to all Costs of Reletting (hereinafter defined) and any
deficiency that may arise by reason of any reletting or failure to relet.
2. Enter upon and take possession of the Premises and expel or
remove Tenant or any other person who may be occupying said Premises, or any
part thereof, without having any civil or criminal liability therefor and
without terminating this Lease. Landlord may (but shall be under no obligation
to) relet the Premises or any part thereof for the account of Tenant, in the
name of Tenant or Landlord or otherwise, without notice to Tenant for such term
or terms which may be greater or less than the period which would otherwise have
constituted the balance of the Lease Term and on such conditions (which may
include concessions, free rent and alterations of the Premises) and for such
uses as Landlord in its absolute discretion may determine, and Landlord may
collect and receive any rents payable by reason of such reletting. Tenant agrees
to pay Landlord on demand all reasonable Costs of Reletting and any deficiency
that may arise by reason of such reletting or failure to relet. Landlord shall
not be responsible or liable for any failure to relet the Premises or any part
thereof or for any failure to collect any Rent due upon any such reletting. No
such re-entry or taking of possession of the Premises by Landlord shall be
construed as an election on Landlord's part to terminate this Lease unless a
written notice of such termination is given to Tenant.
3. Enter upon the Premises without having any civil or criminal
liability therefor, and do whatever Tenant is obligated to do under the terms of
this Lease, and Tenant agrees to reimburse Landlord on demand for any reasonable
expense which Landlord may incur in thus affecting compliance with Tenant's
obligations under this Lease together with interest at the lesser of a per annum
rate equal to: (a) the Maximum Rate, or (b) the Prime Rate plus five percent
(5%).
4. In order to regain possession of the Premises and to deny
Tenant access thereto in any instance in which Landlord has terminated this
Lease or Tenant's right to possession, or to limit access to the Premises in
accordance with local law in the event of a default by Tenant, Landlord or its
agent may, at the expense and liability of the Tenant, alter or change any or
all locks or other security devices controlling access to the Premises without
posting or giving notice of any kind to Tenant. Landlord shall have no
obligation to provide Tenant a key or grant Tenant access to the Premises so
long as Tenant is in default under this Lease. Tenant shall not be entitled to
recover possession of the Premises, terminate this Lease, or recover
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any actual, incidental, consequential, punitive, statutory or other damages or
award of attorneys' fees, by reason of Landlord's alteration or change of any
lock or other security device. Landlord may, without notice, remove and either
dispose of or store, at Tenant's expense, any property belonging to Tenant that
remains in the Premises after Landlord has regained possession thereof.
5. Terminate this Lease, in which event, Tenant shall immediately
surrender the Premises to Landlord and pay to Landlord the sum of: (a) all Rent
accrued hereunder through the date of termination, and, upon Landlord's
determination thereof, (b) an amount equal to: the total Rent that Tenant would
have been required to pay for the remainder of the Lease Term discounted to
present value at the Prime Rate then in effect, minus the then present fair
rental value of the Premises for the remainder of the Lease Term, similarly
discounted, after deducting all anticipated Costs of Reletting (as defined
below).
B. For purposes of this Lease, the term "Costs of Reletting" shall
mean all reasonable costs and expenses incurred by Landlord in connection with
the reletting of the Premises, including without limitation, the cost of
cleaning, renovation, repairs, decoration and alteration of the Premises for a
new tenant or tenants, advertisement, marketing, brokerage and legal fees (if
and to the extent permitted by law), the cost of protecting or caring for the
Premises while vacant, the cost of removing and storing any property located on
the Premises, any increase in insurance premiums caused by the vacancy of the
Premises and any other out-of-pocket expenses reasonably incurred by Landlord
including tenant incentives, allowances and inducements.
C. Except as otherwise herein provided, no repossession or re-
entering of the Premises or any part thereof pursuant to Article 26 hereof or
otherwise shall relieve Tenant of its liabilities and obligations hereunder, all
of which shall survive such repossession or re-entering. Notwithstanding any
such repossession or re-entering by reason of the occurrence of an event of
default, Tenant will pay to Landlord the Rent required to be paid by Tenant
pursuant to this Lease.
D. No right or remedy herein conferred upon or reserved to Landlord
is intended to be exclusive of any other right or remedy, and each and every
right and remedy shall be cumulative and in addition to any other right or
remedy given hereunder or now or hereafter existing by agreement, applicable law
or in equity. In addition to other remedies provided in this Lease, Landlord
shall be entitled, to the extent permitted by applicable law, to injunctive
relief, or to a decree compelling performance of any of the covenants,
agreements, conditions or provisions of this Lease, or to any other remedy
allowed to Landlord at law or in equity. Forbearance by Landlord to enforce one
or more of the remedies herein provided
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upon an event of default shall not be deemed or construed to constitute a waiver
of such default.
E. This Article 26 shall be enforceable to the maximum extent such
enforcement is not prohibited by applicable law, and the unenforceability of any
portion thereof shall not thereby render unenforceable any other portion.
ARTICLE 27: LIMITATION OF LIABILITY; GUARANTY
A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE,
THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT
SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING AND ANY PROCEEDS
THEREOF, AND TENANT AGREES TO LOOK SOLELY TO LANDLORD'S INTEREST IN THE BUILDING
AND THE PROCEEDS THEREOF FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST THE
LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD NOR ANY MEMBER, PRINCIPAL,
PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR BENEFICIARY OF LANDLORD SHALL BE
PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. TENANT HEREBY COVENANTS THAT,
PRIOR TO THE FILING OF ANY SUIT FOR AN ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT
SHALL GIVE LANDLORD AND ALL MORTGAGEES WHOM TENANT HAS BEEN NOTIFIED HOLD
MORTGAGES OR DEED OF TRUST LIENS ON THE PROPERTY, BUILDING OR PREMISES NOTICE
AND REASONABLE TIME TO CURE SUCH ALLEGED DEFAULT BY LANDLORD. IN ADDITION,
TENANT ACKNOWLEDGES THAT ANY ENTITY MANAGING THE BUILDING ON BEHALF OF LANDLORD,
OR WHICH EXECUTES THIS LEASE AS AGENT FOR LANDLORD, IS ACTING SOLELY IN ITS
CAPACITY AS AGENT FOR LANDLORD AND SHALL NOT BE LIABLE FOR ANY OBLIGATIONS,
LIABILITIES, LOSSES OR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS LEASE,
ALL OF WHICH ARE EXPRESSLY WAIVED BY TENANT.
B. Notwithstanding anything to the contrary contained in this Section
27 or elsewhere in this Lease, the obligations of Landlord to complete
Landlord's Work and the Initial Tenant Improvements, as provided in Article 3,
and cause the Commencement Date to occur, subject to all other terms and
conditions of this Lease, are hereby guaranteed by Wright Runstad Associates
Limited Partnership, a Washington limited partnership ("Guarantor"), and upon
any transfer described in Section 38.E the obligations of Guarantor shall
continue unmodified and in full force and effect, and the Guarantor shall not be
relieved of any such liabilities or obligations by reason of such transfer.
Upon fulfillment of the above-described
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obligations and expiration of the warranty period in Article 3 above,
Guarantor's obligations hereunder shall terminate.
ARTICLE 28: NO WAIVER
Failure of Landlord to declare any default immediately upon its occurrence,
or delay in taking any action in connection with an event of default shall not
constitute a waiver of such default, nor shall it constitute an estoppel against
Landlord, but Landlord shall have the right to declare the default at any time
and take such action as is lawful or authorized under this Lease. Failure by
Landlord to enforce its rights with respect to any one default shall not
constitute a waiver of its rights with respect to any subsequent default.
Receipt by Landlord of Tenant's keys to the Premises shall not constitute an
acceptance or surrender of the Premises.
ARTICLE 29: EVENT OF BANKRUPTCY
In addition to, and in no way limiting the other remedies set forth herein,
Landlord and Tenant agree that if Tenant ever becomes the subject of a voluntary
or involuntary bankruptcy, reorganization, composition, or other similar type
proceeding under the federal bankruptcy laws, as now enacted or hereinafter
amended, then, to the extent permitted by law:
A. "Adequate protection" of Landlord's interest in the Premises
pursuant to the provisions of Section 361 and 363 (or their successor sections)
of the Bankruptcy Code, 11 U.S.C. Section 101 et seq., (such Bankruptcy Code as
amended from time to time being herein referred to as the "Bankruptcy Code"),
prior to assumption and/or assignment of the Lease by Tenant shall include, but
not be limited to all (or any part) of the following:
1. the continued payment by Tenant of the Base Rental and all
other Rent due and owing hereunder and the performance of all other covenants
and obligations hereunder by Tenant;
2. the furnishing of an additional/new security deposit by Tenant
in the amount of three (3) times the then current monthly Base Rental.
B. "Adequate assurance of future performance" by Tenant and/or any
assignee of Tenant pursuant to Bankruptcy Code Section 365 will include (but not
be limited to) payment of an additional/new Security Deposit in the amount of
three (3) times the then current monthly Base Rental payable hereunder.
C. Any person or entity to which this Lease is assigned pursuant to
the provisions of the Bankruptcy Code, shall be deemed without further act or
deed to
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have assumed all of the obligations of Tenant arising under this Lease on and
after the effective date of such assignment. Any such assignee shall, upon
demand by Landlord, execute and deliver to Landlord an instrument confirming
such assumption of liability.
D. Notwithstanding anything in this Lease to the contrary, all
amounts payable by Tenant to or on behalf of the Landlord under this Lease,
whether or not expressly denominated as "Rent," shall constitute "rent" for the
purposes of Section 502(b)(6) of the Bankruptcy Code.
E. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other considerations
payable or otherwise to be delivered to Landlord (including Base Rentals and
other Rent hereunder), shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the bankruptcy estate of
Tenant. Any and all monies or other considerations constituting Landlord's
property under the preceding sentence not paid or delivered to Landlord shall be
held in trust by Tenant or Tenant's bankruptcy estate for the benefit of
Landlord and shall be promptly paid to or turned over to Landlord.
F. If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or entity who
shall have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to the Tenant, then notice of such proposed offer/assignment, setting
forth: (1) the name and address of such person or entity, (2) all of the terms
and conditions of such offer, and (3) the adequate assurance to be provided
Landlord to assure such person's or entity's future performance under the Lease,
shall be given to Landlord by Tenant no later than twenty (20) days after
receipt by Tenant, but in any event no later than ten (10) days prior to the
date that Tenant shall make application to a court of competent jurisdiction for
authority and approval to enter into such assumption and assignment, and
Landlord shall thereupon have the prior right and option, to be exercised by
notice to Tenant given at any time prior to the effective date of such proposed
assignment, to accept an assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as the bona fide offer made
by such persons or entity, less any brokerage commission which may be payable
out of the consideration to be paid by such person for the assignment of this
Lease.
G. To the extent permitted by law, Landlord and Tenant agree that
this Lease is a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person or entity
other than Tenant within the meaning of Sections 365(c) and 365(e)(2) of the
Bankruptcy Code.
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ARTICLE 30: WAIVER OF JURY TRIAL
Landlord and Tenant hereby waive any 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.
ARTICLE 31: HOLDING OVER
In the event of holding over by Tenant after expiration or other
termination of this Lease or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Articles 25 and 26 hereof, occupancy of the Premises subsequent to such
termination or expiration shall be that of a tenancy at sufferance and in no
event for month-to-month or year-to-year. Tenant shall, throughout the entire
holdover period, be subject to all the terms and provisions of this Lease and
shall pay for its use and occupancy an amount (on a per month basis without
reduction for any partial months during any such holdover) equal to 135% of the
sum of the Base Rental and Additional Base Rental due for the period immediately
preceding such holding over, provided that in no event shall Base Rental and
Additional Base Rental during the holdover period be less than the fair market
rental for the Premises. No holding over by Tenant or payments of money by
Tenant to Landlord after the expiration of the term of this Lease shall be
construed to extend the Lease Term or prevent Landlord from recovery of
immediate possession of the Premises by summary proceedings or otherwise. In
addition to the obligation to pay the amounts set forth above during any such
holdover period, Tenant also shall be liable to Landlord for all damage,
including any consequential damage, which Landlord may suffer by reason of any
holding over by Tenant, and Tenant shall indemnify Landlord against any and all
claims made by any other tenant or prospective tenant against Landlord for delay
by Landlord in delivering possession of the Premises to such other tenant or
prospective tenant.
ARTICLE 32: SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE
Tenant accepts this Lease subject and subordinate to any mortgage, deed of
trust, ground lease or other lien presently existing or hereafter arising upon
the Premises, or upon the Building and/or the Property and to any renewals,
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modifications, refinancings and extensions thereof (any such mortgage, deed of
trust, lease or other lien being hereinafter referred to as a "Mortgage", and
the person or entity having the benefit of same being referred to hereinafter as
a "Mortgagee"), but Tenant agrees that any such Mortgagee shall have the right
at any time to subordinate such Mortgage to this Lease on such terms and subject
to such conditions as such Mortgagee may deem appropriate in its discretion.
This clause shall be self-operative and no further instrument of subordination
shall be required. However, Landlord is hereby irrevocably vested with full
power and authority to subordinate this Lease to any Mortgage, and Tenant agrees
upon demand to execute such further instruments subordinating this Lease,
acknowledging the subordination of this Lease or attorning to the holder of any
such Mortgage as Landlord may request. Notwithstanding the foregoing, any such
subordination by Tenant shall be conditioned upon Tenant's receipt from the
Mortgagee of a nondisturbance agreement on terms reasonably acceptable to
Tenant. Landlord shall also use its commercially reasonably best efforts to
obtain a nondisturbance from any Mortgagee on the Property as of the date this
Lease is signed, if any. In the event that Tenant should fail to execute any
subordination or other agreement required by this Article promptly as requested,
Tenant hereby irrevocably constitutes Landlord as its attorney-in-fact to
execute such instrument in Tenant's name, place and stead, it being agreed that
such power is one coupled with an interest in Landlord and is accordingly
irrevocable. If any person shall succeed to all or part of Landlord's interests
in the Premises whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease or otherwise, and if and as so requested or
required by such successor-in-interest, Tenant shall, without charge, attorn to
such successor-in-interest. Tenant agrees that it will from time to time upon
request by Landlord and, within five (5) days of the date of such request,
execute and deliver to such persons as Landlord shall request an estoppel
certificate or other similar statement in recordable form 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 so modified),
stating the dates to which Rent and other charges payable under this Lease have
been paid, stating that Landlord is not in default hereunder (or if Tenant
alleges a default stating the nature of such alleged default) and further
stating such other matters as Landlord shall reasonably require.
ARTICLE 33: ATTORNEYS' FEES
In the event that Landlord or Tenant should retain counsel and/or institute
any suit against the other for violation of or to enforce any of the covenants
or conditions of this Lease, or should either party institute any suit against
the other for violation of any of the covenants or conditions of this Lease, or
should either party intervene in any suit in which the other is a party to
enforce or protect its interest or rights
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hereunder, the prevailing party in any such suit shall be entitled to all of its
costs, expenses and reasonable fees of its attorney(s) (if and to the extent
permitted by law) in connection therewith.
ARTICLE 34: NOTICE
Whenever any demand, request, approval, consent or notice ("Notice") shall
or may be given to either of the parties by the other, each such Notice shall be
in writing and shall be sent by registered or certified mail with return receipt
requested, or sent by personal delivery or by overnight courier service (such as
Federal Express) at the respective addresses of the parties for notices as set
forth in Section 1(A)(11) of this Lease. Any Notice under this Lease delivered
by registered or certified mail shall be deemed to have been given, delivered,
received and effective on the earlier of (a) the third business day following
the day on which the same shall have been mailed with sufficient postage prepaid
or (b) the delivery date indicated on the return receipt. Notice sent by
overnight courier service shall be deemed given, delivered, received and
effective upon the business day after such notice is delivered to or picked up
by the overnight courier service, and notice by personal delivery shall be
deemed given on the day received. Either party may, at any time, change its
Notice Address by giving the other party Notice stating the change and setting
forth the new address.
ARTICLE 35: LANDLORD'S LIEN
Landlord shall have all statutory lien rights for Rent
ARTICLE 36: EXCEPTED RIGHTS
This Lease does not grant any rights to light or air over or about the
Building, except as provided in Section 38(S). Landlord specifically excepts
and reserves to itself the use of any roofs, the exterior portions of the
Premises, all rights to the land and improvements below the improved floor level
of the Premises, the improvements and air rights above the Premises and the
improvements and air rights located outside the demising walls of the Premises,
and such areas within the Premises as are required for installation of utility
lines and other installations required to serve any occupants of the Building
and the right to maintain and repair the same, and no rights with respect
thereto are conferred upon Tenant unless otherwise specifically provided herein.
Landlord further reserves to itself the right from time to time: (a) to change
the Building's name; (b) to install, fix and maintain signs on the exterior and
interior of the Building; (c) to designate and approve window coverings; (d) to
make any decorations, alterations, additions, improvements to the Building, or
any part thereof (including the Premises) which Landlord shall desire, or deem
necessary for the safety, protection, preservation or improvement of the
Building, or as Landlord may
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be required to do by law, provided that Landlord shall use all reasonable
efforts to minimize interference with Tenant's business operations when
performing such functions; (e) to have access to the Premises to perform its
duties and obligations and to exercise its rights under this Lease; (f) to
retain at all times and to use pass-keys to all locks within and into the
Premises; (g) to approve the weight, size, or location of heavy equipment, or
articles in and about the Premises; (h) to close or restrict access to the
Building at all times other than Normal Business Hours subject to Tenant's right
to admittance at all times under such regulations as Landlord may prescribe from
time to time, or to close (temporarily or permanently) any of the entrances to
the Building; (i) to change the arrangement and/or location of entrances of
passageways, doors and doorways, corridors, elevators, stairs, toilets and
public parts of the Building; (j) if Tenant has vacated the Premises during the
last six (6) months of the Lease Term, to perform additions, alterations and
improvements to the Premises in connection with a reletting or anticipated
reletting thereof without being responsible or liable for the value or
preservation of any then existing improvements to the Premises; and (k) to grant
to anyone the exclusive right to conduct any business or undertaking in the
Building. Landlord, in accordance with Article 15 hereof, shall have the right
to enter the Premises in connection with the exercise of any of the rights set
forth herein and such entry into the Premises and the performance of any work
therein shall not constitute a constructive eviction or entitle Tenant to any
abatement or reduction of Rent by reason thereof.
ARTICLE 37: SURRENDER OF PREMISES
At the expiration or earlier termination of this Lease or Tenant's right of
possession hereunder, Tenant shall remove all Tenant's Property from the
Premises, remove all Required Removables designated by Landlord at the time of
initial consent to Tenant's alterations and quit and surrender the Premises to
Landlord, broom clean, and in good order, condition and repair, ordinary wear
and tear excepted. If Tenant fails to remove any of Tenant's Property within
one (1) day after the termination of this Lease or Tenant's right to possession
hereunder, Landlord, at Tenant's sole cost and expense, shall be entitled to
remove and/or store such Tenant's Property and Landlord shall in no event be
responsible for the value, preservation or safekeeping thereof. Tenant shall
pay Landlord, upon demand, any and all expenses caused by such removal and all
storage charges against such property so long as the same shall be in the
possession of Landlord or under the control of Landlord. In addition, if Tenant
fails to remove any Tenant's Property from the Premises or storage, as the case
may be, within ten (10) days after written notice from Landlord, Landlord, at
its option, may deem all or any part of such Tenant's Property to have been
abandoned by Tenant and title thereof shall immediately pass to Landlord.
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ARTICLE 38: MISCELLANEOUS
A. 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 enforced to the fullest extent permitted by law.
This Lease represents the result of negotiations between Landlord and Tenant,
each of which has been (or has had opportunity to be) represented by counsel of
its own selection, and neither of which has acted under duress or compulsion,
whether legal, economic or otherwise. Consequently, Landlord and Tenant agree
that the language in all parts of the Lease shall in all cases be construed as a
whole according to its fair meaning and neither strictly for nor against
Landlord or Tenant.
B. Landlord agrees that Tenant may record a memorandum of this Lease.
C. This Lease and the rights and obligations of the parties hereto
shall be interpreted, construed, and enforced in accordance with the laws of the
state of Washington.
D. Events of "Force Majeure" shall include strikes, riots, acts of
God, shortages of labor or materials, war, governmental law, regulations or
restrictions and any other cause (other than financial ability) that is beyond
the reasonable control of Landlord. Whenever a period of time is herein
prescribed for the taking of any action by Landlord, Landlord shall not be
liable or responsible for, and there shall be excluded from the computation of
such period of time, any delays due to events of Force Majeure, except as
otherwise set forth in this Lease.
E. Landlord shall have the right to transfer and assign, in whole or
in part, all of its rights and obligations hereunder and in the Building and
Property referred to herein, and in such event and upon such transfer Landlord
shall be released from any further obligations hereunder, and Tenant agrees to
look solely to such successor in interest of Landlord for the performance of
such obligations.
F. Tenant hereby represents to Landlord that it has dealt directly
with and only with the Broker as a broker in connection with this Lease. Tenant
agrees to indemnify and hold Landlord and the Landlord Related Parties harmless
from all claims of any brokers other than the Broker claiming to have
represented Tenant in connection with this Lease. Landlord agrees to indemnify
and hold Tenant and the Tenant Related Parties harmless from all claims of the
Broker and any brokers
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claiming to have represented Landlord in connection with this Lease. Landlord
agrees to pay a brokerage commission to Broker in accordance with the terms of a
written commission agreement between Landlord and Broker.
G. Agency Disclosure. Broderick Group, Inc. represents both Landlord
and Tenant in connection with this Lease. Landlord and Tenant hereby confirm
that they were timely advised of the dual representation, that they consent to
the same, and that they do not expect said broker to disclose to either party
the confidential information of the other party. Landlord shall pay Broderick
Group, Inc. a commission of Four and 50/100 Dollars ($4.50) per rentable square
foot of the Initial Premises, which commission shall be earned and paid one-half
( 1/2) upon execution of this Lease and one-half ( 1/2) upon Tenant's occupancy
of the Premises, provided that no payment shall be made until the start of
construction (as defined in Article 4 above). No commission shall be paid on
any option or expansion space except for expansion space with a Rent
Commencement Date within the first twelve (12) months of the Initial Term.
H. Landlord and Tenant, by their execution of this Lease, each
acknowledge and agree that they have timely received a pamphlet on the law of
real estate agency as required under RCW 18.86.030(1)(f).
I. If there is more than one Tenant, or if the Tenant is comprised of
more than one person or entity, the obligations hereunder imposed upon Tenant
shall be joint and several obligations of all such parties. All notices,
payments, and agreements given or made by, with or to any one of such persons or
entities shall be deemed to have been given or made by, with or to all of them.
J. In the event Tenant is a corporation (including any form of
professional association), partnership (general or limited), or other form of
organization other than an individual (each such entity is individually referred
to herein as an "Organizational Entity"), then Tenant hereby covenants, warrants
and represents: (1) that such individual is duly authorized to execute or
attest and deliver this Lease on behalf of Tenant in accordance with the
organizational documents of Tenant; (2) that this Lease is binding upon Tenant;
(3) that Tenant is duly organized and legally existing in the state of its
organization, and is qualified to do business in the state in which the Premises
is located; and (4) that the execution and delivery of this Lease by Tenant will
not result in any breach of, or constitute a default under any mortgage, deed of
trust, lease, loan, credit agreement, partnership agreement or other contract or
instrument to which Tenant is a party or by which Tenant may be bound. If
Tenant is an Organizational Entity, upon request, Tenant will, prior to the
Commencement Date, deliver to Landlord true and correct copies of all
organizational documents of Tenant, including, without limitation, copies of an
appropriate
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<PAGE>
resolution or consent of Tenant's board of directors or other appropriate
governing body of Tenant authorizing or ratifying the execution and delivery of
this Lease, which resolution or consent will be duly certified to Landlord's
satisfaction by an appropriate individual with authority to certify such
documents, such as the secretary or assistant secretary or the managing general
partner of Tenant.
K. Tenant acknowledges that the financial capability of Tenant to
perform its obligations hereunder is material to Landlord and that Landlord
would not enter into this Lease but for its belief, based on its review of
Tenant's financial statements, that Tenant is capable of performing such
financial obligations. Tenant hereby represents, warrants and certifies to
Landlord that its financial statements previously furnished to Landlord were at
the time given true and correct in all material respects and that there have
been no material subsequent changes thereto as of the date of this Lease. At
any time during the Lease Term, Tenant shall provide Landlord, upon ten (10)
days' prior written notice from Landlord, with a current financial statement and
financial statements of the two (2) years prior to the current financial
statement year and such other information as Landlord or its Mortgagee may
reasonably request in order to create a "business profile" of Tenant and
determine Tenant's ability to fulfill its obligations under this Lease. Such
statement shall be prepared in accordance with generally accepted accounting
principles and, if such is the normal practice of Tenant, shall be audited by an
independent certified public accountant, and shall be delivered subject to
reasonable nondisclosure agreements acceptable to Tenant.
L. Except as expressly otherwise herein provided, with respect to all
required acts of Tenant and Landlord, time is of the essence of this Lease.
This Lease shall create the relationship of Landlord and Tenant between the
parties hereto.
M. This Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord and Tenant and their
respective permitted successors and assigns.
N. Notwithstanding anything to the contrary contained in this Lease,
the expiration of the Lease Term, whether by lapse of time or otherwise, shall
not relieve Tenant from Tenant's obligations accruing prior to the expiration of
the Lease Term, and such obligations shall survive any such expiration or other
termination of the Lease Term.
O. The headings and titles to the paragraphs of this Lease are for
convenience only and shall have no affect upon the construction or
interpretation of any part hereof.
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<PAGE>
P. Landlord has delivered a copy of this Lease to Tenant for Tenant's
review only, and the delivery hereof does not constitute an offer to Tenant or
option. This Lease shall not be effective until an original of this Lease is
executed by both Landlord and Tenant.
Q. Quiet Enjoyment. Tenant shall, and may peacefully have, hold, and
enjoy the Premises, subject to the other terms of this Lease (including, without
limitation, Article 32 hereof), provided that Tenant pays the Rent herein
recited to be paid by Tenant and performs all of Tenant's covenants and
agreements herein contained. This covenant and any and all other covenants of
Landlord shall be binding upon Landlord and its successors only during its or
their respective periods of ownership of the Landlord's interest hereunder.
R. Americans With Disabilities Act. Landlord will insure that at the
Commencement Date the Common Areas of the Building, and the shell and core,
shall be in compliance with the Americans With Disabilities Act. Tenant shall
be responsible for seeing that the Tenant Improvements are designed in
accordance with the Americans With Disabilities Act.
S. Roof Rights. Landlord shall allow Tenant to place one or more
satellite dishes or antennas on the roof of the Building, at market rates, and
subject to such other terms and conditions as Landlord and Tenant may reasonably
agree. The agreed market rates for the first five (5) years of the Lease term
are attached hereto as Exhibit G. Such rates shall thereafter adjust to market.
Tenant shall be solely responsible for obtaining all permits and approvals in
connection with such satellite dishes or antennas, and the costs of such permits
and approvals and the installation costs shall be borne solely by Tenant, which
amount Tenant may charge against the Allowance.
T. Environmental
(1) Hazardous Materials. Tenant shall not (either with or
without negligence) cause or permit the escape, disposal or release of any
biologically or chemically active or other hazardous substances, or materials.
Tenant shall not knowingly allow the storage or use of such substances or
materials in any manner not sanctioned by law or by the highest standards
prevailing in the industry for the storage and use of such substances of
materials, nor allow to be brought into the Project any such materials or
substances except to use for general office purposes and the other permitted
uses in the ordinary course of Tenant's business. Without limitation, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., any applicable state or local laws and the
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regulations adopted under these acts. If any governmental agency or lender (in
its reasonable judgment) shall ever require testing to ascertain whether or not
there has been any release of hazardous materials and such testing indicates
that Tenant has violated any of the terms and conditions of this section, then,
in addition to any other rights and remedies available hereunder or at law or in
equity, the reasonable costs of such testing shall be reimbursed by Tenant to
Landlord upon demand as additional charges. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Premises. In all events, Tenant shall
indemnify Landlord in the manner elsewhere provided in this Lease from any
release of hazardous materials on the Premises occurring while Tenant is in
possession, or elsewhere if caused by Tenant or persons acting under Tenant. The
within covenants shall survive the expiration or earlier termination of the
Lease Term.
(2) Landlord's Representation. To the actual knowledge of
Landlord, after reasonable investigation, neither the Building nor the
underlying land contains any hazardous substances or materials in excess of
levels permitted by applicable laws.
U. Competitors. Landlord shall not lease space in the Building, or
in Buildings 4 or 5 if Tenant then has leased at least 30,000 rentable square
feet in such building, to the following competitors of Tenant (unless the space
leased to such party `exceeds ten thousand (10,000) rentable square feet):
Pivotal, Siebel Systems, Vantive, Aurum, Clarify and SalesLogix. Landlord shall
notify Tenant in writing if Landlord is requested to consent to a sublease to
any of the foregoing entities. Tenant shall be entitled to update such list of
excluded competitors, as reasonable necessary from time to time, and subject to
Landlord's reasonable approval to include other entities whose primary business
is the design, manufacture and sale of software focused in the area of customer
information management.
V. Estoppel Certificates. In addition to the obligations of Tenant
under the Lease, Tenant agrees that it will from time to time upon request of
Landlord, within ten (10) days after the date of such request, execute and
deliver to such persons as Landlord shall request an estoppel certificate or
other similar statement certifying that: i) the Tenant is presently solvent
and free from reorganization and/or bankruptcy and is in occupancy, open, and
conducting business in the Premises, (ii) the operation and use of the Premises
do not involve the generation, treatment, storage, etc. of hazardous substance,
etc. (except as permitted in the Lease), (iii) the rent payable per year, (iv)
the Lease represents the entire agreement between the parties, (v) the
expiration date, (vi) all conditions to be
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performed by the Landlord have been satisfied, (vii) all required contributions
by Landlord to Tenant on account of Tenant improvements have been received,
(viii) no rental has been paid more than one month in advance and no security
has been deposited with Landlord except as otherwise noted and, (ix) the
rentable square footage of the Premises.
ARTICLE 39: ENTIRE AGREEMENT
This Lease Agreement, including the following Exhibits:
Exhibit A - Outline and Location of Premises
Exhibit A-1 - Legal Description of Property
Exhibit B - Rules and Regulations
Exhibit C - Commencement Letter
Exhibit D - Landlord's Work
Exhibit D-1 - Bare Shell and Core
Exhibit D-2 - Building Plans and Specifications
Exhibit E - Signage Criteria
Exhibit F - Building Electrical Specifications
Exhibit G - Roof Rates
constitutes the entire agreement between the parties hereto with respect to the
subject matter of this Lease and supersedes all prior agreements and
understandings between the parties related to the Premises, including all lease
proposals, letters of intent and similar documents. TENANT EXPRESSLY
ACKNOWLEDGES AND AGREES THAT LANDLORD HAS NOT MADE AND IS 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. ALL UNDERSTANDINGS AND
AGREEMENTS HERETOFORE MADE BETWEEN THE PARTIES ARE MERGED IN THIS LEASE WHICH
ALONE FULLY AND COMPLETELY EXPRESSES THE AGREEMENT OF THE PARTIES, NEITHER PARTY
RELYING UPON ANY STATEMENT OR REPRESENTATION NOT EMBODIED IN THIS LEASE. THIS
LEASE MAY BE MODIFIED ONLY BY A WRITTEN AGREEMENT SIGNED BY LANDLORD AND TENANT
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
LANDLORD: WRC SUNSET NORTH LLC
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By: Wright Runstad Associates Limited
Partnership, a Washington limited
partnership, its Member
By: Wright Runstad & Company, a
Washington corporation, its general
partner
By: JON F. NORDBY
------------------------------
Its: Exec. Vice President
-----------------------------
TENANT: ONYX SOFTWARE CORPORATION
By: BRENT FREI
------------------------------
Its: CEO / President
-----------------------------
GUARANTOR: WRIGHT RUNSTAD ASSOCIATES LIMITED
PARTNERSHIP, a Washington limited
partnership, signing solely for the
purposes set forth in Section 27
above
By: WRIGHT RUNSTAD & COMPANY, a
Washington corporation, its general
partner
By: JON F. NORDBY
------------------------------
Its: Exec. Vice President
-----------------------------
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LANDLORD ACKNOWLEDGMENTS
STATE OF WASHINGTON )
) ss:
COUNTY OF KING )
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that Jon F. Nordby , personally
--------------------------------
known to me to be the Exec. V.P. of Wright Runstad & Company, the
-------------------
general partner of Wright Runstad Associates Limited Partnership, a Member of
SUNSET NORTH L.L.C., a Washington limited liability company, the Landlord in the
foregoing instrument, and personally known to me to be the same person whose
name is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that as such officer of said entity being authorized so
to do, he executed the foregoing instrument on behalf of said entity, by
subscribing the name of such entity by himself as such officer, as a free and
voluntary act, and as the free and voluntary act and deed of said entity under
the foregoing instrument for the uses and purposes therein set forth.
GIVEN under my hand and official seal this 19th day of June , 1998
------- ---------- --
Notary Public: JANICE E. BLACKMORE
--------------------
Printed Name: Janice E. Blackmore
--------------------
Residing at: Seattle
----------------------
My Commission expires: 9/9/00
------------
TENANT ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss:
COUNTY OF KING )
On this the 26 day of June , 1998, before me a Notary Public duly
---- ----------
authorized in and for the said County in the State aforesaid to take
acknowledgments personally appeared Brent Frei known to me to be the
---------------------
CEO/President of ONYX SOFTWARE CORPORATION, the Tenant in the
- ---------------------
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<PAGE>
foregoing instrument, and acknowledged that as such officer, being authorized so
to do, (s)he executed the foregoing instrument on behalf of said corporation by
subscribing the name of such corporation by himself/herself as such officer and
caused the corporate seal of said corporation to be affixed thereto, as a free
and voluntary act, and as the free and voluntary act of said corporation, for
the uses and purposes therein set forth.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
Notary Public: JAMIE WESTLUND
-------------------
Printed Name: Jamie Westlund
--------------------
Residing at: Seattle
---------------------
My Commission expires: 2/4/01
-----------
STATE OF WASHINGTON )
) ss:
COUNTY OF KING )
THIS IS TO CERTIFY that on this 19th day of June , 1998, before me,
------- ----------
the undersigned, a notary public in and for the state of Washington, duly
commissioned and sworn, personally appeared Jon F. Nordby , to me
--------------------------
known to be the Exec. V.P. of WRIGHT RUNSTAD & COMPANY, the
---------------------
corporation that executed the within and foregoing instrument on behalf of and
as general partner for WRIGHT RUNSTAD ASSOCIATES LIMITED PARTNERSHIP, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation and limited partnership respectively for the uses and purposes
therein mentioned, and on oath stated that they were authorized to execute said
instrument.
WITNESS my hand and official seal the day and year in this certificate
first above written.
Signature JANICE E. BLACKMORE
-------------------------------
Printed Name: Janice E. Blackmore
---------------------------
Notary Public for the state of Washington
residing at Seattle
-----------------------------
My appointment expires 9/9/00
------------------
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EXHIBIT 10.3
SUBLEASE AGREEMENT
THIS SUBLEASE is made as of March 6 , 1996 by and between WWC Holding Co.,
---
Inc., a Delaware corporation ("Sublandlord"), and ONYX Software Corporation, a
Washington corporation ("Subtenant").
Sublandlord, as the successor to Markets Cellular Limited Partnership, a
Delaware limited partnership, is the tenant under that certain lease agreement
dated May 1, 1994 with WRC Properties, Inc., a Delaware corporation, as landlord
("Landlord") (the "Master Lease"), for space (the "Master Space") located in the
building (the "Building") described below:
Name of Building: Ridgewood Corporate Square
Address: 330 120th Avenue N.E.
City, State and Zip Code: Bellevue, Washington 98005
The common areas and Building areas other than the Premises collectively
are referred to as the "Property." A copy of the Master Lease is attached as
Exhibit A.
In consideration of the covenants and promises contained in this Sublease,
the parties agree as follows:
1. PREMISES
1.1 SUBLEASE OF PREMISES
Sublandlord agrees to sublease to Subtenant, and Subtenant agrees to
sublease from Sublandlord, that portion of the Master Space shown in Exhibit B,
consisting of an aggregate of approximately 15,664 rentable square feet of the
second floor of the Building (the "Premises") as follows:
1.1.1 9,658 rentable square feet of the Premises (the "Initial
Premises"), commencing on March 15, 1996; and
1.1.2 the remaining 6,006 rentable square feet of the Premises (the
"Remaining Premises"), commencing on September 1, 1996.
The Initial Premises and the Remaining Premises are depicted in Exhibit B.
In addition to use of the Premises, Subtenant shall have rights of ingress and
egress to
<PAGE>
the Premises and use of common areas of the Building, on such conditions and at
such times as permitted under the Master Lease.
1.2 ACCESS TO THE PREMISES
1.2.1 Sublandlord shall use good faith efforts to provide Subtenant
with access to the Initial Premises on or before March 8, 1996 to install
phones, furniture, telecommunications cables and other equipment. For each day
after March 8, 1996 that Sublandlord has not vacated the Initial Premises and
Subtenant has not been provided access to the Initial Premises for its
installation activities, one day shall be added to the date upon which Subtenant
must commence to pay rent as provided in Section 3.1. In addition, if
-----------
Sublandlord has not vacated the Initial Premises and if Subtenant has not been
provided access to the Initial Premises on or before March 15, 1996, Subtenant
may terminate this Sublease.
1.2.2 Sublandlord shall vacate the Remaining Premises and Subtenant
shall have access to the Remaining Premises no later than July 4, 1996 to
complete the Subtenant Improvements set forth in Section 5.1 below. For each day
-----------
after July 4, 1996 that Subtenant is not provided such access to the remaining
space, one day shall be added to the date upon which Subtenant must commence to
pay the increased rent set forth in Section 3.1.3 below.
-------------
1.2.3 Sublandlord shall use its best efforts to provide Subtenant
with access to the Remaining Premises on or before August 19, 1996 to install
phones, furniture, telecommunications cables and other equipment on the
Remaining Premises. For each day after August 19, 1996 that Subtenant has not
been provided access to the Remaining Premises for its installation activities,
one day shall be added to the date upon which Subtenant must commence to pay the
increased rent as provided in Section 3.1.3 below. Notwithstanding the
-------------
foregoing, upon any installation and use of phones in or occupation of the
Remaining Premises, excluding the break room and the training room, by one or
more employees, whether on a part-time or full-time basis, Subtenant shall
immediately begin paying rent with respect to the Remaining Premises in the
amount set forth in Section 3.1.3 below.
-------------
1.2.4 Subtenant shall have unrestricted access to and the right to
exclusive use of (a) the break room in the Remaining Premises no later than June
1, 1996 and (b) the training room in the Remaining Premises no later than May 1,
1996. Subtenant will have nonexclusive access to the breakroom in common with
Sublandlord beginning May 1, 1996. Unrestricted access shall mean access 24
hours per day, 7 days per week. Subtenant shall not be required to pay any
additional rent for use of the breakroom and training room.
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<PAGE>
1.2.5 Sublandlord and Subtenant shall share access to and use of the
existing phone room, provided that Sublandlord and Subtenant (a) determine that
--------
such sharing of access and use is reasonably possible, and (b) reach a mutually
acceptable written agreement of the terms and conditions of such sharing.
1.3 EXISTING FURNITURE
Sublandlord will remove cubicles C2-89 through C2-100. Except as provided
in the preceding sentence, Sublandlord agrees that the cubicles, cubicle
partitions, cubicle desktops and accompanying cabinetry and chairs in the
cubicles (the "Existing Furniture") currently within the Initial Premises shall
remain in the Initial Premises and shall become the property of Subtenant at the
commencement of this Sublease. Subtenant agrees to advise Sublandlord in writing
on or before June 15, 1996 whether the Existing Furniture in the Remaining
Premises must remain in the Remaining Premises and become the property of
Subtenant as of September 1, 1996, or whether such Existing Furniture must be
removed by Sublandlord as provided in Section 5.2.1 below.
-------------
Any Existing Furniture which becomes the property of Subtenant in
accordance with this Section 1.3 must be removed by Subtenant at the expiration
-----------
of this Sublease to the extent Landlord requires removal of such Existing
Furniture in accordance with the terms of the Master Lease.
2. TERM
This Lease shall commence on March 15, 1996 and shall terminate June 30,
1999 (the "Term").
3. RENT
3.1 MONTHLY RENT
Subject to the provisions of Section 1.2 above, Subtenant agrees to pay
-----------
Sublandlord annual rent, calculated at $16.65 per rentable square foot per year,
payable in monthly installments (the "Monthly Rent") as set forth below:
3.1.1 $6,700.24 for the period from March 15, 1996 through March 31,
1996;
3.1.2 $13,400.48 per month for the period from April 1, 1996 through
August 31, 1996; and
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<PAGE>
3.1.3 $21,733.80 per month for the period from September 1, 1996
through June 30, 1999.
Monthly Rent shall be payable in advance on the first day of each month without
any prior demand and without any deduction or offset except as expressly
provided in this Sublease. Monthly Rent for any partial month shall be prorated
based upon the number of days in the month. Upon execution of this Sublease,
Subtenant shall pay to Pacific Real Estate Partners by delivery of good funds
the sum of Thirteen Thousand Four Hundred and 48/100 Dollars ($13,400.48) to be
paid to Sublandlord immediately upon satisfaction or waiver of the conditions
set forth in Section 40 below, which sum shall be applied to the initial rent
payable under this Sublease. The parties anticipate that application of this
prepaid rent will cover rent for the remainder of the month of March and the
first part of April, and the payment due April 1, 1996 will be a partial payment
for the remaining rent for the month of April.
3.2 ADDITIONAL RENT
Beginning on January 1, 1997, in addition to paying the Monthly Rent
specified in Section 3.1 above, Subtenant shall pay "Subtenant's Share" of all
-----------
increases in the annual "Expenses" and Tenant's Electrical Charge (each as
defined in Section 4(c) of the Master Lease) allocated to Sublandlord under the
------------
Master Lease above, respectively, the amount of Expenses for the Base Year and
Tenant's Electrical Charge for the Base Year. The Base Year is calendar year
1996. "Subtenant's Share" shall mean sixty-six and seven-tenths percent (66.7%),
based upon the ratio of the number of rentable square feet of the Sublease
Premises to the total number of rentable square feet subject to the Master Lease
(i.e. 15,664 rentable square feet divided by 23,468 rentable square feet). Such
payments by Subtenant, together with any and all other amounts payable by
Subtenant to Sublandlord pursuant to the terms of this Sublease, are hereinafter
referred to as the "Additional Rent." The calculation, payment and
reconciliation of the Additional Rent payments by Subtenant and Sublandlord
shall be made in the same manner as between Landlord and Tenant under Section
-------
4(c) of the Master Lease. Sublandlord agrees to provide Subtenant with full and
- ----
complete copies of all statements and correspondence provided by Landlord with
respect to the determination of Expenses no later than 5 days after
Sublandlord's receipt thereof from Landlord. At the request (and cost) of
Subtenant, Sublandlord agrees to exercise its right to contest Landlord's
determination of Expenses as provided in the Master Lease.
If either Sublandlord or Subtenant require extraordinary electrical use
with respect to the portion of the Master Space occupied by it, the parties
agree to allocate the amount of the increase in Tenant's Electrical Charge over
the Base Year based upon the estimated electrical use of Sublandlord and
Subtenant.
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<PAGE>
Any and all sums Subtenant is obligated to pay under the terms of this
Sublease shall be construed as rent obligations in addition to the Monthly Rent
set forth in this Sublease. In addition, such additional rent shall include a
service charge of Twenty-Five Dollars ($25.00) for each of Subtenant's
dishonored checks returned by the institution on which said checks are drawn.
If, at any time during the term of this Sublease, Subtenant has tendered payment
by check and Subtenant's bank has returned more than one such payment for any
reason, including insufficient funds Sublandlord may, at its option, require
that all future payments be made by cashier's check.
4. SECURITY DEPOSIT
Upon execution of this Sublease, Subtenant shall deposit the sum of Twenty-
One Thousand Seven Hundred Thirty-Three and 80/100 Dollars ($21,733.80) by
delivery of good funds to Pacific Real Estate Partners, which amount shall be
paid to Sublandlord immediately upon satisfaction or waiver of the conditions
set forth in Section 40 below, and shall be held by Sublandlord as a "Security
Deposit" for Subtenant's performance of all of the terms, covenants and
conditions of this Sublease. If Subtenant defaults under any provision of this
Sublease, Sublandlord may (but shall not be required to) use, apply or retain
all or any part of this Security Deposit for the payment of any amount
Sublandlord may spend by reason of Subtenant's default or to compensate
Sublandlord for any loss or damage Sublandlord may suffer because of Subtenant's
default. If any portion of the Security Deposit is so used or applied, Subtenant
shall, within ten (10) days after written demand, deposit cash with Sublandlord
in an amount sufficient to restore the Security Deposit to its original amount.
Sublandlord is not required to keep the Security Deposit separate from its
general funds, and Subtenant is not entitled to interest on the Security
Deposit. If Subtenant performs each of its obligations under this Sublease, the
Security Deposit, or any balance thereof, shall be applied by Sublandlord to the
Monthly Rent due for the last month of the Term.
5. ALTERATIONS
5.1 SUBTENANT IMPROVEMENTS
Subtenant may undertake the build out of private offices in the Premises,
subject to the terms and conditions set forth in the attached Exhibit C.
Subtenant may also install telephone and telecommunication cables as provided in
Section 1.2 above. Otherwise, Subtenant shall not make any improvements in or
- -----------
alterations or additions to the Premises without first obtaining Sublandlord's
written consent, and, if required under the Master Lease, the Landlord's
consent. Sublandlord shall not unreasonably withhold, condition or delay its
consent, and once Sublandlord has provided such consent, Sublandlord will
cooperate with Subtenant to obtain Landlord's consent (if
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<PAGE>
required). All such improvements, alterations and additions shall be at the sole
cost and expense of Subtenant and, except for Subtenant's trade fixtures,
furniture and equipment, shall become the property of Sublandlord and shall
remain in and be surrendered with the Premises at the termination of this
Sublease. However, Sublandlord, may require Subtenant to remove from the
Premises any or all improvements, fixtures, alterations or additions upon the
termination of the Sublease if Landlord requires the removal of such items in
accordance with the Master Lease and Subtenant shall promptly do so and shall
repair all damages occasioned by such removal and return the Premises to their
original condition at the commencement of this Sublease, all at Subtenant's sole
cost and expense.
All improvements, alterations and additions undertaken by Subtenant shall
be performed by a contractor approved in advance by Sublandlord, according to
plans approved in advance by Sublandlord. Subtenant shall cause all work to be
done in a good and workmanlike manner using materials equal to or better than
those used in the construction of the Premises and shall comply with or cause
compliance with the Master Lease and with all laws and with any direction given
by any public officer pursuant to law, including, without limitation, Title III
of the Americans with Disabilities Act of 1990 ("ADA"), as the same are in
effect on the date hereof and may be hereafter modified, amended or
supplemented. During construction, Subtenant or its general contractor shall
procure and maintain in effect all insurance coverages required under the Master
Lease and any additional insurance coverage reasonably required by Sublandlord
and customary for similar tenant improvement projects.
5.2 SUBLANDLORD IMPROVEMENTS
Sublandlord shall undertake the following improvements and alterations:
5.2.1 unless Subtenant elects to retain the Existing Furniture in the
Remaining Premises as provided in Section 1.3 above, removal of all Existing
Furniture in the Remaining Premises, prior to Subtenant's commencement of any
Subtenant Improvements in the Remaining Premises;
5.2.2 removal of the existing security system and providing any
necessary patching and painting of the walls due to the removal of the card
readers;
5.2.3 removal, to the extent reasonably possible, of cable and phone
lines which are no longer in use;
5.2.4 professional cleaning of all carpets in the Premises;
-6-
<PAGE>
5.2.5 touch-up painting and patching as is reasonably necessary,
prior to Subtenant's occupancy of the Initial Premises and the Remaining
Premises;
5.2.6 providing suite signage for Subtenant in compliance with
Landlord's rules and regulations for such signage and pursuant to Landlord's
consent. Such signage shall include a full width panel sign on the Building
Monument Name Strip (as defined in the Master Lease), building standard sign in
the lobby of the Building designating the location of the Premises, and a sign
at the top of the stairs on the second floor of the Building designating the
location of Subtenant's reception area, as and to the extent permitted under the
Master Lease, the cost of which shall be a charge against the tenant improvement
allowance; and
5.2.7 Relocating air conditioning ducts to provide additional HVAC
service in areas where Subtenant expects to install the "servers" for its
computer system.
With respect to the improvements to be provided by Sublandlord under
Sections 5.2.4, 5.2.5, 5.2.6 and 5.2.7, the aggregate expense to be incurred by
- --------------- ----- ----- -----
Sublandlord to complete such work shall not exceed $5,000. If Sublandlord
reasonably believes that the cost to complete such work will exceed $5,000,
Sublandlord shall so notify Subtenant, and Subtenant shall have the option to
(i) require Sublandlord to complete the work, in which event Subtenant shall
promptly reimburse Sublandlord for the costs to complete such work that exceed
$5,000, or (ii) require Sublandlord to discontinue such work. If all or any
portion of the $5,000 remains unused, Subtenant may apply the unused portion as
a credit against rent.
Sublandlord shall complete the work identified in Sections 5.2.2, 5.2.3,
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5.2.4, 5.2.5 and 5.2.7 as it applies to the Initial Premises on or before March
- ----- ------- -----
11, 1996. Sublandlord shall complete the work set forth in Sections 5.2.4,
--------------
5.2.5, 5.2.6 and 5.2.7 as it applies to the Remaining Premises so as to
- ----- ----- -----
coordinate the same with the reasonable scheduling requirements of Subtenant. In
this respect, Subtenant may elect to defer the professional carpet cleaning
within the Remaining Premises until after Subtenant has completed its
anticipated improvements.
6. CONDITION OF PREMISES
Subtenant has thoroughly inspected the Premises and accepts them in their
present condition, AS IS WITH ALL FAULTS, subject, however, to the work to be
performed by Sublandlord in accordance with Section 5.2 above. Subtenant
-----------
acknowledges that neither Sublandlord nor any agent of Sublandlord has made any
representation as to the condition of the Premises or their suitability for the
conduct of Subtenant's business. Subtenant and Sublandlord expressly agree that
there are and
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shall be no implied warranties of merchantability, habitability, fitness for a
particular purpose or any other kind arising out of this Sublease, and there are
no warranties that extend beyond those expressly set forth in this Sublease.
Sublandlord agrees to deliver the Premises (including the Remaining
Premises) to Subtenant in substantially the same condition as existed on the
date of this Sublease, subject to the improvements referenced in Section 5
above. Sublandlord at its sole cost and expense shall repair any material damage
to the Premises (including the Remaining Premises) caused by Sublandlord's use
or vacation of the Premises prior to the date such Premises are delivered to
Subtenant.
7. LANDLORD'S SERVICES
Under the Master Lease Landlord is obligated to provide Sublandlord with
certain operating services, maintenance and repairs (collectively, "Landlord's
Services"). To the extent Landlord's Services apply to the Premises, Subtenant
shall have the benefit of such services. Sublandlord has no obligation to
furnish any of Landlord's Services and will not be liable for any disruption or
failure of such services. Upon receipt of written complaint from Subtenant,
Sublandlord shall make demand upon Landlord to take all appropriate action for
the correction of any defect, inadequacy or insufficiency in Landlord's
provision of Landlord's Services. If necessary, Sublandlord shall enforce its
rights under the Master Lease to Landlord's Services for Subtenant's benefit by
litigation, in which event Subtenant shall reimburse Sublandlord for the costs
and expenses of such enforcement to the extent such costs and expenses are not
recovered from Landlord.
8. SUBTENANT'S AND SUBLANDLORD'S MAINTENANCE AND REPAIRS
8.1 MAINTENANCE OF PREMISES
Subtenant shall, at its expense, maintain the Premises (including, without
limitation, all improvements to the Premises) in the condition required by the
Master Lease.
8.2 REPAIR OF BUILDING AND COMMON AREAS
To the extent repairs are not paid for from Landlord's insurance, the costs
of repair will be paid by Subtenant for any repairs conducted in the Premises
caused by the acts or omissions of Subtenant, and for any repairs conducted in
the Property to the extent the damage was caused by Subtenant or an employee,
guest, or agent of Subtenant.
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9. USE
Subtenant shall use the Premises only for the purposes permitted under the
Master Lease and for no other purposes whatsoever. Subtenant shall not do or
permit anything to be done in or about the Property that will in any way
interfere with the rights of Sublandlord or other occupants of the Building, or
injure or annoy them, or use or allow the Property to be used for any improper,
immoral, unlawful or objectionable purpose; nor shall Subtenant cause, maintain
or permit any nuisance in, on or about the Property. Subtenant shall not commit
or suffer to be committed any waste in or about the Property.
10. SIGN RESTRICTION
No sign, picture, advertisement or notice shall be displayed, inscribed,
painted or affixed to any door, wall or woodwork without Sublandlord's and
Landlord's prior consent. Sublandlord will not unreasonably withhold, condition
or delay its consent.
11. LOCKS
With the prior consent of the Landlord under the Master Lease, Subtenant
shall be permitted to install a card access or other security system for the
Premises. Sublandlord shall provide or cause Landlord to provide to Subtenant
keys or access cards for each of Subtenant's employees to permit such employees
to access the Building on weekends, holidays and after hours as and to the
extent the service is allowed under the Master Lease. Subtenant shall be
responsible for paying all charges of Landlord in connection with issuing keys
or access cards. At the expiration of this Sublease, Subtenant at its cost shall
remove any access card or other security system installed for the Premises and
return to Sublandlord all keys or access cards to the Building.
12. DEFAULTS
Any of the following occurrences shall constitute a default by Subtenant:
12.1 FAILURE TO PAY MONEY WHEN DUE
If Subtenant fails to make any payment of rent, additional security deposit
or any other payment required to be made by Subtenant hereunder, as and when
due, within three (3) business days after written notice from Sublandlord.
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12.2 OTHER BREACHES
If Subtenant fails to observe or perform any other provision of this
Sublease, including compliance with Landlord's Rules and Regulations, within
thirty (30) days after written notice from Sublandlord. The 30-day grace period
shall not apply to Subtenant's breach of its obligations to maintain insurance
coverages under Section 5 and Section 14.
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13. REMEDIES
If Subtenant commits a default under this Sublease, Sublandlord may do any
one or more of the following, in addition to pursuing its remedies under law:
13.1 cure the default and charge the costs to Subtenant, in which
case Subtenant shall pay such costs as additional rent promptly on demand,
together with interest thereon at the rate of 14% per year or the highest rate
permitted by law, whichever is less;
13.2 terminate this Sublease;
13.3 enter and take possession of the Premises and remove Subtenant
and all other persons and any property from the Premises, with process of law;
13.4 hold Subtenant liable for and collect rent and other
indebtedness owed by Subtenant to Sublandlord or rent that would have accrued
during the remainder of the Term had there been no default, less any sums
Sublandlord receives by reletting the Premises; and
13.5 hold Subtenant liable for that part of the following sums paid
by Sublandlord that are attributable to the remainder of the Term:
13.5.1 reasonable broker's fees incurred by Sublandlord in
reletting part or all of the Premises;
13.5.2 the cost of removing and storing Subtenant's property;
13.5.3 the cost of repairs and alterations reasonably necessary to
put the Premises in a condition reasonably acceptable to a new subtenant; and
13.5.4 other necessary and reasonable expenses incurred by
Sublandlord in enforcing its remedies.
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<PAGE>
Sublandlord shall mitigate its damage by making reasonable efforts to relet
the Premises on reasonable terms. Sublandlord may relet for a shorter or longer
period of time than the Term and make reasonably necessary repairs and
alterations. All sums collected from reletting shall be applied first to
Sublandlord's expenses of reletting described in Section 13.5, and then to the
------------
payment of amounts due from Subtenant to Sublandlord under this Sublease.
14. INSURANCE
Subtenant shall, during any period of occupancy, at its sole cost and
expense, keep in full force and effect the insurance required under Section 16
----------
of the Master Lease, including, without limitation, the following insurance:
14.1 LIABILITY INSURANCE
A policy of general commercial liability insurance satisfying each and
every requirement of the Master Lease and naming both Sublandlord and Landlord
as additional insureds. Such liability policy shall (a) insure against any and
all claims or liability arising out of the use or maintenance of the Property
under this Sublease, in an amount not less than $1,000,000.00 per occurrence
covering bodily injury to persons, including death, and damage to property; (b)
insure the hazards of the Property and Subtenant's operations thereon,
independent contractors, contractual liability (covering all indemnity
provisions of this Sublease); and (c) contain a cross-liability provision and a
provision that the insurance provided Sublandlord and Landlord hereunder shall
be primary and non-contributing with any other insurance.
14.2 PROPERTY DAMAGE INSURANCE
A fire and extended coverage insurance policy on the improvements to the
Premises satisfying the requirements of the Master Lease and naming both
Sublandlord and Landlord as additional insureds as their interests may appear.
Such policy shall (a) be a standard form of property insurance insuring against
the perils of fire, extended coverage, vandalism, malicious mischief, special
extended coverage ("All-Risk") and sprinkler leakage, and (b) be upon all
property owned by Subtenant, or for which Subtenant is legally liable, or that
was installed at Subtenant's expense, and that is located at the Premises,
including, but not limited to, furniture, fittings, installations, fixtures, and
any other personal property of Subtenant, in an amount not less than ninety
percent (90%) of the full replacement cost thereof.
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<PAGE>
14.3 GENERAL REQUIREMENTS
All policies shall be written in a form (including amount of deductibles,
if any) satisfactory to Sublandlord and shall be taken out with insurance
companies holding a General Policyholders Rating of "A+" and a Financial Rating
of "XII" or better, as set forth in the most current issue of Best's Insurance
Reports, but in any event not less than the rating required under the Master
Lease.
At the time of execution of this Sublease, Subtenant shall deliver to
Sublandlord copies of policies or certificates complying with this Sublease, in
form satisfactory to Sublandlord and Landlord. No such policy shall be
cancelable or reducible in coverage except after thirty (30) days prior written
notice to Sublandlord and Landlord. If Subtenant fails to obtain, maintain
and/or provide evidence of insurance required hereunder, Sublandlord may obtain
the same and Subtenant shall, upon demand, reimburse Sublandlord for the cost
thereof. No such action by Sublandlord or reimbursement from Subtenant shall be
a waiver of default or other remedies. In no event shall the limits of such
policies be considered as limiting liability of Subtenant under this Sublease.
14.4 SUBLANDLORD INSURANCE
Sublandlord agrees that it will continue to maintain insurance on the
portion of the Master Space not included in the Premises in accordance with the
requirements of the Master Lease. Subtenant shall be named as an additional
insured on the liability insurance policies maintained by Sublandlord under the
Master Lease.
15. WAIVER OF RECOVERY
Sublandlord and Subtenant each release and relieve the other, and waive
their entire rights of recovery for, loss or damage to property located within
or constituting a part or all of the Property to the extent that the loss or
damage is covered by (a) the injured party's insurance, or (b) the insurance the
injured party is required to carry under Section 14 whichever is greater. This
----------
waiver applies whether or not the loss is due to the negligent acts or omissions
of Sublandlord or Subtenant, or their respective officers, directors, employees,
agents, contractors, or invitees. Each of Sublandlord and Subtenant shall have
their respective property insurers endorse the applicable insurance policies to
reflect the foregoing waiver of claims, provided, however, that the endorsement
shall not be required if the applicable policy of insurance permits the named
insured to waive rights of subrogation on a blanket basis, in which case the
blanket waiver shall be acceptable.
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<PAGE>
16. RISK
All of Subtenant's personal property of any kind or description whatsoever
in the Property shall be at Subtenant's sole risk. Sublandlord and Landlord
shall not be liable for any damage done to or loss of such personal property or
damage or loss suffered by the business or occupation of Subtenant arising from
any acts or neglect of co-subtenants or other occupants of the Building, or of
any other persons, or from bursting, overflowing or leaking of water, sewer or
steam pipes, or from the heating or plumbing or sprinkler fixtures, or from
electric wires, or from gas, or odors, or caused in any other manner whatsoever
unless and to the extent the damage is caused by the willful misconduct of
Sublandlord or breach of Sublandlord's obligations under this Sublease.
17. [INTENTIONALLY OMITTED.]
18. INDEMNIFICATION
Subtenant will defend, indemnify and hold harmless Sublandlord and Landlord
from any claim, liability or suit, including attorney fees, on behalf of any
party for any injury or damage occurring in or about the Master Space where such
damage or injury was caused by any act, omission, negligence or intentional act
of Subtenant or by Subtenant's agents, employees, servants, customers, clients,
contractors, or invitees. Sublandlord will defend, indemnify and hold harmless
Subtenant from any claim, liability or suit, including attorney fees, on behalf
of any party for any bodily injury or property damage occurring in or about the
Master Space to the extent the damage or injury was caused by the negligence of
Sublandlord, its agents, employees, servants, customers or invitees.
The indemnification obligations contained in this Section 18 or elsewhere
----------
in this Sublease shall not be limited by any worker's compensation, benefit or
disability laws. For the sole purpose of effectuating the indemnification
obligations under this Sublease and not for the benefit of any third parties,
Sublandlord and Subtenant each hereby waives any immunity that it may have under
the Industrial Insurance Act, Title 51 RCW and similar worker's compensation,
benefit or disability laws.
SUBLANDLORD AND SUBTENANT ACKNOWLEDGE BY THEIR EXECUTION OF THIS SUBLEASE
THAT EACH OF THE INDEMNIFICATION PROVISIONS OF THIS SUBLEASE (SPECIFICALLY
INCLUDING BUT NOT LIMITED TO THOSE RELATING TO WORKER'S COMPENSATION BENEFITS
AND LAWS) WERE SPECIFICALLY NEGOTIATED AND AGREED TO BY SUBLANDLORD AND
SUBTENANT.
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<PAGE>
19. CASUALTY & CONDEMNATION
Under certain circumstances described in the Master Lease, either Landlord
or Sublandlord may terminate the Master Lease if there is a fire or other
casualty damaging the Building or the Premises, or if there is a condemnation
affecting the Building. Any such termination will automatically terminate this
Sublease. Sublandlord's obligation to repair any damage to the Premises is
limited to its obligation to do so under the Master Lease. Rent will abate in
proportion to the loss of use of the Premises caused by fire or other casualty.
In the event of fire or other casualty damaging the Building or the Premises,
Subtenant shall have the right to terminate this Sublease on the same terms and
conditions, and subject to the same standards, as Sublandlord's rights to
terminate as a result of fire or other casualty under the Master Lease.
Subtenant may terminate this Sublease under such circumstances even if
Sublandlord or Landlord do not elect to terminate the Master Lease.
20. MASTER LEASE
20.1 REPRESENTATIONS AND WARRANTIES OF SUBLANDLORD
Sublandlord makes the following representations and warranties to
Subtenant:
(i) The Master Lease attached hereto as Exhibit A is a full, true
and correct copy of the Master Lease in effect between Landlord and Sublandlord,
and there are no other agreements, undertakings or arrangements with respect to
Sublandlord's right to occupy and use the Master Space except as set forth in
the Master Lease.
(ii) The term of the Master Lease expires on June 30, 1999.
(iii) Sublandlord is not in default under the terms of the Master
Lease, and no event has occurred which, with the passage of time or the giving
of notice or both would constitute a default by Sublandlord under the terms of
the Master Lease.
(iv) Sublandlord has received no notice from Landlord alleging a
breach or default under the Master Lease which has not been remedied in full.
20.2 SUBORDINATION
This Sublease is subject and subordinate to the Master Lease, to all ground
and underlying leases, and to all mortgages and deeds of trust which may now or
hereafter affect the Property, and to any and all renewals, modifications,
consolidations, replacements and extensions thereof, provided that Sublandlord
agrees not to effect
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any modification or amendment of the Master Lease that adversely affects the
rights of Subtenant hereunder without the written consent of Subtenant which
consent shall not be unreasonably withheld, conditioned or delayed.
20.3 ADHERENCE TO TERMS OF MASTER LEASE BY SUBTENANT
Subtenant agrees to be bound by and to perform all obligations and
responsibilities of Sublandlord as tenant under the Master Lease as such
obligations and responsibilities may apply to the Premises, including, without
limitation, Section 8 Emissions; Storage, Use & Disposal of Waste; Section 10
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Personal Property Taxes, Section 15 Release and Indemnity, and Section 23
---------- ----------
Subordination. Subtenant shall neither do nor permit anything to be done that
would cause the Master Lease to be terminated or forfeited by reason of any
right of termination or forfeiture reserved or vested in Landlord under the
Master Lease.
20.4 ADHERENCE TO TERMS OF MASTER LEASE BY SUBLANDLORD NOTICE AND CURE
RIGHTS
During the term of this Sublease, Sublandlord agrees to comply in full with
all of the terms and conditions of the Master Lease (i) applicable to the
portion of the Master Space which is not part of the Premises, and (ii) which
are not the express responsibility of Subtenant under this Sublease. Without
limiting the foregoing, Sublandlord agrees to pay all rent and additional rent
under the Master Lease when due.
If at any time Sublandlord receives a notice from Landlord alleging a
breach or default by Sublandlord under the Master Lease, Sublandlord immediately
shall provide a complete copy of such notice to Subtenant. In the event
Sublandlord does not cure such default or provide Subtenant with evidence
satisfactory to Subtenant that Sublandlord will cure such default prior to
expiration of the applicable cure period, Subtenant may (but shall have no
obligation to) cure such default. In the event Subtenant cures the default,
Sublandlord immediately shall reimburse Subtenant for all reasonable costs and
expenses reasonably incurred by Subtenant to cure such default, together with
interest at the rate of 14% per annum from the date of cure by Subtenant to the
date of reimbursement by Sublandlord. In the event Sublandlord does not
reimburse Subtenant for such costs and expenses within 15 days of a written
demand from Subtenant, Subtenant may offset such amount against rent due under
this Sublease. Offset against rent shall be in addition to any other right or
remedy available to Subtenant under this Sublease or under applicable law due to
a default by Sublandlord under the Master Lease.
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21. RIGHT OF ENTRY
Sublandlord shall have the right to enter the Premises as and to the extent
Landlord has such right under the Master Lease.
22. PARKING
Sublandlord shall provide to Subtenant, subject to the terms and conditions
of the Master Lease, 3.5 parking stalls per 1,000 rentable square feet around or
near the Building, including 1 parking stall per 1,000 rentable square feet in
the Building's garage. Subtenant shall have exclusive use of the existing stalls
in the Building's garage which are clearly marked with the name of Sublandlord.
At Subtenant's election, Subtenant may mark such stalls with Subtenant's name at
Subtenant's expense, as and to the extent doing so is permitted under the Master
Lease or with consent of Landlord.
23. RULES AND REGULATIONS
Subtenant shall observe at all times the rules and regulations promulgated
by Landlord. Sublandlord agrees not to consent to or approve any changes to such
rules and regulations without the prior written consent of Subtenant.
24. SUBLETTING
Subtenant shall not sublet the Premises or assign this Sublease or any part
thereof for any period of time, except with the prior written consent of
Sublandlord and, if required under the Master Lease, the prior written consent
of Landlord. The terms, conditions and limitations for subletting as set forth
under the Master Lease Shall also apply to subletting under this Sublease.
25. NOTICE
Any notice regarding a breach of this Sublease or termination thereof shall
be in writing and be sent by certified mail or personally delivered to Western
Wireless Corporation, 2001 N.W. Sammamish Road, Issaquah, WA 98027, Attention:
Alan Bender, General Counsel (in the case of Sublandlord) or to ONYX Software
Corporation, 330 120th Avenue, N.E., Suite 200, Bellevue, WA 98005, Attention:
Fraser Black (in the case of Subtenant). Notice shall be deemed given when so
delivered to Sublandlord or Subtenant, or three (3) days after it is placed,
properly addressed with postage prepaid, in a depository for United States
certified mail. Either party may provide for a different address by notifying
the other party of said change as provided for herein.
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26. ESTOPPEL CERTIFICATE
Upon either party's request, at any time and from time to time, the other
party shall execute and deliver within fifteen (15) business days after receipt
of the request, a written instrument, duly executed:
26.1 certifying that this Sublease has not been amended or modified
and is in full force and effect or, if there has been a modification or
amendment, that this Sublease is in full force and effect as modified or
amended, and stating the modifications or amendments;
26.2 specifying the date to which the rent has been paid;
26.3 stating whether, to the certifying party's best knowledge, the
requesting party in default and, if so, stating the nature of the default; and
26.4 stating the commencement date of the term and whether any option
to extend the term has been exercised.
27. SURRENDER OF PREMISES
Subtenant shall, on the last day of the Term of this Sublease, or upon any
earlier termination, at its sole cost and expense, (a) remove all of its
furniture, furnishings, personal property and equipment, including the Existing
Furniture to the extent required under Section 1.3 above, (b) repair all damages
-----------
occasioned by such removal, and (c) surrender to Sublandlord the Premises and
all improvements to the Premises in the same condition and state of repair as
the commencement of the term of this Sublease, reasonable wear and tear
excepted.
28. HOLDING OVER
If Subtenant holds over after expiration or termination of this Sublease
without written consent of Sublandlord, Subtenant shall pay two times the fixed
Monthly Rent in effect during the last month hereof and all other charges due
hereunder for each month or any part thereof of any such holdover period. No
holding over by Subtenant after the term of this Sublease shall operate to
extend the Sublease term. In the event of any unauthorized holding over,
Subtenant shall indemnify Sublandlord against all costs and claims for damages,
including, without limitation, any claims for damages by any other tenant to
whom Sublandlord or Landlord may have leased all or any part of the Premises.
If Subtenant holds over after expiration of the term of this Sublease, or
after the Sublease is terminated, with Sublandlord's consent, Subtenant shall be
deemed to be
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occupying the Premises under a month-to-month tenancy, and subject to all the
terms, covenants and conditions of this Sublease (other than the term), except
that the minimum monthly rent shall be 125% of the minimum monthly rent for the
last month of the term and the tenancy shall be terminable by either party on
twenty (20) days written notice to the other party, effective as of the last day
of a calendar month.
29. [INTENTIONALLY OMITTED.]
30. RIGHT OF FIRST REFUSAL; EXPANSION
30.1 GRANT OF FIRST RIGHT OF REFUSAL
Sublandlord hereby grants to Subtenant a "Right of First Refusal" on all
space within the Building leased by Sublandlord which is not leased to Subtenant
pursuant to the terms of this Sublease (the "Remaining Space"), which Remaining
Space currently consists of approximately 8,330 square feet of rentable are in
Suites 110 and 101 of the first floor of the Building. If Sublandlord proposes
to lease, or grant a right of possession in the Remaining Space, or any portion
thereof, Sublandlord may do so only after offering to lease such space (the
"Offered Space") to Subtenant on the terms and conditions set forth in this
Section 30. A portion of the Remaining Space is subleased by Sublandlord from
- ----------
Lockwood Lozier Custom Homes Company, Inc. under a Sublease dated June 13, 1995
(the "LLCHC Space"). In connection with the Right of First Refusal as it
applies to the LLCHC Space, Subtenant shall take an assignment of that sublease
upon exercise of the Right of First Refusal as to such space.
30.2 TERM OF FIRST RIGHT OF REFUSAL
The term of this Right of First Refusal shall commence on the effective
date of the Sublease and shall continue until the expiration or earlier
termination of the Sublease.
30.3 NOTICE OF INTENT TO LEASE
Sublandlord shall given written notice to Subtenant of its intent to lease
or grant a right of possession in the Remaining Space ("Sublandlord's Notice").
The Sublandlord's Notice shall set forth the following basic business terms
(collectively the "Basic Business Terms"): (i) the description of the Offered
Space; (ii) the initial lease term, which can be up to June 30, 1999; (iii) the
interior improvements, if any, Sublandlord is willing to construct; (iv) the
method of payment for any such improvements; (v) the minimum rent for the
initial term of the lease and the formula, allowances of operating expenses and
Subtenant's obligation to pay taxes,
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assessments, insurance costs, and the like; (vi) any options(s) to extent the
lease term and the rent to be charged during such extension period; and (vii)
any other business terms Sublandlord elects to specify.
30.4 EXERCISE OF RIGHT OF FIRST REFUSAL
Subtenant may elect to exercise its Right of First Refusal by giving
Sublandlord written notice of such election on or before the fifth (5th) day
following delivery of Sublandlord's Notice. Subtenant's failure to give written
notice of an election to exercise its Right of First Refusal within five (5) day
period shall be deemed a waiver of its Right of First Refusal only with respect
to the Offered Space.
30.5 TERMS OF THE SUBLEASE
Upon Subtenant's exercise of the Right of First Refusal, Sublandlord shall
lease to Subtenant and Subtenant shall lease from Sublandlord the Offered Space
on the terms and conditions of this Sublease, with such modifications as are
necessary to make the Sublease for the Offered Space consistent with the Basic
Business Terms stated in Sublandlord's Notice. The parties also shall execute a
written amendment to this Sublease, incorporating the Basic Business Terms set
forth in Sublandlord's Notice; provided, however, that Sublandlord's refusal to
execute such lease shall not affect Tenant's rights with respect to the Offered
Space.
30.6 SUBLANDLORD'S RIGHT TO LEASE
If Subtenant does not indicate in writing its election to lease the Offered
Space within the time period described in Section 30.4 above, Sublandlord
------------
thereafter shall have the right to lease or grant a right of possession in the
Offered Space; provided (i) the transaction is consummated at a rental rate of
not less than the rental rate specified in the Basic Business Terms and on other
economic terms no more favorable than the other Basic Business Terms set forth
in Sublandlord's Notice; and (ii) the transaction is consummated on or before
the one hundred twentieth (120th) day following delivery of Sublandlord's
Notice. Any lease or grant of a right of occupancy affecting the Offered Space
not meeting the criteria of the prior sentence shall be deemed a new
determination by Sublandlord to lease the Offered Space and may not be
consummated unless Subtenant is again offered the right to lease such Offered
Space in accordance with the provisions of this Right of First Refusal.
30.7 EXPANSION
Sublandlord has not and does not grant any right to expand into the
remainder of the Master Space on the first floor of the Building. However, the
parties agree that
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any expansion by Subtenant into the remainder of the Master Space on the first
floor of the Building other than by exercise of the Subtenant's right of first
refusal in Section 30.1 shall be at a rate of $16.65 per rentable square foot
------------
per year.
31. SUCCESSORS AND ASSIGNS
Subject to the restriction contained in Section 24, the covenants and
----------
conditions contained in this Sublease shall bind the heirs, successors,
executors, administrators and assigns of the parties.
32. BROKERS
Sublandlord and Subtenant each represents and warrants to the other that,
other than Pacific Real Estate Partners, which represents Sublandlord, and CB
Commercial, which represents Subtenant, it did not deal with any broker in
connection with this transaction. Sublandlord will pay to CB Commercial a
commission in the amount of four percent (4%) of Monthly Rent arising from this
Sublease, one-half of which shall be paid upon execution of this Sublease, and
the other one-half of which shall be paid upon Subtenant's occupancy of the
Initial Premises. Sublandlord also shall pay a commission to Pacific Real Estate
Partners in accordance with the separate brokerage agreement between Sublandlord
and Pacific Real Estate Partners.
33. ATTORNEY FEES
If legal proceedings are initiated to enforce any term of this Sublease, to
recover any rent due under this Sublease, for the breach of any covenant or
condition of this Sublease, or for the restitution of the Premises to the
Sublandlord and/or eviction of the Subtenant, the prevailing party shall be
entitled to recover, as an element of its cost of suit and not as damages,
reasonable attorney fees and costs to be fixed by the court.
34. ENTIRE AGREEMENT, MERGER AND WAIVER
This Sublease supersedes and cancels all previous negotiations,
arrangements, offers, agreements or understandings, if any, between the parties.
This Sublease expresses and contains the entire agreement of the parties and
there are no express or implied representations, warranties or agreements
between them, except as contained in this Sublease. This Sublease may not be
modified, amended or supplemented except by a writing signed by both Sublandlord
and Subtenant. No consent given or waiver made by Sublandlord of any breach of
Subtenant of any provision of this Sublease shall operate or be construed in any
manner as a waiver of any subsequent breach of the same or of any other
provision.
-20-
<PAGE>
35. CAPTIONS
The captions of this Sublease are provided for convenience only and shall
not be used in construing its meaning.
36. SEVERABILITY
If any provision of this Sublease is found to be unenforceable, the
remainder of this Sublease shall not be affected thereby.
37. AUTHORITY
Each individual executing this Sublease on behalf of a party represents and
warrants that (a) he or she is duly authorized to execute and deliver this
Sublease on behalf of such party and that this Sublease is binding upon such
party according to its terms, and (b) his or her authorization to execute and
deliver this Sublease was in accordance with a duly adopted resolution of the
party's Board of Directors and Bylaws. Concurrently with execution of this
Sublease, each party shall deliver to the other party reasonable evidence of
authorization.
38. SUBLANDLORD AND SUBTENANT RELATIONSHIP ONLY
Nothing contained in this Sublease shall be construed to create the
relationship of principal and agent, partnership, joint venturer or any
association between Sublandlord and Subtenant.
39. MEMORANDUM OF LEASE
Neither this Sublease nor a memorandum thereof shall be recorded.
40. CONSENT TO SUBLEASE BY LANDLORD
This Sublease is subject to the consent of Landlord. Accordingly, it shall
be a condition precedent of this Sublease that Sublandlord has obtained the
consent of Landlord. Sublandlord agrees to use all reasonable effort and proceed
diligently and in good faith to obtain Landlord's consent. The consent of
Landlord shall be substantially as set forth in the form of consent of Landlord
attached hereto as Exhibit D, or otherwise in a form satisfactory to Subtenant
in its sole discretion. In addition to the consent of Landlord to this Sublease,
this Sublease is also subject to obtaining an estoppel certificate from Landlord
substantially as set forth in Exhibit E attached hereto or otherwise
satisfactory to Subtenant in its sole discretion. Each of the foregoing
conditions shall be deemed satisfied by delivery of a facsimile copy of
Landlord's signature on each instrument.
-21-
<PAGE>
If the conditions set forth in this Section 40 are not satisfied on or
----------
before March 13, 1996. Subtenant shall have the right to cancel this Lease by
delivering to Sublandlord written notice of cancellation by 6:00 p.m., March 18,
1996, failing which the foregoing conditions shall be deemed waived. If
Subtenant timely cancels this Sublease pursuant to the preceding sentence, this
Sublease shall terminate, neither party shall have any further obligation
hereunder, and the initial rental payment and security deposit held by Pacific
Real Estate Partners shall be returned promptly to Subtenant.
41. ENVIRONMENTAL
41.1 Neither Subtenant nor its officers, directors, agents, contractors,
employees or invitees will use, generate, manufacture, produce, store, release,
discharge or dispose of on, under or about the Premises, or off-site the
Premises affecting the Property, or transport to or from the Premises, any
Hazardous Substance except in compliance with Environmental Laws. The term
"Hazardous Substance" means any hazardous or toxic substance, material or waste,
pollutants or contaminants, as defined, listed or regulated now or in the future
by any federal, state or local law, ordinance, code, regulation, rule, order or
decree regulating, relating to or imposing liability or standards of conduct
concerning, any environmental conditions, health or industrial hygiene,
including without limitation, (a) chlorinated solvents, (b) petroleum products
or by-products, (c) asbestos and (d) polychlorinated biphenyls. The term
"Environmental Law" means any federal, state or local law, statute, ordinance,
regulation or order pertaining to health, industrial hygiene, environmental
conditions or hazardous substances or materials including those defined in this
Section as "Hazardous Substances."
41.2 Subtenant shall give prompt written notice to Sublandlord and
Landlord of: any proceeding or inquiry by any governmental authority with
respect to the presence of any Hazardous Substance on the Premises; all claims
made or threatened by any third party against Subtenant or the Premises relating
to any loss or injury resulting from any Hazardous Substance; and Subtenant's
discovery of any occurrence or condition on the Premises that could cause the
Premises or any part thereof to be subject to any restrictions on occupancy, or
use of the Premises under any Environmental Law.
41.3 Subtenant shall protect, indemnify, defend and hold harmless
Sublandlord and Landlord and their directors, partners, officers, employees,
agents, parents, subsidiaries, successors and assigns from any loss, damage,
cost, expense or liability (including reasonable attorneys' fees and costs)
directly or indirectly arising out of or attributable to the use, generation,
manufacture, production, storage, release, discharge, disposal or presence of a
Hazardous Substance on the Premises or off-site
-22-
<PAGE>
of the Premises affecting the Property caused by Subtenant or its directors,
partners, officers, employees, agents, contractors and invitees, including
without limitation, the costs of any required or necessary repairs, cleanup or
detoxification of the Premises and the preparation and implementation of any
closure, remedial or other required plans.
41.4 Sublandlord represents and warrants to Subtenant that Sublandlord has
no knowledge of the presence or suspected presence of Hazardous Substances in
the Premises or in the Building in violation of Environmental Laws.
42. WAIVER OF TRIAL BY JURY
Sublandlord and Subtenant each agree to and they hereby do waive trial by
jury in any action, proceeding or counterclaim brought by either of the parties
hereto against the other on any matters whatsoever arising out of or in any way
connected with this Sublease, the relationship of Sublandlord and Subtenant,
Subtenant's use or occupancy of the Premises and/or any claim of injury or
damage, and any statutory remedy.
43. WAIVER OF CONSEQUENTIAL DAMAGES
Sublandlord and Subtenant waive any claim for consequential damages that
one party may have against the other for breach of or failure to perform or
observe the requirements and obligations created by this Sublease. By way of
illustration only and not by way of limitation, consequential damages shall
include lost profits, lost business opportunities, interference with business or
contractual expectancies, loss of equity in property (whether the Building or
other property), or any speculative or remote damages.
44. HEALTH FACILITY
During the term of this Sublease, Subtenant and its employees shall have
the right to use the health facility in the Building on the same terms and
conditions as Sublandlord can use Building health facility as provided in the
Master Lease.
45. QUIET ENJOYMENT
So long as Subtenant is not in default under this Sublease, Sublandlord
warrants that Subtenant shall have peaceful and quiet use and enjoyment of the
Premises as against any party claiming by or through Sublandlord, subject to the
provisions of this Sublease and the Master Lease.
-23-
<PAGE>
<TABLE>
<CAPTION>
SUBTENANT: SUBLANDLORD:
<S> <C>
ONYX SOFTWARE CORPORATION, a WWC HOLDING CO., INC., a Washington
Washington corporation corporation
By FRASER BLACK By ALAN BENDER
-------------------------------------------- -----------------------------------------
Name: Fraser Black, V.P. Finance & Operations Alan Bender, Senior Vice President
-----------------------------------------
Its: __________________________________________
</TABLE>
-24-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Alan Bender is the
person who appeared before me, and said person acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument and
acknowledged it as the Senior Vice President of WWC HOLDING CO., INC. to be the
free and voluntary act and deed of such party for the uses and purposes
mentioned in the instrument.
Dated: 3-6-96
------
JOHN A. SEETHOFF
--------------------------------------
Notary Public
John A. Seethoff
--------------------------------------
[Printed Name]
My appointment expires 11-1-97
----------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Fraser Black is
------------
the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the V.P. of Finance & Oper. of ONYX SOFTWARE
-----------------------
CORPORATION to be the free and voluntary act and deed of such party for the uses
and purposes mentioned in the instrument.
Dated: 03-06-96
--------
SUSAN C. LEITZKE
--------------------------------------
Notary Public
Susan C. Leitzke
--------------------------------------
[Printed Name]
My appointment expires 08-02-98
----------------
-25-
<PAGE>
FIRST AMENDMENT TO SUBLEASE
THIS FIRST AMENDMENT TO SUBLEASE ("First Amendment") is made and entered
---------------
into as of August __, 1997, by and between WWC Holding Co., Inc. ("Sublandlord")
-----------
and ONYX Software Corporation ("Subtenant").
---------
A. Sublandlord and Subtenant have entered into a Sublease Agreement dated
March 6, 1996 (the "Sublease") for certain space at 330 120th Avenue N.E.,
--------
Bellevue, Washington in Building C, Ridgewood Corporate Square, which subleased
space is more specifically described in the Sublease.
B. Sublandlord and Subtenant contemporaneously are entering into a Second
Amendment to Sublease that concerns the addition of approximately 5,864 rentable
square feet of space to the Sublease referred to therein as Suite C-110.
C. Sublandlord and Subtenant intend, by the execution and delivery of this
First Lease Amendment, to amend and supplement the Lease in certain material
respects. Specifically, Sublandlord and Subtenant intend to increase the size of
the Premises.
D. Unless otherwise noted, all capitalized terms in this First Amendment
have the same meanings as set forth in the Sublease.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements of the parties hereinafter set forth, and for other good and valuable
consideration, the receipt and sufflciency of which is hereby acknowledged, the
parties agree as follows:
1. PREMISES
Sublandlord agrees to lease to Subtenant and Subtenant agrees to sublease
from Sublandlord approximately 2,466 rentable square feet of the first floor of
the Building, commonly known as Suite C-101 containing approximately 1,940
rentable square feet leased by Sublandlord from the Landlord pursuant to the
Master Lease and approximately 526 rentable square feet subleased by Sublandlord
from Lochwood Lozier Custom Homes Company, Inc. pursuant to that certain
Sublease Agreement dated June 13, 1995 (the "Lochwood Sublease"), as depicted on
-----------------
Exhibit A ("Suite C-101"). The Premises are hereby expanded to include Suite C-
-----------
101 effective as of the date Subtenant is given access to Suite C-101 pursuant
to Section 2 of this First Amendment.
2. TERM
The term of this Sublease shall expire on June 30, 1999 with respect to all
of Suite C-101 except for the Lochwood Sublease space for which the term shall
expire on April 30, 1998. Subtenant shall be given access to Suite C-101
promptly following
<PAGE>
Sublandlord vacating the same for the purpose of completing tenant improvements,
cabling, wiring ant other improvements desired by Subtenant, subject, however to
Subtenant having obtained before beginning any such improvements any consent
from Sublandlord Lochwood or Landlord required undo the Sublease, the Master
Lease or the Lochwood Sublease.
3. RENT COMMENCEMENT DATE
Rent on Suite C-101 shall commence to accrue on the earlier of (i) the date
Subtenant's personnel first occupy any portion of Suite C-101, and (ii) the date
that is four (4) weeks following the date on which Subtenant is given access to
Suite C-101 as provided in Section 2 of this First Amendment, provided the
Landlord has given its consent to this Sublease.
4. RENT
4.1 MONTHLY RENT
Monthly Rent for Suite C-101 shall be calculated at the same rate as rent
for the remainder of the Premises, i.e., $16.65 per rentable square foot per
year.
4.2 ADDITIONAL RENT
From and after January 1, 1998 Tenant's Proportionate Share shall be
increased to 100%.
5. CONDITION OF ADDITIONAL SPACE
All of the provisions of Section 6 of the Sublease apply to Suite C-101
except that Sublandlord has no obligation to undertake any improvements to Suite
C-101 and Sublandlord shall remove the existing access card readers and
associated wiring.
6. MASTER LEASE
All references to the Master Lease shall include the "Master Lease"
referred to in the Lochwood Sublease. Sublandlord makes no representations and
warranties with respect to the "Master Lease" referred to in the Lochwood
Sublease.
7. PARKING
Parking shall be made available with respect to Suite C-101 on the same
terms as are provided with respect to the Initial Premises and Remaining
Premises under Section 22 of the Sublease, up to the maximum number of spaces
available under the Master Lease.
<PAGE>
8. RIGHT OF FIRST REFUSAL
This First Amendment is in lieu of the Right of First Refusal contained in
Section 30 of the Sublease.
9. EXISTING FURNITURE SYSTEMS
Sublandlord shall be responsible for removing from Suite C-101 all
furniture and movable partitions when Sublandlord vacates Suite C-101.
10. CONDITIONS
This First Amendment is subject to the consent of Landlord. Accordingly, it
shall be a condition precedent of this First Amendment that Sublandlord has
obtained the consent of Landlord. Sublandlord agrees to use all reasonable
effort and proceed diligently and in good faith to obtain Landlord's consent.
The consent of Landlord shall be substantially as set forth in the form of
consent of Landlord attached to the Sublease as Exhibit D, or otherwise in a
form satisfactory to Subtenant in its sole discretion. The foregoing condition
shall be deemed satisfied by delivery of a facsimile copy of Landlord's
signature on the consent instrument.
11. REMAINING SUBLEASE PROVISIONS UNCHANGED
This First Amendment supersedes any inconsistent provisions of the
Sublease. All other terms, conditions, provisions and covenants of the Sublease
shall remain unchanged and shall continue in full force and effect and shall be
applicable to this First Amendment.
<TABLE>
<CAPTION>
SUBTENANT: SUBLANDLORD:
<S> <C>
ONYX SOFTWARE CORPORATION, a Washington WWC HOLDING CO., INC., a Washington corporation
corporation
By: /s/ FRASER BLACK By:_______________________________________________
----------------------------------------- Alan Bender, Senior Vice President
Name: Fraser Black
----------------------------------------
Its: VP Finance
----------------------------------------
</TABLE>
EXHIBITS
Exhibit A Floor Plan Depicting Additional Space
Exhibit B Lochwood Sublease
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Alan Bender is the
person who appeared before me, and said person acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument and
acknowledged it as the Senior Vice President of WWC HOLDING CO., INC. to be the
free and voluntary act and deed of such party for the uses and purposes
mentioned in the instrument.
Dated: ____________________
_______________________________________
Notary Public
_______________________________________
[Printed Name]
My appointment expires_________________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
____________________ is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she was
authorized to execute the instrument and acknowledged it as the
____________________ of ONYX SOFTWARE CORPORATION to be the free and voluntary
act and deed of such party for the uses and purposes mentioned in the
instrument.
Dated: ____________________
_______________________________________
Notary Public
_______________________________________
[Printed Name]
My appointment expires_________________
<PAGE>
SECOND AMENDMENT TO SUBLEASE
THIS SECOND AMENDMENT TO SUBLEASE ("Second Amendment") is made and entered
----------------
into as of August ____ 1997, by and between WWC Holding Co., Inc.
("Sublandlord") and ONYX Software Corporation ("Subtenant").
----------- ---------
A. Sublandlord and Subtenant have entered into a Sublease Agreement dated
March 6, 1996 (the "Sublease") for certain space at 330 120th Avenue N.E.,
--------
Bellevue, Washington in Building C, Ridgewood Corporate Square, which subleased
space is more specifically described in the Sublease.
B. Sublandlord and Subtenant contemporaneously have entered into a First
Amendment to Sublease that concerns the addition of approximately 1,940 rentable
square feet of space to the Sublease referred to therein as Suite C-101.
C. Sublandlord and Subtenant intend, by the execution and delivery of this
Second Lease Amendment, to amend and supplement the Lease in certain material
respects. Specifically, Sublandlord and Subtenant intend to increase the size
of the Premises.
D. Unless otherwise noted, all capitalized terms in this Second Amendment
have the same meanings as set forth in the Sublease.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements of the parties hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. PREMISES
Sublandlord agrees to lease to Subtenant and Subtenant agrees to sublease
from Sublandlord approximately 5,864 rentable square feet of the first floor of
the Building, commonly known as Suite C-110 and leased by Sublandlord from the
Landlord pursuant to the Master Lease, as depicted on Exhibit A attached ("Suite
C-110"). The Premises are hereby expanded to include Suite C-110 effective as
of the date Subtenant is given access to Suite C-110 pursuant to Section 2 of
this Second Amendment.
2. TERM
The term of this Sublease shall expire on June 30, 1999 with respect to
Suite C-110. Subtenant shall be given access to Suite C-110 promptly following
Sublandlord vacating the same for the purpose of completing tenant improvements,
cabling, wiring and other improvements desired by Subtenant, subject, however to
<PAGE>
Subtenant having obtained before beginning any such improvements any consent
from Sublandlord or Landlord required undo the Sublease or the Master Lease.
3. RENT COMMENCEMENT DATE
Rent on Suite C-110 shall commence to accrue on the earlier of (i) the date
Subtenant's personnel first occupy any portion of Suite C-110, and (ii) the date
that is four (4) weeks following the later of (a) the date Sublandlord receives
the consents described in Section 10.2 and (b) the date on which Subtenant is
given access to Suite C-110 as provided in Section 2 of this Second Amendment,
provided the Landlord has given its consent to this Sublease.
4 RENT
4.1 MONTHLY RENT
Monthly Rent for Suite C-110 shall be calculated at the same rate as rent
for the remainder of the Premises, i.e., $16.65 per rentable square foot per
year.
4.2 ADDITIONAL RENT
From and after January 1, 1998 Tenant's Proportionate Share shall be
increased to 100%.
5. CONDITION OF ADDITIONAL SPACE
All of the provisions of Section 6 of the Sublease apply to Suite C-110
except that Sublandlord has no obligation to undertake any improvements to Suite
C-110 and Sublandlord shall remove the existing access card readers and
associated wiring.
6. [INTENTIONALLY OMITTED.]
7. PARKING
Parking shall be made available with respect to Suite C-110 on the same
terms as are provided with respect to the Initial Premises and Remaining
Premises under Section 22 of the Sublease, up to the maximum number of spaces
available under the Master Lease.
8. RIGHT OF FIRST REFUSAL
This Second Amendment is in lieu of the Right of First Refusal contained in
Section 30 of the Sublease.
-2-
<PAGE>
9. EXISTING FURNITURE SYSTEMS
Sublandlord will leave the existing blue cubicle systems at the Premises
that are outside the computer room and conveys them to Subtenant, AS-IS, without
representation or warranty effective as of the Rent Commencement Date.
Sublandlord shall be responsible for removing from Suite C-110 any other
furniture and movable partitions when Sublandlord vacates Suite C-110.
10. CONDITIONS
10.1 CONSENT OF LANDLORD
This Second Amendment is subject to the consent of Landlord. Accordingly,
it shall be a condition precedent of this Second Amendment that Sublandlord has
obtained the consent of Landlord. Sublandlord agrees to use all reasonable
effort and proceed diligently and in good faith to obtain Landlord's consent.
The consent of Landlord shall be substantially as set forth in the form of
consent of Landlord attached to the Sublease as Exhibit D, or otherwise in a
form satisfactory to Subtenant in its sole discretion. The foregoing condition
shall be deemed satisfied by delivery of a facsimile copy of Landlord's
signature on the consent instrument.
10.2 SUBLANDLORD LEASE FOR SUBSTITUTE SPACE
It shall be a condition to the effectiveness of this Second Amendment that
Sublandlord have entered into a sublease of space at Newport Tower, Bellevue,
Washington and obtained all necessary consents thereto from the owner and Nextel
Communications, Inc., the intervening tenant
10.3 TIME TO COMPLETE
If the condition set forth in Section 10.1 is not satisfied on or before
September 15, 1997, or if the condition set forth in Section 10.2 is not
satisfied or waived by Sublandlord by October 1, 1997, or if Sublandlord has not
vacated Suite C-110 by October 31, 1997, then Subtenant shall have the right to
cancel this Second Amendment by delivering to Sublandlord written notice of
cancellation by 5:00 p.m., seven (7) days after the date specified in this
sentence. If Subtenant timely cancels this Second Amendment pursuant to the
preceding sentence; this Sublease shall terminate, neither party shall have any
further obligation hereunder. Sublandlord will promptly give Subtenant notice
when the consents described in Sections 10.1 and 10.2 have been obtained.
-3-
<PAGE>
11. REMAINING SUBLEASE PROVISIONS UNCHANGED
This Second Amendment supersedes any inconsistent provisions of the
Sublease as modified by the First Amendment. All other terms, conditions,
provisions and covenants of the Sublease shall remain unchanged and shall
continue in full force and effect and shall be applicable to this Second
Amendment.
SUBTENANT: SUBLANDLORD:
ONYX SOFTWARE CORPORATION, a WWC HOLDING CO., INC., a Washington
Washington corporation corporation
By: _______________________________ By: _____________________________________
Name: Fraser Black Alan Bender, Senior Vice President
-----------------------------
Its: VP of Finance
------------------------------
EXHIBITS
Exhibit A Floor Plan Depicting Suite C-110
-4-
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Alan Bender is the
person who appeared before me, and said person acknowledged that he signed this
instrument, on oath stated that he was authorized to execute the instrument and
acknowledged it as the Senior Vice President of WWC HOLDING CO., INC. to be the
Bee and voluntary act and deed of such party for the uses and purposes mentioned
in the instrument.
Dated: ____________________
_____________________________________________
Notary Public
_____________________________________________
[Printed Name]
My appointment expires ______________________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
____________________ is the person who appeared before me, and said person
acknowledged that he/she signed this instrument, on oath stated that he/she Was
authorized to execute the instrument and acknowledged it as the of ONYX SOFTWARE
CORPORATION to be the free and voluntary act and deed of such party for the uses
and purposes mentioned in the instrument.
Dated: ____________________
_____________________________________________
Notary Public
_____________________________________________
[Printed Name]
My appointment expires _________________________
<PAGE>
EXHIBIT 10.4
1. BASIC LEASE TERMS
a. DATE OF LEASE: February 4, 1997
------------------------------------------------------
b. TENANT: ONYX Software Corporation, a Washington corporation
--------------------------------------------------------------
Trade Name: ONYX Software Corporation
----------------------------------------------------------
Address (Leased Premises): 320 - 120th Avenue N.E., Bellevue, WA 98005
-------------------------------------------
Building/Unit: B/100
-------------------------------------------------------
Address (For Notices): 320 - 120th Avenue N.E., Bellevue, WA 98005
-----------------------------------------------
c. LANDLORD: WRC Properties, Inc., a Delaware corporation
------------------------------------------------------------
Address (For Notices): 730 Third Avenue, 7th Floor, New York,
--------------------------------------
New York 10017
----------------------------------------------------------------------
with a copy to Koll Management Services, 22118 20th Avenue SE,
Bothell, WA, 98021, Facsimile: (206) 487-2126; or to such other place
as Landlord may from time to time designate by notice to Tenant.
d. TENANT'S USE OF PREMISES: General office
--------------------------------------------
e. PREMISES AREA: Approximately 3,476 Rentable Square Feet
----------------------------------------
f. PROJECT AREA: Approximately 120,872 Rentable Square Feet
-----------------------------------------
g. TERM OF LEASE: This Lease shall commence on March 15, 1997 or such
--------------
earlier or later date as is provided in Section 3 (the "Commencement
Date"), and shall terminate on June 30, 1999.
h. BASE MONTHLY RENT: $5,504.00
---------------------------------------------------
i. RENT ADJUSTMENT: [Intentionally Omitted]
j. ANNUAL EXPENSE BASE: 1997 Base Year
-------------------------------------------------
k. PREPAID RENT: $0.00
--------------------------------------------------------
l. SECURITY DEPOSIT: $5,504.00
----------------------------------------------------
NON-REFUNDABLE CLEANING FEE: $0.00
-----------------------------------------
m. BROKER(S): Steve Schwartz/Bill Pollard - Pacific Real Estate Partners
-----------------------------------------------------------
Jim Kinerk - CB Commercial Real Estate Partners
-----------------------------------------------------------
n. GUARANTORS N/A
-----------------------------------------------------------
<PAGE>
o. ADDITIONAL SECTIONS:
Additional sections of this lease numbered 29 through 30 are attached
-- --
hereto and made a part hereof. If none, so state in the following
space --.
----
p. ADDITIONAL EXHIBITS:
Additional exhibits lettered A through E are attached hereto and made
- -
a part hereof. If none, so state in the following space --.
----
2. PREMISES/COMMON AREAS/PROJECT
A. PREMISES
Landlord leases to Tenant the premises described in Section 1 and in
Exhibit A (the "Premises"), located in this project described on Exhibit B (the
"Project"). By entry on the Premises, Tenant acknowledges that it has examined
the Premises and accepts the Premises in their present condition, subject to any
additional work Landlord has agreed to do. Tenant represents and warrants that
it agrees with the square footage specified for the Premises and the Project in
Section 1 and will not hereafter challenge such determination and agreement.
B. COMMON AREAS
As used in this Lease, "Common Areas" shall mean all portions of the
Project not leased or demised for lease to specific tenants. During the Lease
Term, Tenant and its licensees, invitees, customers and employees shall have the
non-exclusive right to use the public portions of the Common Areas, including
all parking areas, landscaped areas, entrances, lobbies, elevators, stairs,
corridors, and public restrooms in common with Landlord, other Project tenants
and their respective licensees, invitees, customers and employees. Landlord
shall at all times have exclusive control and management of the Common Areas and
no diminution thereof shall be deemed a constructive or actual eviction or
entitle Tenant to compensation or a reduction or abatement of rent. Landlord in
its discretion may increase, decrease or change the number, locations and
dimensions of any Common Areas and other improvements shown on Exhibit A which
are not within the Premises, provided only that (subject to temporary
construction inconveniences) no decrease or rearrangement may materially disrupt
the use or access to the Premises or materially decrease the availability of
parking.
C. PROJECT
Landlord reserves the right in its sole discretion to modify or alter the
configuration or number of buildings in the Project, provided only that upon
such
-2-
<PAGE>
modification or alteration, the Project Area as set forth in Section l(f)
shall be adjusted to reflect such modification or alteration.
3. TERM
The Commencement Date listed in Section 1 of this Lease represents an
estimate of the Commencement Date. This Lease shall commence on the estimated
Commencement Date if tenant improvement work required of Landlord pursuant to
this Lease ("Landlord's Work") is substantially completed (as that term is used
in the construction industry) by such date, but otherwise the Commencement Date
shall be first to occur of the following events (i) the date on which Landlord
notifies Tenant that Landlord's Work is substantially complete, (ii) the date on
which Tenant takes possession or commences beneficial occupancy of the Premises,
or (iii) if substantial completion of Landlord's Work is delayed due to Tenant's
failure to perform its obligations under this Lease, then the date determined by
Landlord as the date upon which Landlord's Work would have been substantially
completed, but for Tenant's failure to perform. If this Commencement Date is
later than the Section 1 Commencement Date, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom. Notwithstanding the foregoing, if Tenant is not permitted
access to use the Premises for the purposes described in Section l(d) within
thirty (30) days of the Commencement Date, this Lease shall be voidable at the
discretion of the Tenant by notice given by Tenant to Landlord within three (3)
days after expiration of such thirty (30) day period. Landlord shall confirm the
Commencement Date by written notice to Tenant. This Lease shall be for a term
("Lease Term") beginning on the Commencement Date and ending on the Expiration
Date, unless extended or sooner terminated in accordance with the terms of this
Lease. All provisions of this Lease, other than those relating to payment of
Base Monthly Rent and Additional Rent, shall become effective upon the first to
occur of (a) the date that Tenant or its officers, agents, employees or
contractors is first present on the Premises, whether for inspection,
construction, installation or other purposes, or (b) such other date, if any, as
may be specified in an Exhibit hereto.
4. RENT
A. BASE RENT
Tenant shall pay Landlord monthly base rent in the initial amount in
Section 1 which shall be payable monthly in advance on the first day of each and
every calendar month ("Base Monthly Rent") provided, however, the first month's
Base Monthly Rent and Tenant's Share of Expenses is due and payable upon
execution of this Lease. If the term of this Lease contains any rental abatement
period, Tenant hereby agrees
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that if Tenant breaches the Lease and fails to cure such breach within the
applicable cure period, if any, and/or abandons the Premises before the end of
the Lease term, or if Tenant's right to possession is terminated by Landlord
because of Tenant's breach of the Lease, the rental abatement period shall be
deemed extinguished, and there shall be immediately due from Tenant to Landlord,
in addition to any damages otherwise due Landlord under the terms and conditions
of the Lease, Base Monthly Rent prorated for the entirety of the rental
abatement period at the average Base Monthly Rent for the Lease, plus any and
all other charges (such as Expenses) that were abated during such rental
abatement period.
For purposes of Section 467 of the Internal Revenue Code, the parties to
this Lease hereby agree to allocate the stated Rents, provided herein, to the
periods which correspond to the actual Rent payments as provided under the terms
and conditions of this agreement.
B. RENT ADJUSTMENT
1) COST OF LIVING ADJUSTMENT
If Section i.i(l) is initialed, the Base Monthly Rent shall be subject to
increase on each annual anniversary of the first day of the first full calendar
month after the Commencement Date (the "Anniversary Date"). The base for
computing the increase is the Consumer Price Index All Urban Consumers U.S. City
Average (1982-84=100), published by the United States Department of Labor,
Bureau of Labor Statistics ("Index"), which is in effect on the ninetieth (90th)
day preceding the Commencement Date ("Beginning Index"). The Index published and
in effect on the ninetieth (90th) day preceding each Anniversary Date
("Extension Index") is to be used in determining the amount of the increase from
one year to the next. Beginning with the Rent due on and after the first
anniversary the Base Monthly Rent shall be increased to equal the product
achieved by multiplying the full Base Monthly Rent due with respect to the month
immediately preceding such anniversary date by a fraction. On the first
Anniversary Date, the numerator of the fraction will be the Extension Index and
the denominator will be the Beginning Index. On the second and any subsequent
Anniversary Date, the numerator of the fraction will be the current Extension
Index and the denominator will be the Extension Index used to calculate the
previous year's Base Monthly Rental increase. If there is a decline from one
lease year to the next in the Extension Index, the Base Monthly Rent due during
the subsequent lease year shall equal the Base Monthly Rent due during the then
present lease year.
If the Index is changed so that the base year differs from that in effect
when the term commences, the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor
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Statistics. If the Index is discontinued or revised during the term, such other
government index or computation with which it is replaced shall be used in order
to obtain substantially the same result as would be obtained if the Index had
not been discontinued or revised.
2) STEP INCREASE
If Section l.i.(2) is initialed, Base Monthly Rent shall be increased
periodically to the amounts and at the times set forth in Section 1.I.(2).
C. EXPENSES
The purpose of this Section 4.3 is to ensure that Tenant bears a share of
all Expenses related to the use, maintenance, ownership, repair or replacement,
and insurance of the Project. Accordingly, beginning on January 1, 1998, Tenant
shall each month pay to Landlord one-twelfth (1/12) of Tenant's Share of
Expenses related to the Project. As used in this Lease, "Tenant's Share" shall
mean the Premises Area, as defined in Section l.e, divided by the Project Area,
as defined in Section l.f, and "Tenant's Share of Expenses" shall mean total
Expenses for the Project, multiplied by Tenant's Share, minus the Annual Expense
Base set forth in Section 1(j). Landlord may specially allocate individual
expenses where and in the manner necessary, in Landlord's discretion, to
appropriately reflect the consumption of the expense or service. For example
where some but not all premises in the Project have HVAC, Landlord may
reallocate Project Expenses for HVAC to all premises utilizing HVAC to be
apportioned on a per square foot basis, or could allocate to each premises
utilizing HVAC the cost of maintaining that space's individual unit. In the
event the average occupancy level of the Project for any year is less than
ninety five percent (95%), the actual Expenses for such year shall be
proportionately adjusted to reflect those costs which Landlord estimates would
have been incurred, had the Project been ninety five percent (95%) occupied
during such year.
1) EXPENSES DEFINED
The term "Expenses" shall mean all costs and expenses of the ownership,
operation, maintenance, repair or replacement, and insurance of the Project,
including without limitation, the following costs:
(a) All supplies, materials, labor, equipment, and utilities used in
or related to the operation and maintenance of the Project,
(b) All maintenance, management, janitorial, legal, accounting,
insurance, and service agreement costs related to the Project;
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(c) All maintenance, replacement and repair costs relating to the
areas within or around the Project, including, without limitation, air
conditioning systems, sidewalks, landscaping, service areas, driveways, parking
Areas (including resurfacing and restriping parking areas), walkways, building
exteriors (including painting), signs and directories, repairing and replacing
roofs, walls, etc. These costs may be included either based on actual
expenditures or the use of an accounting reserve based on past cost experience
for the Project.
(d) Amortization (along with reasonable financing charges) of capital
improvements made to the Project which may be required by any government
authority or which will improve the operating efficiency of the Project
(provided, however, that the amount of such amortization for improvements not
mandated by government authority shall not exceed in any year the amount of
costs reasonably determined by Landlord in its sole discretion to have been
saved by the expenditure either through the reduction or minimization of
increases which would have otherwise occurred).
(e) Real Property Taxes including all taxes, assessments (general and
special) and other impositions or charges which may be taxed, charged, levied,
assessed or imposed upon all or any portion of or in relation to the Project or
any portion thereof, any leasehold estate in the Premises or measured by Rent
from the Premises, including any increase caused by the transfer, sale or
encumbrance of the Project or any portion thereof. "Real Property Taxes" shall
also include any form of assessment, levy, penalty, charge or tax (other than
estate, inheritance, net income, or franchise taxes) imposed by any authority
having a direct or indirect power to tax or charge, including, without
limitation, any city, county, state federal or any improvement or other
district, whether such tax is (l) determined by the value of the Project or the
Rent or other sums payable under this Lease; (2) upon or with respect to any
legal or equitable interest of Landlord in the Project or any part thereof; (3)
upon this transaction or any document to which Tenant is a party creating a
transfer in any interest in the Project, (4) in lieu of or as a direct
substitute in whole or in part of or in addition to any real property taxes on
the Project, (5) based on any parking spaces or parking facilities provided in
the Project, or (6) in consideration for services, such as police protection,
fire protection, street, sidewalk and roadway maintenance, refuse removal or
other services that may be provided by any governmental or quasi-governmental
agency from time to time which were formerly provided without charge or with
less charge to property owners or occupants.
(f) Landlord agrees that Expenses as defined in Section 4(c) shall not
include leasing commissions; payments of principal and interest on any
mortgages, deeds of trust or other encumbrances upon the Project; depreciation
of the
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capital cost of capital improvements except as provided at 4(c)(1)(d);
Landlord's executive salaries, management fees in excess of market rates; costs
resulting from defective design or construction of the Project; costs incurred
in connection with entering into new leases; or costs of disputes under existing
leases. In no event shall Expenses include any charge for which Landlord
receives reimbursement from insurance or from another Tenant, nor shall any item
of Expense be counted more than once, nor shall Landlord collect more than one
hundred percent (100%) of Expenses.
2) ANNUAL ESTIMATE OF EXPENSES, TENANT'S SHARE
At the commencement of each calendar year, beginning with calendar year
1998, Landlord shall estimate Tenant's share of Expenses for the remainder of
the calendar year, and at the commencement of each calendar year thereafter,'
Landlord shall estimate Tenant's Share of Expenses for the coming year by
multiplying the estimated annual Project Expenses by Tenant's Share and
subtracting the Annual Expense Base.
3) MONTHLY PAYMENT OF EXPENSES
Tenant shall pay to Landlord, monthly in advance, as Additional Rent, one-
twelfth (1/12) of the Annual Estimate of Tenant's Share of Expenses beginning on
January 1, 1998. As soon as practical following each calendar year, Landlord
shall prepare an accounting of actual Expenses incurred during the prior
calendar year and such accounting shall reflect Tenant's Share of Expenses. If
the Additional Rent paid by Tenant under this Section 4.c.3 during the preceding
calendar year was less than the actual amount of Tenant's Share of Expenses,
Landlord shall so notify Tenant and Tenant shall pay such amount to Landlord
within 30 days of receipt of such notice. Such amount shall be deemed to have
accrued during the prior calendar year and shall be due and payable from Tenant
even though the term of this Lease has expired or this Lease has been terminated
prior to Tenant's receipt of this notice. Tenant shall have thirty (30) days
from receipt of such notice to contest the amount due, failure to so notify
Landlord shall represent final determination of Tenant's Share of Expenses. If
Tenant's payments were greater than the actual amount, then such overpayment
shall be credited by Landlord to Tenant's Share of Expenses due under this
Section 4.c.3, or if the Lease has expired or been terminated, any overpayment
net of other sums due from Tenant to Landlord shall be refunded to Tenant by
check.
4) RENT WITHOUT OFFSET AND LATE CHARGE
As used herein, "Rent" shall mean all monetary sums due from Tenant to
Landlord. All Base Monthly Rent shall be paid by Tenant to Landlord without
prior
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notice or demand in advance on the first day of every calendar month, at the
address shown in Section 1, or such other place as landlord may designate in
writing from time to time. Whether or not so designated, all other sums due from
Tenant under this Lease shall constitute Additional Rent, payable without prior
notice or demand when specified in this Lease, but if not specified, then within
ten (10) days of demand. All Rent shall be paid without any deduction or offset
whatsoever. All Rent shall be paid in lawful currency of the United States of
America. Proration of Rent due for any partial month shall be calculated by
dividing the number of days in the month for which Rent is due by the actual
number of days in that month and multiplying by the applicable monthly rate.
Tenant acknowledges that late payment by Tenant to Landlord of any Rent or other
sums due under this Lease will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of such cost being extremely difficult and
impracticable to ascertain. Such costs include, without limitation, processing
and accounting charges and late charges that may be imposed on Landlord by the
terms of any encumbrance or note secured by the Premises. Therefore, if any Rent
or other sum due from Tenant is not received by the end of the 10th day after
due (i.e. by the end of the 10th day of the month for sums due on the first),
Tenant shall pay to Landlord an additional sum equal to 10% of such overdue
payment. Landlord and Tenant hereby agree that such late charge represents a
fair and reasonable estimate of the costs that Landlord will incur by reason of
any such late payment and that the late charge is in addition to any and all
remedies available to the Landlord and that the assessment and/or collection of
the late charge shall not be deemed a waiver of any other default. Additionally,
all such delinquent Rent or other sums, plus this late charge, shall bear
interest at the rate of 12 percent per annum. If the interest rate specified in
this Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law. Any payments of
any kind returned for insufficient funds will be subject to an additional
handling charge of $25.00, and thereafter, Landlord may require Tenant to pay
all future payments of Rent or other sums due by money order or cashier's check.
5. PREPAID RENT
Upon the execution of this Lease, Tenant shall, in addition to the payment
of the first month's Rent as set forth in Section 4.a, pay to Landlord the
prepaid Rent set forth in Section l.k, and if Tenant is not in default of any
provisions of this Lease, such prepaid Rent shall be applied toward the Base
Monthly Rent for the months set forth in Section l.k. Landlord's obligations
with respect to the prepaid Rent are those of a debtor and not of a trustee, and
Landlord can commingle the prepaid Rent with Landlord's general funds. Landlord
shall not be required to pay Tenant interest on the prepaid Rent. Landlord
shall be entitled to immediately endorse and cash Tenant's prepaid Rent;
however, such endorsement and cashing shall not constitute Landlord's
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acceptance of this Lease. In the event Landlord does not accept this Lease,
Landlord shall return said prepaid Rent.
6. DEPOSIT
Upon execution of this Lease, Tenant shall deposit a security deposit and a
cleaning fee as set forth in Section 1.1 with Landlord. If Tenant is in default,
Landlord, upon 5 days notice, can use the security deposit or any portion of it
to cure the default or to compensate Landlord for any damages sustained by
Landlord resulting from Tenant's default. Upon demand, Tenant shall immediately
pay to Landlord a sum equal to the portion of the security deposit expended or
applied by Landlord to restore the security deposit to its full amount. In no
event will Tenant have the right to apply any part of the security deposit to
any Rent or other sums due under this Lease. If Tenant is not in default at the
expiration or termination of this Lease, Landlord shall return the security
deposit to Tenant, and retain the cleaning fee, which shall equal 10% of first
month's Base Monthly Rent or $125, whichever is greater. Landlord's obligations
with respect to the deposit are those of a debtor and not of a trustee, and
Landlord can commingle the security deposit with Landlords general funds.
Landlord shall not be required to pay Tenant interest on the deposit. Upon full
execution of the lease, Landlord shall be entitled to endorse and cash Tenant's
prepaid deposit. Each time the Base Monthly Rent is increased, Tenant shall
deposit additional funds with Landlord sum sufficient to increase the security
deposit to an amount which bears the same relationship to the adjusted Base
Monthly Rent as the initial security deposit bore to the initial Base Monthly
Rent.
7. USE OF PREMISES AND PROJECT FACILITIES
Tenant shall use the Premises solely for the purposes set forth in Section
1 and for no other purpose without obtaining the prior written consent of
Landlord. Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the Premises or with
respect to the suitability of the Premises or the Project for the conduct of
Tenant's business, nor has Landlord agreed to undertake any modification,
alteration or improvement to the Premises or the Project, except as provided in
writing in this Lease. Tenant acknowledges that Landlord may from time to time,
at its sole discretion, make such modifications, alterations, deletions or
improvements to the Project as Landlord may deem necessary or desirable, without
compensation or notice to Tenant. Tenant shall promptly comply with all laws,
ordinances, orders and regulations affecting the Premises and the Project,
including, without limitation, any rules and regulations that may be attached to
this Lease and to any reasonable modifications to these rules and regulations as
Landlord may adopt from time to time. Tenant acknowledges that,
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except for Landlord's obligations pursuant to Section 13, Tenant is solely
responsible for ensuring that the Premises comply with any and all governmental
regulations applicable to Tenant's conduct of business on the Premises, and that
Tenant is solely responsible for any alterations or improvements that may be
required by such regulations, now existing or hereafter adopted. Tenant shall
not do or permit anything to be done in or about the Premises or bring or keep
anything in the Premises that will in any way increase the premiums paid by
Landlord on its insurance related to the Project or which will in any way
increase the premiums for fire or casualty insurance carried by other tenants in
the Project. Tenant will not perform any act or carry on any practices that may
injure the Premises or the Project; that may be a nuisance or menace to other
tenants in the Project; or that shall in any way interfere with the quiet
enjoyment of such other tenants. Tenant shall not use the Premises for sleeping,
washing clothes, cooking or the preparation, manufacture or mixing of anything
that might emit any objectionable odor, noises, vibrations or lights onto such
other tenants. If sound insulation is required to muffle noise produced by
Tenant on the Premises, Tenant at its own cost shall provide all necessary
insulation. Tenant shall not do anything on the premises which will overload any
existing parking or service to the Premises. Pets and/or animals of any type
shall not be kept on the Premises.
8. HAZARDOUS SUBSTANCES; DISRUPTIVE ACTIVITIES
A. HAZARDOUS SUBSTANCES
(1) Presence and Use of Hazardous Substances. Tenant shall not,
without Landlord's prior written consent, keep on or around the Premises, Common
Areas or Building, for use, disposal, treatment, generation, storage or sale,
any substances designed as, or containing components designated as hazardous,
dangerous, toxic or harmful (collectively referred to as "Hazardous
Substances"), and/or is subject to regulation, statute or ordinance. With
respect to any such Hazardous Substance, Tenant shall:
(i) Comply promptly, timely, and completely with all
governmental requirements for reporting, keeping, and submitting manifests, and
obtaining and keeping current identification numbers;
(ii) Submit to Landlord true and correct copies of all reports,
manifests, and identification numbers at the same time as they are required to
be and/or are submitted to the appropriate governmental authorities;
(iii) Within five (5) days of Landlord's request, submit
written reports to Landlord regarding Tenant's use, storage, treatment,
transportation, generation, disposal or sale of Hazardous Substances and provide
evidence
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satisfactory to Landlord of Tenant's compliance with the applicable government
regulations;
(iv) Allow Landlord or Landlord's agent or representative to come
on the premises at all times to check Tenant's compliance with all applicable
governmental regulations regarding Hazardous Substances;
(v) Comply with minimum levels, standards or other performance
standards or requirements which may be set forth or established for certain
Hazardous Substances (if minimum standards or levels are applicable to Hazardous
Substances present on the Premises, such levels or standards shall be
established by an on-site inspection by the appropriate governmental authorities
and shall be set forth in an addendum to this Lease); and
(vi) Comply with all applicable governmental rules, regulations
and requirements regarding the proper and lawful use, sale, transportation,
generation, treatment, and disposal of Hazardous Substances.
(2) Any and all costs incurred by Landlord and associated with
Landlord's monitoring of Tenant's compliance with this Section 8, including
Landlord's attorneys' fees and costs, shall be Additional Rent and shall be due
and payable to Landlord immediately upon demand by Landlord.
B. CLEANUP COSTS, DEFAULT AND INDEMNIFICATION
(1) Tenant shall be fully and completely liable to Landlord for any
and all cleanup costs, and any and all other charges, fees, penalties (civil and
criminal) imposed by any governmental authority with respect to Tenant's use,
disposal, transportation, generation and/or sale of Hazardous Substances, in or
about the Premises, Common Areas, or Building.
(2) Tenant shall indemnify, defend and save Landlord and Landlord's
lender, if any, harmless from any and all of the costs, fees, penalties and
charges assessed against or imposed upon Landlord (as well as Landlord's and
Landlord's lender's attorneys' fees and costs) as a result of Tenant's use,
disposal, transportation, generation and/or sale of Hazardous Substances.
(3) Upon Tenant's default under this Section 8, in addition to the
rights and remedies set forth elsewhere in this Lease, Landlord shall be
entitled to the following rights and remedies:
(i) At Landlord's option, to terminate this Lease immediately;
and/or
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(ii) To recover any and all damages associated with the default,
including, but not limited to cleanup costs and charges, civil and criminal
penalties and fees, loss of business and sales by Landlord and other tenants of
the Building, any and all damages and claims asserted by third parties and
Landlord's attorneys' fees and costs.
C. DISRUPTIVE ACTIVITIES. Tenant shall not:
(1) Produce, or permit to be produced, any intense glare, light or
heat except within an enclosed or screened area and then only in such manner
that the glare, light or heat shall not, outside the Premises, be materially
different that the light or heat from other sources outside the Premises;
(2) Create, or permit to be created, any sound pressure level which
will interfere with the quiet enjoyment of any real property outside the
Premises, or which will create a nuisance or violate any governmental law, rule,
regulation or requirement;
(3) Create, or permit to be created, any ground vibration that is
materially discernible outside the Premises;
(4) Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation which is harmful or hazardous to
any person or property in, or about the Project; or
(5) Create, or permit to be created, any noxious odor that is
disruptive to the business operations of any other tenant in the Project.
9. SIGNAGE
All signing shall comply with rules and regulations set forth by Landlord
as may be modified from time to time. Current rules and regulations relating to
interior and exterior signs are described on Exhibit C. Tenant shall place no
non-building standard window covering (e.g., shades, blinds, curtains, drapes,
screens, or tinting materials), stickers, signs, lettering, banners or
advertising or display material on or near exterior windows or doors if such
materials are visible from the exterior of the Premises, without Landlord's
prior written consent. Similarly, Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without Landlord's
prior written consent, other than provided for in this Lease. Any material
violating this provision may be destroyed by Landlord, on three (3) days notice
to Tenant, without compensation to Tenant.
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10. PERSONAL PROPERTY TAXES
Tenant shall pay before delinquency all taxes, assessments, license fees
and public charges levied, assessed or imposed upon its business operations as
well as upon all trade fixtures, leasehold improvements, merchandise and other
personal property in or about the Premises.
11. PARKING
Landlord grants to Tenant and Tenant's customers, suppliers, employees and
invitees, a nonexclusive license to use the designated parking areas in the
Project for the use of motor vehicles during the term of this Lease. Landlord
reserves the right at any time to grant similar non-exclusive use to other
tenants, to promulgate rules and regulations relating to the use of such parking
areas, including reasonable restrictions on parking by tenants and employees, to
designate specific spaces for the use of any tenant, to make changes in the
parking layout from time to time, and to establish reasonable time limits on
parking. Overnight parking is prohibited and any vehicle violating this or any
other vehicle regulation adopted by Landlord is subject to removal at the
owner's expense. The Project's parking ratio is currently at least 3.5 stalls
per 1,000 square feet of rentable area. The stalls available to Tenant shall not
be reduced below 3.0 stalls per 1,000 square feet of rentable area except as may
be needed to accomplish compliance with changes in governmental regulations. As
part of the overall parking ratio, Landlord shall at all times make available to
Tenant designated covered stalls under Tenant's Building in a number not less
than one stall per 1,000 rentable square feet of the Premises then under lease.
12. UTILITIES
Landlord shall furnish the Premises with electricity for office use,
including lighting and low power usage (110 volt) for office machines and water
for restroom facilities. Landlord shall also provide customary building or
janitorial and trash disposal service on weekdays, other than holidays. From
7:00 a.m. to 6:00 p.m. on weekdays and 9:00 a.m. to 1:00 p.m. on Saturday,
excluding legal holidays ("Normal Business Hours"), Landlord shall furnish the
Premises with heat and air conditioning services. If requested by Tenant,
Landlord shall furnish heat and air conditioning services at times other than
Normal Business Hours, and janitorial services on other days. The costs of all
utilities and services provided pursuant to this Section 12 shall be Expenses
allocated to Tenant as part of Tenant's Share of Expenses pursuant to Section
4.c. and 8.c.(1) above. Tenant shall pay when due and directly to the service
provider any telephone or other services metered, chargeable or provided to the
Premises and not charged as part of Tenant's Share of Expenses.
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13. MAINTENANCE
Landlord shall maintain, in good condition, the structural parts of the
Premises, which shall include only the foundations, bearing and exterior walls
(excluding glass), subflooring and roof (excluding skylights), the unexposed
electrical, plumbing and sewerage systems, including those portions of the
systems lying outside the Premises, gutters and downspouts on the Building and
the heating, ventilating and air conditioning system servicing the Premises;
provided, however, the cost of all such maintenance shall be considered
"Expenses" for purposes of Section 4.c. Except as provided above, Tenant shall
maintain and repair the Premises in good condition, including, without
limitation, maintaining and repairing all walls, storefronts, floors, ceilings,
interior and exterior doors, exterior and interior windows and fixtures and
interior plumbing as well as damage caused by Tenant, its agents, employees or
invitees. Upon expiration or termination of this Lease, Tenant shall surrender
the Premises to Landlord in the same condition as existed at the commencement of
the term, except for reasonable wear and tear or damage caused by fire or other
casualty for which Landlord has received all funds necessary for restoration of
the Premises from insurance proceeds.
14. ALTERATIONS
Upon completion of the initial Premises improvements, Tenant shall not make
any alterations to the Premises, or to the Project, including any changes to the
existing landscaping, without Landlord's prior written consent, which consent
(in the case of non-structural alternations) shall not be unreasonably withheld.
If Landlord gives its consent to such alterations, Landlord may post notices in
accordance with the laws of the state in which the premises are located. Any
alterations made shall remain on and be surrendered with the Premises upon
expiration or termination of this Lease, except that Landlord may, within 30
days before or 30 days after expiration of the term, elect to require Tenant to
remove any alterations which Tenant may have made to the Premises. If Landlord
so elects, at its own cost Tenant shall restore the Premises to the original
condition, reasonable wear and tear excepted, before the last day of the term or
within 30 days after notice of its election is given, whichever is later.
Should Landlord consent in writing to Tenant's alteration of the Premises,
Tenant shall contract with a contractor approved by Landlord for the
construction of such alterations, shall secure all appropriate governmental
approvals and permits, and shall complete such alterations with due diligence in
compliance with plans and specifications approved by Landlord. All such
construction shall be performed in a manner which will not interfere with the
quiet enjoyment of other tenants of the Project. Tenant shall pay all costs for
such construction and shall keep the Premises
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and the Project free and clear of all mechanics' liens which may result from
construction by Tenant.
15. RELEASE AND INDEMNITY
A. TENANT INDEMNITY
Except as otherwise provided in this Section, Tenant shall indemnify,
defend (using legal counsel acceptable to Landlord) and save Landlord harmless
from all claims, suits, losses, damages, fines, penalties, liabilities and
expenses (including Landlord's personnel and overhead costs and attorneys fees
and other costs incurred in connection with claims, regardless of whether such
claims involve litigation) resulting from any actual or alleged injury
(including death) of any person or from any actual or alleged loss of or damage
to, any property arising out of or in connection with (i)Tenant's occupation,
use or improvement of the Premises, or that of its employees, agents or
contractors, (ii) Tenant's breach of its obligations hereunder, or (iii) any act
or omission of Tenant or any subtenant, licensee, assignee or concessionaire of
Tenant, or of any officer, agent, employee, guest or invitee of Tenant, or of
any such entity in or about the Premises. Tenant agrees that the foregoing
indemnity specifically covers actions brought by its own employees. This
indemnity with respect to acts or omissions during the term of this Lease shall
survive termination or expiration of this Lease. The foregoing indemnity is
specifically and expressly intended to, constitute a waiver of Tenant's immunity
under Washington's Industrial insurance Act, RCW Title 51, to the extent
necessary to provide Landlord with a full and complete indemnity from claims
made by Tenant and its employees, to the extent provided herein. Tenant shall
promptly notify Landlord of casualties or accidents occurring in or about the
Premises. LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS
OF SECTION 8.F AND THIS SECTION 15 WERE SPECIFICALLY NEGOTIATED AND AGREED UPON
BY THEM.
B. LANDLORD INDEMNITY
Except as otherwise provided in this Section 15, Landlord shall indemnify,
defend (using legal counsel acceptable to Tenant) and save Tenant harmless from
all claims, suits, losses, fines, penalties, liabilities and expenses (including
Tenant's personnel and overhead costs and attorneys' fees and other costs
incurred in connection with claims, regardless of whether such claims involve
litigation) resulting from any actual or alleged injury (including death) of any
person or from any actual or alleged loss of or damage to, any property to the
extent caused by negligent acts of Landlord on the Common Areas. Landlord agrees
that the foregoing indemnity specifically covers actions brought by its own
employees. This indemnity with respect
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to actions or omissions during the term of this Lease shall survive termination
or expiration of this Lease. The foregoing indemnity is specifically and
expressly intended to constitute a waiver of Landlord's immunity under
Washington's Industrial Insurance Act, RCW Title 51, to the extent necessary to
provide Tenant with a full and complete indemnity from claims made by Landlord
and its employees to the extent provided herein. LANDLORD AND TENANT ACKNOWLEDGE
THAT THE INDEMNIFICATION PROVISIONS OF SECTION 15 WERE SPECIFICALLY NEGOTIATED
AND AGREED UPON BY THEM.
C. RELEASE
Tenant hereby fully and completely waives and releases all claims against
Landlord for any losses or other damages sustained by Tenant or any person
claiming through Tenant resulting from any accident or occurrence in or upon the
Premises, including but not limited to: any defect in or failure of Project
equipment; any failure to make repairs; any defect, failure, surge in, or
interruption of Project facilities or services; any defect in or failure of
Common Areas; broken glass; water leakage; the collapse of any Building
component; or any act, omission or negligence of co-tenants, licensees or any
other persons or occupants of the Building, provided only that the release
contained in this Section 15.c shall not apply to claims for actual damage to
persons or property (excluding consequential damages such as lost profits)
resulting directly from Landlord's gross negligence or willful misconduct or
Landlord's breach of its express obligations under this Lease which Landlord has
not cured within a reasonable time after receipt of written notice of such
breach from Tenant.
D. LIMITATION ON INDEMNITY
In compliance with RCW 4.24.115 as in effect on the date of this Lease, all
provisions of this Lease pursuant to which Landlord or Tenant (the "Indemnitor")
agrees to indemnify the other (the "Indemnitee") against liability for damages
arising out of bodily injury to Persons or damage to property relative to the
construction, alteration, repair, addition to, subtraction from, improvement to,
or maintenance of, any building, road, or other structure, project, development,
or improvement attached to real estate, including the Premises, (i) shall not
apply to damages caused by or resulting from the sole negligence of the
Indemnitee, its agents or employees, and (ii) to the extent caused by or
resulting from the concurrent negligence of (a) the Indemnitee or the
Indemnitee's agents or employees, and (b) the Indemnitor or the Indemnitor's
agents or employees, shall apply only to the extent of the Indemnitor's
negligence; PROVIDED, HOWEVER, the limitations on indemnity set forth in this
Section shall automatically and without further act by either Landlord or Tenant
be
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deemed amended so as to remove any of the restrictions contained in this Section
no longer required by then applicable law.
E. DEFINITIONS
As used in any Section establishing indemnity or release of Landlord,
"Landlord" shall include Landlord, its partners, officers, employees and
contractors, and "Tenant" shall include Tenant and any person or entity claiming
through Tenant.
16. INSURANCE
Tenant, at its cost, shall maintain public liability and property damage
insurance and products liability insurance with a single combined liability
limit of $1,000,000, insuring against all liability of Tenant and its
representatives, employees, invitees, and agents arising out of or in connection
with Tenant's use or occupancy of the Premises. Public liability insurance,
products liability insurance and property damage- insurance shall insure
performance by Tenant of the indemnity provisions of Section 15. Landlord shall
be named as additional insured and the policy shall contain cross-liability
endorsements. On all its personal property, at its cost, Tenant shall maintain a
policy of standard fire and extended coverage insurance with vandalism and
malicious mischief endorsements and "all risk" coverage on all Tenant's
improvements and alterations, including without limitation, all items of Tenant
responsibility described in Section 13 in or about the Premises, to the extent
of at least 90% of their full replacement value. The proceeds from any such
policy shall be used by Tenant for the replacement of personal property and the
restoration of Tenant's improvements or alterations. All insurance required to
be provided by Tenant under this Lease shall release Landlord from any claims
for damage to business or to any person or the Premises and the Project, and to
Tenant's fixtures, personal property, improvements and alterations in or on the
Premises or the Project, caused by or resulting from risks insured against under
any insurance policy carried by Tenant in force at the time of such damage. In
addition, Tenant hereby independently releases Landlord from any and all claims
for damage to business or to any person or the Premises and the Project, and to
Tenant's fixtures, personal property, improvements and alterations in or on the
Premises or the Project, caused by or resulting from risks that would have been
insured against under any insurance policy required by this Lease to be carried
by Tenant, even if Tenant failed to so carry the required insurance. All
insurance required to be provided by Tenant under this Lease: (a) shall be
issued by Insurance companies authorized to do business in the state in which
the premises are located with a financial rating of at least an A+XII status as
rated in the most recent edition of Best's Insurance Reports; (b) shall be
issued as a primary policy; and (c) shall contain an endorsement requiring at
least 30 days prior written notice of
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cancellation to Landlord and Landlord's lender, before cancellation or change in
coverage, scope or amount of any policy. Tenant shall deliver a certificate or
copy of such policy together with evidence of payment of all current premiums to
Landlord within 30 days of execution of this Lease. If Tenant fails at any time
to maintain the insurance required by this Lease, and fails to cure such default
within five (5) business days of written notice from Landlord then, in addition
to all other remedies available under this Lease and applicable law, Landlord
may purchase such insurance on Tenant's behalf and the cost of such insurance
shall be Additional Rent due within ten (10) days of written invoice from
Landlord to Tenant.
17. DESTRUCTION
If during the term, the Premises or Project are more than 10% destroyed
from any cause, or rendered inaccessible or unusable from any cause, Landlord
may, in its sole discretion, terminate this Lease by delivery of notice to
Tenant within 30 days of such event without compensation to Tenant. If in
Landlord's estimation, the Premises cannot be restored within 90 days following
such destruction, the Landlord shall notify Tenant and Tenant may terminate this
Lease by delivery of notice to Landlord within 30 days of receipt of Landlord's
notice. If neither Landlord nor Tenant terminates this Lease as provided above,
then Landlord shall commence to restore the Premises in compliance with then
existing laws and shall complete such restoration with due diligence. In such
event, this Lease shall remain in full force and effect, but there shall be an
abatement of Base Monthly Rent and Tenant's Share of Expenses between the date
of destruction and the date of completion of restoration, based on the extent to
which destruction interferes with Tenant's use of the Premises.
18. CONDEMNATION
A. TAKING
If all of the Premises are taken by Eminent Domain, this Lease shall
terminate as of the date Tenant is required to vacate the Premises and all Base
and Additional Rent shall be paid to that date. The term "Eminent Domain" shall
include the taking or damaging of property by, through or under any governmental
or statutory authority, and any purchase or acquisition in lieu thereof, whether
the damaging or taking is by government or any other person. If, in the
reasonable judgment of Landlord, a taking of any part of the Premises by Eminent
Domain renders the remainder thereof unusable for the business of Tenant (or the
cost of restoration of the Premises is not commercially reasonable), the Lease
may, at the option of either party, be terminated by written notice given to the
other party not more than thirty (30) days after Landlord gives Tenant written
notice of the taking, and such termination shall be effective as of the date
when Tenant is required to vacate the portion of the Premises so taken. If this
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Lease is so terminated, all Base and Additional Rent shall be paid to the date
of termination. Whenever any portion of the Premises is taken by Eminent Domain
and this Lease is not terminated, Landlord shall at its expense proceed with all
reasonable dispatch to restore, to the extent of available proceeds and to the
extent it is reasonably prudent to do so, the remainder of the Premises to the
condition they were in immediately prior to such taking, and Tenant shall at its
expense proceed with all reasonable dispatch to restore its personal property
and all improvements made by it to the Premises to the same condition they were
in immediately prior to such taking. The Base and Additional Rent payable
hereunder shall be reduced from the date Tenant is required to partially vacate
the Premises in the same proportion that the Rentable Area taken bears to the
total Rentable Area of the Premises prior to taking.
B. AWARD
Landlord reserves all right to the entire damage award or payment for any
taking by Eminent Domain, and Tenant waives all claim whatsoever against
Landlord for damages for termination of its leasehold interest in the Premises
or for interference with its business. Tenant hereby grants and assigns to
Landlord any right Tenant may now have or hereafter acquire to such damages and
agrees to execute and deliver such further instruments of assignment as Landlord
may from time to time request. Tenant shall, however, have the right to claim
from the condemning authority all compensation that may be recoverable by Tenant
on account of any loss incurred by Tenant in moving Tenant's merchandise,
furniture, trade fixtures and equipment, provided, however that Tenant may claim
such damages only if they are awarded separately in the eminent domain
proceeding and not out of or as part of Landlord's damages.
19. ASSIGNMENT OR SUBLEASE
Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any part of the Premises or allow any other person
or entity (except Tenant's authorized representatives, employees, invitees, or
guests) to occupy or use all or any part of the Premises without first obtaining
Landlord's consent which Landlord may withhold or condition in its sole
discretion, provided only that (a) Landlord shall consent to a merger or
combination and associated assignment or sublease for the same use where (I) the
succeeding entity has a net worth equal to or greater than that of Tenant
immediately prior to the assignment or sublease and (ii) Tenant's management
team is a substantial part of the management team of the successor entity and
(b) Landlord shall consent to a sublease for the same use to a subtenant of
equal or greater financial strength from Tenant. No assignment or sublease
shall release Tenant from the obligation to perform all obligations under this
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Lease. Any assignment, encumbrance or sublease without Landlord's written
consent shall be voidable and at Landlord's election, shall constitute a
default. If Tenant is a partnership, a withdrawal or change, voluntary,
involuntary or by operation of law of any partner, or the dissolution of the
partnership, shall be deemed a voluntary assignment. If Tenant consists of more
than one person, a purported assignment, voluntary or involuntary or by
operation of law from one person to the other shall be deemed a voluntary
assignment. If Tenant is a corporation, any dissolution, merger, consolidation
or other reorganization of Tenant, or sale or other transfer of a controlling
percentage of the capital stock of Tenant, or the sale of at least 25% of the
value of the assets of Tenant shall be deemed a voluntary assignment. The phrase
"controlling percentage" means ownership of and right to vote stock possessing
at least 25% of the total combined voting power of all classes of Tenant's
capital stock issued, outstanding and entitled to vote for election of
directors. This Section 19 shall not apply to corporations the stock of which is
traded through an exchange or over the counter. All rent received by Tenant from
its subtenants in excess of the Rent payable by Tenant to Landlord under this
Lease shall be paid to Landlord, or any sums to be paid by an assignee to Tenant
in consideration of the assignment of this Lease shall be paid to Landlord. If
Tenant requests Landlord to consent to a proposed assignment or subletting,
Tenant shall pay to Landlord, whether or not consent is ultimately given, $100
or Landlord's reasonable attorney's fees incurred in connection with such
request, whichever is greater, not to exceed $250 per transaction.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including without limitation the transfer
of this Lease by testacy or intestacy). Each of the following acts shall be
considered an involuntary assignment: (a) if Tenant is or becomes bankrupt or
insolvent, makes an assignment for the benefit of creditors, or institutes
proceedings under the Bankruptcy Act in which Tenant is the bankrupt; or if
Tenant is a partnership or consists of more than one person or entity, if any
partner of the partnership or other person or entity is or becomes bankrupt or
insolvent, or makes an assignment for the benefit of creditors; or (b) if a writ
of attachment or execution is levied on this Lease; or (c) if in any proceeding
or action to which Tenant is a party, a receiver is appointed with authority to
take possession of the Premises. An involuntary assignment shall constitute a
default by Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of Tenant.
20. DEFAULT
The occurrence of any of the following shall constitute a default by
Tenant: (a) a failure to pay Rent or other charge when due provided that
Landlord shall not exercise any of its rights under this Section 20 until
Landlord has given Tenant notice
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of such default and Tenant has failed to pay such rent or other charge within
three (3) days of the effective date of such notice; (b) abandonment and
vacation of the Premises (failure to occupy and operate the Premises for ten
consecutive days shall be conclusively deemed an abandonment and vacation); or
(c) failure to perform any other provision of this Lease, provided that Landlord
shall not exercise any of its rights under this Section 20(c) until Landlord has
given Tenant notice of such default and Tenant has failed to cure such default
and provided further that if more than thirty (30) days are required to complete
such performance, Landlord shall not exercise any of its rights if Tenant
commences to cure such default within the thirty (30) day period and thereafter
diligently pursues such cure completion. The notice required by this Section is
intended to satisfy any and all notice requirements imposed by law on Landlord
and is not in addition to any such requirement.
21. LANDLORD'S REMEDIES
Landlord shall have the following remedies if Tenant is in default and has
failed to cure such default within any applicable cure period. (These remedies
are not exclusive; they are cumulative and in addition to any remedies now or
later allowed by law): Landlord may terminate Tenant's right to possession of
the Premises at any time. No act by Landlord other than giving notice to Tenant
shall terminate this Lease. Acts of maintenance, efforts to relet the Premises,
or the appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession. Upon termination of Tenant's right to possession, Landlord has
the right to recover from Tenant: (1) the worth of the unpaid Rent that had been
earned at the time of termination of Tenant's right to possession; (2) the worth
of the amount of the unpaid Rent that would have been earned after the date of
termination of Tenant's right to possession; (3) any other amount, including but
not limited to, expenses incurred to relet the Premises, court, attorney and
collection costs, necessary to compensate Landlord for all detriment caused by
Tenant's default. "The Worth," as used for Item (1) in this Paragraph 21 is to
be computed by allowing interest at the rate of 12 percent per annum. If the
interest rate specified in this Lease is higher than the rate permitted by law,
the interest rate is hereby decreased to the maximum legal interest rate
permitted by law. "The Worth" as used for Item (2) in this Paragraph 21 is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of termination of Tenant's right of
possession.
22. ENTRY ON PREMISES
Landlord and its authorized representatives shall have the right to enter
the Premises at all reasonable times and upon reasonable notice except in an
emergency,
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when no notice shall be required, for any of the following purposes:
(a) to determine whether the Premises are in good condition and whether Tenant
is complying with its obligations under this Lease; (b) to do any necessary
maintenance and to make any restoration to the Premises or the Project that
Landlord has the right or obligation to perform; (c) to post "for sale" signs at
any time during the term, to post "for rent" or "for lease" signs during the
last 90 days of the teem, or during any period while Tenant is in default; (d)
to show the Premises to prospective brokers, agents, buyers, tenants or persons
interested in leasing or purchasing the Premises, at any time during the term;
or (e) to repair, maintain or improve the Project and to erect scaffolding and
protective barricades around and about the Premises but not so as to prevent
entry to the Premises and to do any other act or thing necessary for the safety
or preservation of the Premises or the Project. Landlord shall not be liable in
any manner for any inconvenience, disturbance, loss of business, nuisance or
other damage arising out of Landlord's entry onto the Premises as provided in
this Section 22. Tenant shall not be entitled to an abatement or reduction of
Rent if Landlord exercises any rights reserved in this Section 22. Landlord
shall conduct his activities on the Premises as provided herein in a
commercially reasonable manner so as to limit inconvenience, annoyance or
disturbance to Tenant to the maximum extent practicable. For each of these
purposes, Landlord shall at all times have and retain a key with which to unlock
all the doors in, upon and about the Premises, excluding Tenant's vaults and
safes. Tenant shall not alter any lock or install a new or additional lock or
bolt on any door of the Premises without prior written consent of Landlord. If
Landlord gives its consent, Tenant shall furnish Landlord with a key for any
such lock.
23. SUBORDINATION
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, and at the election of Landlord or
any mortgagee or any beneficiary of a Deed of Trust with a lien on the Project
or any ground lessor with respect to the Project, this Lease shall be subject
and subordinate at all times to (a) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Project, and (b) the lien
of any mortgage or deed of trust which may now exist or hereafter be executed in
any amount for which the Project, ground leases or underlying leases, or
Landlord's interest or estate in any of said items is specified as security. In
the event that any ground lease or underlying lease terminates for any reason or
any mortgage or Deed of Trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord, at the option of such successor in interest. Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form requested
by Landlord any additional documents evidencing the priority or
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subordination of this Lease with respect to any such ground lease or underlying
leases or the lien of any such mortgage or Deed of Trust. Tenant hereby
irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver
and record any such document in the name and on behalf of Tenant.
Tenant, within ten days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this Lease is
not in default, is unmodified and in full force and effect, or in full force and
effect as modified, and stating the modifications. This certificate should also
state the amount of current monthly Rent, the dates to which Rent has been paid
in advance, and the amount of any security deposit and prepaid Rent. Failure to
deliver this certificate to Landlord within ten days shall be conclusive upon
Tenant that this Lease is in full force and effect and has not been modified
except as may be represented by Landlord.
24. NOTICE
Any notice, demand or request required hereunder shall be given in writing
to the party's facsimile number or address set forth in Section 1 hereof by any
of the following means: (a) personal service; (b) electronic communication,
whether by telex, telegram or facsimile; (c) overnight courier; or (d)
registered or certified, first class mail, return receipt requested. Such
addresses may be changed by notice to the other parties given in the same manner
as above provided. Any notice, demand or request sent pursuant to either
subsection (a) or (b) hereof shall be deemed received upon such personal service
or upon dispatch by electronic means with electronic confirmation of receipt.
Any notice, demand or request sent pursuant to subsection (c) hereof shall be
deemed received on the business day immediately following deposit with the
overnight courier and, if sent pursuant to subsection (d), shall be deemed
received forty-eight (48) hours following deposit in the U.S. mail.
25. WAIVER
No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver. No act or conduct
of Landlord, including without limitation, acceptance of the keys to the
Premises, shall constitute an acceptance of the surrender of the Premises by
Tenant before the expiration of the term. Only written notice from Landlord to
Tenant shall constitute acceptance of the surrender of the Premises and
accomplish termination of the Lease. Landlord's consent to or approval of any
act by Tenant requiring Landlord's consent or approval shall not be deemed to
waive or render unnecessary Landlord's consent to or approval of any subsequent
act by Tenant. Any waiver by Landlord of any default must be in writing and
shall not be a waiver of any other default concerning the same or any other
provision of the Lease. TENANT SPECIFICALLY ACKNOWLEDGES
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AND AGREES THAT, WHERE TENANT HAS RECEIVED A NOTICE TO CURE DEFAULT (WHETHER
RENT OR NON-RENT), NO ACCEPTANCE BY LANDLORD OF RENT SHALL BE DEEMED A WAIVER OF
SUCH NOTICE, AND, INCLUDING BUT WITHOUT LIMITATION, NO ACCEPTANCE BY LANDLORD OF
PARTIAL RENT SHALL BE DEEMED TO WAIVE OR CURE ANY RENT DEFAULT. LANDLORD MAY, IN
ITS DISCRETION, AFTER RECEIPT OF PARTIAL PAYMENT OF RENT, REFUND SAME AND
CONTINUE ANY PENDING ACTION TO COLLECT THE FULL AMOUNT DUE, OR MAY MODIFY ITS
DEMAND TO THE UNPAID PORTION. IN EITHER EVENT THE DEFAULT SHALL BE DEEMED
UNCURED UNTIL THE FULL AMOUNT IS PAID IN GOOD FUNDS.
26. SURRENDER OF PREMISES; HOLDING OVER
Upon expiration of the term, Tenant shall surrender to Landlord the
Premises and all Tenant improvements and alterations in good condition, except
for ordinary wear and tear and alterations Tenant has the right or is obligated
to remove under the provisions of Section 14 herein. Tenant shall remove all
personal property including, without limitation, all wallpaper, paneling and
other decorative improvements or fixtures and shall perform all restoration made
necessary by the removal of any alterations or Tenant's personal property before
the expiration of the term, including for example, restoring all wall surfaces
to their condition prior to the commencement of this Lease. Landlord can elect
to retain or dispose of in any manner Tenant's personal property not removed
from the Premises by Tenant prior to the expiration of the term. Tenant waives
all claims against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of Tenant's personal property. Tenant shall be liable
to Landlord for Landlord's cost for storage, removal or disposal of Tenant's
personal property.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration or termination of the term, or after the date in any notice
given by Landlord to Tenant terminating this Lease, such possession by Tenant
shall be deemed to be a month-to-month tenancy terminable as provided under
Washington law, by either party. All provisions of this Lease, except those
pertaining to term and Rent, shall apply to the month-to-month tenancy. During
any holdover term, Tenant shall pay Base Monthly Rent in an amount equal to 125%
of Base Monthly Rent for the last full calendar month during the regular term
plus 100% of Tenant's share of Expenses pursuant to Section 4.c.3.
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27. BUILDING PLANNING
If Landlord requires the Premises for use in conjunction with another suite
or for other reasons connected with the Project planning program, upon notifying
Tenant in writing, Landlord shall have the right to move Tenant to other space
in the Project that is substantially the same in size, configuration and tenant
improvements, such move (including out-of-pocket ancillary costs such as
reprinting of stationary) to be at Landlord's sole cost and expense. Upon such
move, the terms and conditions of the original Lease shall remain in full force
and effect, save and excepting that a revised Exhibit "A" shall become part of
this Lease and shall reflect the location of the new space and Section 1 of this
Lease shall be amended to include and state all correct data as to the new
space. Notwithstanding the above, if Landlord notifies Tenant of Landlord's
intention to exercise the relocation rights provided in this Section 27, Tenant
may, within 30 days of receipt of such notice, notify Landlord of Tenant's
intention to terminate this Lease. If Tenant so notifies Landlord, then either
(i) Landlord shall, within 30 days of receipt of Tenant's notice, rescind the
relocation notice and this Lease shall continue unaltered, or (ii) this Lease
shall terminate 90 days following Landlord's receipt of Tenant's notice without
any liability to Landlord or Tenant for such early termination.
28. MISCELLANEOUS PROVISIONS
28.1 TIME OF ESSENCE
Time is of the essence of each provision of this Lease.
28.2 SUCCESSOR
This Lease shall be binding on and inure to the benefit of the parties and
their successors, except as provided in Section 19 herein.
28.3. LANDLORD'S CONSENT
Except as otherwise specifically provided, any consent required by Landlord
under this Lease must be granted in writing and may be withheld or conditioned
by Landlord in its sole and absolute discretion.
28.4 COMMISSIONS
Each party represents that it has not had dealings with any real estate
broker, finder or other person with respect to this Lease in any manner, except
for the broker identified in Section 1, who shall be compensated by Landlord.
Landlord and Tenant recognize that it is possible that they may hereafter make
additional agreements
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regarding further extension or renewal of this Lease or a new lease or leases
for all or one or more parts of the Premises or other space in the Project for a
term or terms commencing after the Commencement Date of this Lease. Landlord and
Tenant recognize that it is also possible that they may hereafter modify this
Lease to add additional space or to substitute space as part of the Premises. If
any such additional agreements, new leases or modifications to this Lease are
made, Landlord shall not have any obligation to pay any compensation to any real
estate broker or to any other third person engaged by Tenant to render services
to Tenant in connection with negotiating such matters, regardless of whether
under the circumstances such person is or is not regarded by the law as an agent
of Landlord.
28.5 OTHER CHARGES
If either party commences any litigation against the other party or files
an appeal of a decision arising out of or in connection with the Lease, the
prevailing party shall be entitled to recover from the other party reasonable
attorney's fees and costs of suit. If Landlord employs a collection agency to
recover delinquent charges, Tenant agrees to pay all collection agency and
attorneys' fees charged to Landlord in addition to Rent, late charges, interest
and other sums payable under this Lease. Tenant shall pay a charge of $75 to
Landlord for preparation of a demand for delinquent Rent.
28.6 FORCE MAJEURE
Landlord shall not be deemed in default hereof nor liable for damages
arising from its failure to perform its duties or obligations hereunder if such
is due to causes beyond its reasonable control, including, but not limited to,
acts of God, acts of civil or military authorities, fires, floods, windstorms,
earthquakes, strikes or labor disturbances, civil commotion, delays in
transportation, governmental delays or war.
28.7 RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the "Rules and
Regulations", a copy of which is attached hereto, and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord shall not be responsible to Tenant for the
violation or non-performance by any other tenant or occupant of the building or
Project of said tenant or occupant's lease or of any of said Rules and
Regulations.
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28.8 LANDLORD'S SUCCESSORS
In the event of a sale or conveyance by Landlord of the Project, the same
shall operate to release Landlord from any liability under this Lease, and in
such event Landlord's successor in interest shall be solely responsible for all
obligations of Landlord under this Lease.
28.9 INTERPRETATION
This Lease shall be construed and interpreted in accordance with the laws
of the state in which premises are located. This Lease constitutes the entire
agreement between the parties with respect to the Premises and the Project,
except for such guarantees or modifications as may be executed in writing by the
parties from time to time. When required by the context of this Lease, the
singular shall include the plural, and the masculine shall include the feminine
and/or neuter. "Party" shall mean Landlord or Tenant. If more than one person or
entity constitutes Landlord or Tenant, the obligations imposed upon that party
shall be joint and several. The enforceability, invalidity or illegality of any
provision shall not render the other provisions unenforceable, invalid or
illegal.
28.10 CLEAN AIR ACT
Tenant acknowledges that Landlord has not made any portion of the Premises
or the Building accessible for smoking in compliance with WAC 296-62-12000. If
Tenant wishes to make any portion of the Premises accessible for smoking, Tenant
shall make all improvements necessary to comply with all applicable governmental
rules and regulations. Tenant acknowledges that the indemnity contained in
Section 15 of the Lease includes, but is not limited to claims based on the
presence of tobacco smoke as a result of the activities of Tenant, its
employees, agents, or guests.
29. TENANT IMPROVEMENTS
Tenant may undertake the removal of one office and one wall in the
Premises, as well as any required touch-up painting and carpet patching. Tenant
may also install telephones, furniture, telecommunications cables and other
equipment in the Premises as reasonably needed for the operation of its business
activities. All such improvements, alterations and additions (other than
Tenant's trade fixtures, furniture and equipment) shall become the property of
the Landlord and shall remain in and be surrendered with the Premises at the
termination of this Lease.
All improvements, alterations and additions undertaken by Tenant shall be
performed by a contractor approved to do work in the Project. Tenant shall cause
all
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work to be done in a good and workmanlike manner using materials equal to or
better than those used in the construction of the Premises. During construction,
Tenant or its general contractor shall procure and maintain in effect all
insurance coverages required under this Lease and any additional insurance
coverage reasonably required by Landlord and customary for similar tenant
improvement projects.
Landlord agrees to reimburse Tenant for up to $5,000 for actual amounts
paid to third parties for work done as described in this paragraph. Landlord
will, within 30 from receipt of receipts for such work done, reimburse Tenant
for these charges.
30. CARDKEY SYSTEM
Tenant shall be allowed to install a card access entry pad on the exterior
of the main entrance to the Premises, so as to work in conjunction with its
existing card key system in the Project. At the expiration of the Lease, Tenant
at its own cost shall remove such card access entry pad and repair any damage
resulting therefrom.
LANDLORD:
WRC PROPERTIES, INC.
By: /s/ JAMES P. GAROFALO
----------------------
James Garofalo
Assistant Secretary
TENANT:
ONYX SOFTWARE CORPORATION
By: /s/ FRASER BLACK
----------------------
Its: C.F.O.
----------------------
-28-
<PAGE>
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
I certify that I know or have satisfactory evidence that James Garofalo is
--------------
the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the Assistant Secretary of WRC Properties,
------------------- ---------------
Inc. to be the free and voluntary act of such party for the uses and purposes
- ----
mentioned in the instrument.
Dated: March 26, 1997
--------------------
/s/ DENISE SPOERING
-------------------------------------
(Signature)
_____________________________________
(Print Name)
Notary Public, in and for the State
of Washington, residing at___________
My Commission Expires________________
STATE OF )
) ss.
COUNTY OF )
I certify that I know or have satisfactory evidence that Fraser Black
------------
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the CFO of ONYX Software Corporation
---------- -------------------------
to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
Dated: February 26, 1997
---------------------
-29-
<PAGE>
/s/ THERESA L. ARASIN
-------------------------------
(Signature)
Theresa L. Arasin
-------------------------------
(Print Name)
Notary Public, in and for the State
of Washington, residing at Redmond, WA
-------------
My Commission Expires March 12, 2000
------------------
-30-
<PAGE>
FIRST AMENDMENT TO LEASE
ADDITION OF SQUARE FEET
WRC Properties, Inc., a Delaware corporation, Landlord and ONYX Software
Corporation, a Washington corporation, Tenant, being parties to that certain
Lease dated February 4, 1997 for premises located at 320 - 120th Avenue N.E.,
Bellevue, WA 98005 Building B, Unit 100 hereby express their mutual intent to
extend the terms of the lease and amend the following clauses as of this 12th
day of March, 1997.
Effective the 7th day of April, 1997 the portions of the Lease as numbered
below shall be amended to read as follows:
1. b. TENANT: ONYX Software Corporation, a Washington
corporation
Trade Name: ONYX Software Corporation
Address (Initial Premises): 320 - 120th Avenue N.E., Suite 100,
Bellevue, WA 98005
(Expansion Premises): 310 - 120th Avenue N.E., Suite 205,
Bellevue, WA 98005
Address (For Notices): 320 - 120th Avenue N.E., Suite 100,
Bellevue, WA 98005
<TABLE>
<S> <C> <C>
Building B Building A
320 120th Avenue NE 330 120th Avenue NE
Bellevue, WA 98005 Bellevue, WA 98005
1. e. Premises Area: 3,476 rentable square feet 3,489 rentable square feet
1. g. Term of Lease: Commencement: March 15, 1997 Commencement: April 7, 1997
Expiration: June 30, 1999 Expiration: June 30, 1999
1. h. Base Monthly Rent: $5,504.00 $5,888.00
1. L. Security Deposit: $5,888.00*
*To be applied to Suite A/205.
</TABLE>
2. PREMISES
Landlord leases to Tenant the premises described in Section 1 and in
Exhibit A, (the "Premises") and Exhibit A-1 ("Expansion Space"), located in this
project described on Exhibit B and Exhibit B-1 (the "Projects"). Landlord
reserves the right to modify Tenant's percentage of the Project as set forth in
Section 1 if the Project size is
<PAGE>
increased through the development of additional property. By entry on the
Premises, Tenant acknowledges that it has examined the Premises and accepts the
Premises in their present condition, subject to any additional work Landlord has
agreed to do.
14. ALTERATIONS
Tenant shall not make any alterations to the Premises, or to the Project,
including any changes to the existing landscaping, without Landlord's prior
written consent, which consent (in the case of non-structural alterations) shall
not be unreasonably withheld. If Landlord gives its consent to such alterations,
Landlord may post notices in accordance with the laws of the state in which the
Premises are located. The parties acknowledge that Tenant is considering making
specific alterations to the Expansion Space which will include eliminating an
existing conference room and existing cabinets and which will also require
alterations to existing carpet (collectively, the "Possible Alterations"). If
Landlord approves and Tenant completes the Possible Alterations, upon expiration
or termination of this Lease, Tenant shall deposit with Landlord the amount
necessary, as determined by Landlord (the "Completion Deposit"), to complete the
following: (i) construct a conference room with dimensions of at least 16' x 12'
in approximately the same location as the existing conference room which will be
eliminated as part of the Possible Alterations, using then-existing standard
Project finishes; and (ii) to construct and install, in a location determined by
Landlord, a minimum of eight (8) lineal feet of upper and lower cabinets, using
then-existing Project standard finishes. Further, if Landlord approves and
Tenant completes the Possible Alterations, upon expiration or termination of
this Lease, Landlord shall be authorized to apply up to sixty percent (60%) of
the Security Deposit for replacement of the carpet (standard Project grade)
throughout the office portion of the Expansion Space. Tenant shall not owe the
Completion Deposit and Landlord shall not be entitled to apply the 60% portion
of the Security Deposit as provided herein if termination or expiration of the
Lease occurs after June 30, 1999. Any alterations made shall remain on and be
surrendered with the Premises except that Landlord may, within 30 days before or
30 days after expiration of the term, elect to require Tenant to remove any
alterations which Tenant may have made to the Premises, other than the Possible
Alterations. If Landlord so elects, at its own cost Tenant shall restore the
Premises to the original condition, reasonable wear and tear excepted, before
the last day of the term or within 30 days after notice of its election is
given, whichever is later. Tenant may, at the time of requesting Landlord's
consent to alterations, further request in writing that Landlord elect, at the
time of granting consent, whether such alterations must be removed upon
termination of the lease.
Should Landlord consent in writing to Tenant's alteration of the Premises,
Tenant shall contract with a contractor approved by Landlord for the
construction of
-2-
<PAGE>
such alterations, shall secure all appropriate governmental approvals and
permits, and shall complete such alterations with due diligence in compliance
with plans and specifications approved by Landlord. All such construction shall
be performed in a manner which will not interfere with the quiet enjoyment of
other tenants of the Project. Tenant shall pay all costs for such construction
and shall keep the Premises and the Project free and clear of all mechanics'
liens which may result from construction by Tenant.
31. EARLY OCCUPANCY
Tenant shall be entitled to occupy the Premises for the purpose of
construction of Tenant Improvements. If Tenant so occupies the Premises prior to
the Commencement Duty then (i) all provisions of this Lease other than payment
of Base Monthly Rent and Tenant's Share of Expenses shall be applicable from and
after the date of Tenant's first occupancy, and (ii) Tenant shall pay Landlord,
within fifteen (15) days of invoice, the cost of utility services used during
construction as reasonably estimated by Landlord. If Tenant commences to do
business at or from the Premsies prior to April 7, 1997, then Section 1 (g)
shall be deemed amended to establish as the Commencement Date the day on which
Tenant commenced to do business at or from the Premises.
All other terms and conditions of the above described Lease shall remain in
full force and effect.
Landlord: WRC Properties, Iliac.
By: /s/ JAMES P. GAROFALO
--------------------------------
James Garofalo
Its: Assistant Secretary
Tenant: ONYX Software Corporation
By: /s/ FRASER BLACK
--------------------------------
Fraser Black
Its: CFO
-3-
<PAGE>
STATE OF New York )
) ss.
COUNTY OF New York )
I certify that I know or have satisfactory evidence that James Garofalo is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the instrument
and acknowledged it as the Assistant Secretary of WRC Properties. Inc. to be the
free and voluntary act of such party for the uses and purposes mentioned in the
instrument.
Dated: 4/24/97
----------------------------------
/s/ DENISE SPOERING
----------------------------------------
(Signature)
________________________________________
(Print Name)
Notary Public, in and for the State of
___________, residing at_______________
My Commission Expires 7/31/98
-------------------
STATE OF _______________________ )
) ss.
COUNTY OF ______________________ )
I certify that I know or have satisfactory evidence that Fraser Black is
the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the CFO of ONYX Software Corporation to be the
free and voluntary act of such party for the uses and purposes mentioned in the
instrument.
Dated: April 3, 1997
----------------------------------
/s/ KURT LIEBER
-----------------------------------------
(Signature)
/s/ Kurt Lieber
-----------------------------------------
(Print Name)
-4-
<PAGE>
Notary Public, in and for the State of
WA, residing at Seattle My Commission
-- -------
Expires 2/04/98
------------
-5-
<PAGE>
SECOND AMENDMENT TO LEASE
ADDITION OF SQUARE FEET
That certain Leased dated February 4, 1997 by and between WRC Properties,
Inc., a Delaware corporation, Landlord and ONYX Software Corporation, a
Washington corporation, Tenant for the premises located at 320 1 20th Avenue
N.E., Bellevue, WA 98005 Building B, Unit 100 is amended this 17th day of April,
1997 solely as hereinafter described.
Effective the 1st day of May, 1997 the clauses below are substituted for
like numbered clauses in the Lease agreement.
<TABLE>
<CAPTION>
Building B Building A Building B
320 120th Avenue NE 310 120th Avenue NE 330 120th Avenue NE
Suite 100 Suite 205 Suite 208
Bellevue, WA 98005 Bellevue, WA 98005 Bellevue, WA 98005
<S> <C> <C> <C>
1. e. Premises Area: 3,476 rentable square feet 3,489 rentable square feet 1,403 rentable square feet
1. g. Term Commencement: March 15, 1997 Commencement: April 7, 1997 Commencement: July 1, 1997 or date
of Lease: Expiration: June 30, 1999 Expiration: June 30, 1999 of actual occupancy which shall be
no later than September 1, 1997.
Expiration: June 30, 1999
1. h. Base Monthly $5,504.00 $5,888.00 $2,368.00
Rent:
1. l. Security Deposit*: $5,504.00* $5,888.00 $2,368.00
</TABLE>
*of which $11,392.00 has previously been deposited with Landlord.
2. PREMISES
Landlord leases to Tenant the premises described in Section 1 and in
Exhibit A, (the Premises") and Exhibit A-1 and Exhibit A-2 ("Expansion
Space"). Landlord reserves the right to modify Tenant's percentage of the
Project as set forth in Section 1 if the Project size is increased through
the development of additional property. By entry on the Premises, Tenant
acknowledges that it has examined the Premises and accepts the Premises in
their present condition, subject to any additional work Landlord has agreed
to do (see attached Exhibit D).
All other terms and conditions of the above described Lease shall
remain in full force and effect.
Landlord: WRC Properties, Inc.
<PAGE>
By: JAMES P. GAROFALO
-----------------
James Garofalo
Its: Assistant Secretary
Tenant: ONYX Software Corporation
By: FRASER BLACK
------------
Fraser Black
Its: CFO
-2-
<PAGE>
STATE OF New York )
) ss.
COUNTY OF New York )
I certify that I know or have satisfactory evidence that James Garofalo is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the instrument
and acknowledged it as the Assistant Secretary of WRC Properties, Inc. to be the
free and voluntary act of such party for the uses and purposes mentioned in the
instrument.
Dated: August 14, 1997
------------------------------
MARYANNE MAZZONE
-------------------------------------
(Signature)
Maryanne Mazzone
-------------------------------------
(Print Name)
Notary Public, in and for the State
of New York, residing at Lynbrook
-------- -----------
My Commission Expires 11-23-98
---------------
STATE OF ________________________)
) ss.
COUNTY OF _______________________)
I certify that I know or have satisfactory evidence that Fraser Black is
the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the CFO of ONYX Software Corporation to be the
free and voluntary act of such party for the uses and purposes mentioned in the
instrument:
Dated: July 1, 1997
------------------------------
KURT LIEBER
-------------------------------------
(Signature)
Kurt Lieber
-------------------------------------
(Print Name)
Notary Public, in and for the State
of WA , residing at Everett
------- ------------
My Commission Expires 2-04-98
--------------
-3-
<PAGE>
THIRD AMENDMENT TO LEASE
ADDITION OF SQUARE FEET
That certain Leased dated February 4, 1997 by and between Teachers
Insurance & Annuity Association of America, Inc., a Delaware corporation. as
successor to WRC Properties, Inc. . Landlord and ONYX Software Corporation. a
Washington corporation, Tenant for the premises located at 320 120th Avenue
N.E., Bellevue.WA 98005 Building B, Unit 100 is amended this 13th day of
February, 1998, solely as hereinafter described.
Effective the 15th day of April, 1998 the clauses below are substituted for
like numbered clauses in the Lease agreement.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Building B Building A Building B Building B Building C
320 120th Ave. NE 310 120th Ave. NE 320 120th Ave. NE 320 120th Ave. NE 330 120th Ave. NE
Suite 100 Suite 205 Suite 208 Suite 199 Suite C101A
Bellevue, WA Bellevue, WA Bellevue, WA Bellevue, WA Bellevue, WA
98005 98005 98005 98005 98005
1.e. Premises Area: 3,476 RSF 3,489 RSF 1,403 RSF 507 RSF 372 RSF
1.g. Term of Lease: Commencement: Commencement: Commencement: Commencement: Commencement:
3/5/97 4/7/97 7/1/97 or date of 4/15/98 5/1/98
Expiration: Expiration: actual occupancy which Expiration: Expiration:
6/30/99 6/30/99 shall be no later than 6/30/99 6/30/99
9/1/97
Expiration :
6/30/99
1.h. Base Monthly Rent: $5,504.00 $5,888.00 $2,368.00 $1,014.00 $ 713.00
1.j. Annual Expense Base: 1997 Base Year 1997 Base Year 1997 Base Year 1998 Base Year 1998 Base Year
1.l. Security Deposit* $5,504.00 $5,888.00 $2,368.00 $1,014.00 $ -0-
</TABLE>
*of which $13,760.00 has previously been deposited with Landlord.
2. PREMISES. Landlord leases to Tenant the premises described in Section
1 and in Exhibit A, Exhibit A-1 and Exhibit A-2 (the "Premises") and Exhibit A-3
and Exhibit A-4 (the "Expansion Space"), located in this project described on
Exhibit B, Exhibit B-1 and Exhibit B-2 (the "Projects"). Landlord reserves the
right to modify Tenant's percentage of the Project as set forth in Section 1 if
the Project size is increased through the development of additional property. By
entry on the Premises, Tenant acknowledges that it has examined the Premises and
accepts the Premises in their present condition, subject to any additional work
Landlord has agreed to do (see attached Exhibit D).
All other terms and conditions of the above described Lease shall remain in
full force and effect.
Landlord:Teachers Insurance & Annuity
----------------------------
-1-
<PAGE>
Association of America, Inc.
- ----------------------------
By: JAMES P. GAROFALO
----------------------------------
James Garofalo
Its: Assistant Secretary
Tenant: ONYX Software Corporation
By: AMY KELLERAN
----------------------------------
Its: Controller
--------------------------------
-2-
<PAGE>
STATE OF NEW YORK )
)ss.
COUNTY OF NEW YORK )
I certify that I know or have satisfactory evidence that James Garofalo is
the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the Assistant Secretary of Teachers Insurance
& Annuity Association of America. Inc. to be the free and voluntary act of such
party for the uses and purposes mentioned in the instrument.
Dated: 4-6-98
---------------
DEBORAH A. REESE
-------------------------------------
(Signature)
Deborah A. Reese
-------------------------------------
(Print Name)
Notary Public, in and for the State of New York,
residing at Queens
-------------------------
My Commission Expires 1-20-00
---------------
STATE OF WA )
)ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Amy Kelleran
------------------
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the controller of ONYX Software Corporation
--------------
to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
Dated: 3-9-98
----------------
JILL RANKIN
-------------------------------------
(Signature)
Jill Rankin
-------------------------------------
(Print Name)
Notary Public, in and for the State of New York,
residing at Bothell
-------------------------
My Commission Expires 5-19-01
---------------
-3-
<PAGE>
EXHIBIT 10.5
1. BASIC LEASE TERMS
a. DATE OF LEASE: February 19, 1998
b. TENANT: ONYX Software Corporation,
a Washington corporation
Trade Name: ONYX Software Corporation
Address (Leased Premises): 310 - 120th Avenue N.E.,
Bellevue, WA 98005
Building/Unit: A/102
Address (For Notices): 310 - 120th Avenue N.E., Suite 205.
Bellevue, WA 98005
c. LANDLORD: Teachers Insurance & Annuity
Association of America,. Inc.
Address (For Notices): 730 Third Avenue, 7th Floor,
New York, New York 10017
with a copy to Koll Management Services, 22118 20th Avenue SE,
Bothell, WA, 98021, Facsimile: (206) 487-2126; or to such other place
as Landlord may from time to time designate by notice to Tenant.
d. TENANT'S USE OF PREMISES: Administrative office for computer software
developer or General Office
e. PREMISES: Approximately 1,653 rentable square feet. Commencing
August 1, 1998 the Premises shall be expanded to include additional
area of 1,773 square feet located in Suite A/101 (Expansion Space) for
a total of 3,426 square feet that shall continue until March 31, 2001.
Except as specifically otherwise set forth herein, all terms and
conditions of the Lease shall apply to the Expansion Space in the same
manner and to the same extent as to the Original Premises.
f. PROJECT AREA: Approximately 120,872 Rentable Square Feet
g. TERM OF LEASE: This Lease shall commence on April 1, 1998 or such
earlier or later date as is provided in Section 3 (the "Commencement
Date"), and shall terminate on March 31, 2001.
h. BASE MONTHLY RENT: $3,306.00
PAGE 1
<PAGE>
i. RENT ADJUSTMENT: Commencing on August 1, 1998, and continuing on the
first day of each month thereafter, continuing until March 31, 2001,
Tenant shall pay Landlord as Base Monthly Rent an amount of $6,852.00
per month.
j. ANNUAL EXPENSE BASE: 1998 Base Year.
k. PREPAID RENT: $0.00
l. SECURITY DEPOSIT: $3.306.00
NON-REFUNDABLE CLEANING FEE: $ 0.00
m. BROKER(S): Chris Holden/Steve Penn - CB Commercial/Koll Management,
Jim Kinerk - Broderick Group.
n. GUARANTORS: N/A
o. ADDITIONAL SECTIONS: Additional sections of this lease numbered 29
through ___ are attached hereto and made a part hereof. If none, so
state in the following space -- .
----
p. ADDITIONAL EXHIBITS: Additional exhibits lettered A through E are
attached hereto and made a part hereof. If none, so state in the
following space -- .
----
2. PREMISES/COMMON AREAS/PROJECT.
A. PREMISES
Landlord leases to Tenant the premises described in Section 1 and in
Exhibit A (the "Premises") and Exhibit A-1 (the "Expansion Space"), located in
this project described on Exhibit B (the "Project"). By entry on the Premises,
Tenant acknowledges that it has examined the Premises and accepts the Premises
in their present condition, subject to any additional work Landlord has agreed
to do. Tenant represents and warrants that it agrees with the square footage
specified for the Premises and the Project in Section 1 and will not hereafter
challenge such determination and agreement.
B. COMMON AREAS
As used in this Lease, "Common Areas" shall mean all portions of the
Project not leased or demised for lease to specific tenants. During the Lease
Term, Tenant and its licensees, invitees, customers and employees shall have the
non-exclusive right to use the public portions of the Common Areas, including
all parking areas,
PAGE 2
<PAGE>
landscaped areas, entrances, lobbies, elevators, stairs, corridors, and public
restrooms in common with Landlord, other Project tenants and their respective
licensees, invitees, customers and employees. Landlord shall at all times have
exclusive control and management of the Common Areas and no diminution thereof
shall be deemed a constructive or actual eviction or entitle Tenant to
compensation or a reduction or abatement of rent. Landlord in its discretion may
increase, decrease or change the number, locations and dimensions of any Common
Areas and other improvements shown on Exhibit A which are not within the
Premises, provided only that (subject to temporary construction inconveniences)
no decrease or rearrangement may materially disrupt the use or access to the
Premises or materially decrease the availability of parking.
C. PROJECT
Landlord reserves the right in its sole discretion to modify or alter the
configuration or number of buildings in the Project, provided only that upon
such modification or alteration, the Project Area as set forth in Section l(f)
shall be adjusted to reflect such modification or alteration.
3. TERM
The Commencement Date listed in Section 1 of this Lease represents an
estimate of the Commencement Date. This Lease shall commence on the estimated
Commencement Date if tenant improvement work required of Landlord pursuant to
this Lease ("Landlord's Work") is substantially completed (as that term is used
in the construction industry) by such date, but otherwise the Commencement Date
shall be first to occur of the following events (i) the date on which Landlord
notifies Tenant that Landlord's Work is substantially complete, (ii) the date on
which Tenant takes possession or commences beneficial occupancy of the Premises,
or (iii) if substantial completion of Landlord's Work is delayed due to Tenant's
failure to perform its obligations under this Lease, then the date determined by
Landlord as the date upon which Landlord's Work would have been substantially
completed, but for Tenant's failure to perform. If this Commencement Date is
later than the Section 1 Commencement Date, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom. Notwithstanding the foregoing, if Tenant is not permitted
access to use the Premises for the purposes described in Section 1(d) within
thirty (30) days of the Commencement Date, this Lease shall be voidable at the
discretion of the Tenant by notice given by Tenant to Landlord within three (3)
days after expiration of such thirty (30) day period. Landlord shall confirm
the Commencement Date by written notice to Tenant. This Lease shall be for a
term ("Lease Term") beginning on the Commencement Date and ending on the
Expiration Date, unless extended or sooner terminated in accordance
PAGE 3
<PAGE>
with the terms of this Lease. All provisions of this Lease, other than those
relating to payment of Base Monthly Rent and Additional Rent, shall become
effective upon the first to occur of (a) the date that Tenant or its officers,
agents, employees or contractors is first present on the Premises, whether for
inspection, construction, installation or other purposes, or (b) such other
date, if any, as may be specified in an Exhibit hereto.
4. RENT
A. BASE RENT
Tenant shall pay Landlord monthly base rent in the initial amount in
Section 1 which shall be payable monthly in advance on the first day of each and
every calendar month ("Base Monthly Rent") provided, however, the first month's
Base Monthly Rent and Tenant's Share of Expenses is due and payable upon
execution of this Lease. If the term of this Lease contains any rental
abatement period, Tenant hereby agrees that if Tenant breaches the Lease and
fails to cure such breach within the applicable cure period, if any, and/or
abandons the Premises before the end of the Lease term, or if Tenant's right to
possession is terminated by Landlord because of Tenant's breach of the Lease,
the rental abatement period shall be deemed extinguished, and there shall be
immediately due from Tenant to Landlord, in addition to any damages otherwise
due Landlord under the terms and conditions of the Lease, Base Monthly Rent
prorated for the entirety of the rental abatement period at the average Base
Monthly Rent for the Lease, plus any and all other charges (such as Expenses)
that were abated during such rental abatement period.
For purposes of Section 467 of the Internal Revenue Code, the parties to
this Lease hereby agree to allocate the stated Rents, provided herein, to the
periods which correspond to the actual Rent payments as provided under the terms
and conditions of this agreement.
B. RENT ADJUSTMENT
1) COST OF LIVING ADJUSTMENT
If Section i.i(1) is initialed, the Base Monthly Rent shall be subject to
increase on each annual anniversary of the first day of the first full calendar
month after the Commencement Date (the "Anniversary Date"). The base for
computing the increase is the Consumer Price Index All Urban Consumers U.S. City
Average (1982-84=100), published by the United States Department of Labor,
Bureau of Labor Statistics ("Index"), which is in effect on the ninetieth (90th)
day preceding the Commencement Date ("Beginning Index"). The Index published
and in effect on the ninetieth (90th) day preceding each Anniversary Date
("Extension Index") is to be used in determining
PAGE 4
<PAGE>
the amount of the increase from one year to the next. Beginning with the Rent
due on and after the first anniversary the Base Monthly Rent shall be increased
to equal the product achieved by multiplying the full Base Monthly Rent due with
respect to the month immediately preceding such anniversary date by a fraction.
On the first Anniversary Date, the numerator of the fraction will be the
Extension Index and the denominator will be the Beginning Index. On the second
and any subsequent Anniversary Date, the numerator of the fraction will be the
current Extension Index and the denominator will be the Extension Index used to
calculate the previous year's Base Monthly Rental increase. If there is a
decline from one lease year to the next in the Extension Index, the Base Monthly
Rent due during the subsequent lease year shall equal the Base Monthly Rent due
during the then present lease year.
If the Index is changed so that the base year differs from that in effect
when the term commences, the Index shall be converted in accordance with the
conversion factor published by the United States Department of Labor, Bureau of
Labor Statistics. If the Index is discontinued or revised during the term, such
other government index or computation with which it is replaced shall be used in
order to obtain substantially the same result as would be obtained if the Index
had not been discontinued or revised.
2) STEP INCREASE
If Section 1.i.(2) is initialed, Base Monthly Rent shall be increased
periodically to the amounts and at the times set forth in Section 1.i.(2).
C. EXPENSES
The purpose of this Section 4.c is to ensure that Tenant bears a share of
all Expenses related to the use, maintenance, ownership, repair or replacement,
and insurance of the Project. Accordingly, beginning on January l, 1999, Tenant
shall each month pay to Landlord one-twelfth (1/12) of Tenant's Share of
Expenses related to the Project. As used in this Lease, "Tenant's Share" shall
mean the Premises Area, as defined in Section 1.e, divided by the Project Area,
as defined in Section 1.f, and "Tenant's Share of Expenses" shall mean total
Expenses for the Project, multiplied by Tenant's Share, minus the Annual Expense
Base set forth in Section 1(j). Landlord may specially allocate individual
expenses where and in the manner necessary, in Landlord's discretion, to
appropriately reflect the consumption of the expense or service. For example
where some but not all premises in the Project have HVAC, Landlord may
reallocate Project Expenses for HVAC to all premises utilizing HVAC to be
apportioned on a per square foot basis, or could allocate to each premises
utilizing HVAC the cost of maintaining that space's individual unit. In the
event the average occupancy level of the Project for any year is less than
ninety five percent
PAGE 5
<PAGE>
(95%), the actual Expenses for such year shall be proportionately adjusted to
reflect those costs which Landlord estimates would have been incurred, had the
Project been ninety five percent (95%) occupied during such year.
1) EXPENSES DEFINED
The term "Expenses" shall mean all costs and expenses of the ownership,
operation, maintenance, repair or replacement, and insurance of the Project,
including without limitation, the following costs:
(a) All supplies, materials, labor, equipment, and utilities used in
or related to the operation and maintenance of the Project,
(b) All maintenance, management, janitorial, legal, accounting,
insurance, and service agreement costs related to the Project;
(c) All maintenance, replacement and repair costs relating to the
areas within or around the Project, including, without limitation, air
conditioning systems, sidewalks, landscaping, service areas, driveways, parking
Areas (including resurfacing and restriping parking areas), walkways, building
exteriors (including painting), signs and directories, repairing and replacing
roofs, walls, etc. These costs may be included either based on actual
expenditures or the use of an accounting reserve based on past cost experience
for the Project.
(d) Amortization (along with reasonable financing charges) of capital
improvements made to the Project which may be required by any government
authority or which will improve the operating efficiency of the Project
(provided, however, that the amount of such amortization for improvements not
mandated by government authority shall not exceed in any year the amount of
costs reasonably determined by Landlord in its sole discretion to have been
saved by the expenditure either through the reduction or minimization of
increases which would have otherwise occurred).
(e) Real Property Taxes including all taxes, assessments (general and
special) and other impositions or charges which may be taxed, charged, levied,
assessed or imposed upon all or any portion of or in relation to the Project or
any portion thereof, any leasehold estate in the Premises or measured by Rent
from the Premises, including any increase caused by the transfer, sale or
encumbrance of the Project or any portion thereof. "Real Property Taxes" shall
also include any form of assessment, levy, penalty, charge or tax (other than
estate, inheritance, net income, or franchise taxes) imposed by any authority
having a direct or indirect power to tax or charge, including, without
limitation, any city, county, state federal or any improvement or other
district, whether such tax is (l) determined by the value of the
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Project or the Rent or other sums payable under this Lease; (2) upon or with
respect to any legal or equitable interest of Landlord in the Project or any
part thereof; (3) upon this transaction or any document to which Tenant is a
party creating a transfer in any interest in the Project, (4) in lieu of or as a
direct substitute in whole or in part of or in addition to any real property
taxes on the Project, (5) based on any parking spaces or parking facilities
provided in the Project, or (6) in consideration for services, such as police
protection, fire protection, street, sidewalk and roadway maintenance, refuse
removal or other services that may be provided by any governmental or quasi-
governmental agency from time to time which were formerly provided without
charge or with less charge to property owners or occupants.
(f) Landlord agrees that Expenses as defined in Section 4(c) shall not
include leasing commissions; payments of principal and interest on any
mortgages, deeds of trust or other encumbrances upon the Project; depreciation
of the capital cost of capital improvements except as provided at 4(c)(1)(d);
Landlord's executive salaries, management fees in excess of market rates; costs
resulting from defective design or construction of the Project; costs incurred
in connection with entering into new leases; or costs of disputes under existing
leases. In no event shall Expenses include any charge for which Landlord
receives reimbursement from insurance or from another Tenant, nor shall any item
of Expense be counted more than once, nor shall Landlord collect more than one
hundred percent (100%) of Expenses.
2) ANNUAL ESTIMATE OF EXPENSES, TENANT'S SHARE
At the commencement of each calendar year, beginning with calendar year
1999, Landlord shall estimate Tenant's share of Expenses for the remainder of
the calendar year, and at the commencement of each calendar year thereafter,
Landlord shall estimate Tenant's Share of Expenses for the coming year by
multiplying the estimated annual Project Expenses by Tenant's Share and
subtracting the Annual Expense Base.
3) MONTHLY PAYMENT OF EXPENSES
Tenant shall pay to Landlord, monthly in advance, as Additional Rent, one-
twelfth (1/12) of the Annual Estimate of Tenant's Share of Expenses beginning on
January 1, 1999. As soon as practical following each calendar year, Landlord
shall prepare an accounting of actual Expenses incurred during the prior
calendar year and such accounting shall reflect Tenant's Share of Expenses. If
the Additional Rent paid by Tenant under this Section 4.c.3 during the preceding
calendar year was less than the actual amount of Tenant's Share of Expenses,
Landlord shall so notify Tenant and Tenant shall pay such amount to Landlord
within 30 days of receipt of such notice.
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Such amount shall be deemed to have accrued during the prior calendar year and
shall be due and payable from Tenant even though the term of this Lease has
expired or this Lease has been terminated prior to Tenant's receipt of this
notice. Tenant shall have thirty (30) days from receipt of such notice to
contest the amount due, failure to so notify Landlord shall represent final
determination of Tenant's Share of Expenses. If Tenant's payments were greater
than the actual amount, then such overpayment shall be credited by Landlord to
Tenant's Share of Expenses due under this Section 4.c.3, or if the Lease has
expired or been terminated, any overpayment net of other sums due from Tenant to
Landlord shall be refunded to Tenant by check.
4) RENT WITHOUT OFFSET AND LATE CHARGE
As used herein, "Rent" shall mean all monetary sums due from Tenant to
Landlord. All Base Monthly Rent shall be paid by Tenant to Landlord without
prior notice or demand in advance on the first day of every calendar month, at
the address shown in Section 1, or such other place as landlord may designate in
writing from time to time. Whether or not so designated, all other sums due
from Tenant under this Lease shall constitute Additional Rent, payable without
prior notice or demand when specified in this Lease, but if not specified, then
within ten (10) days of demand. All Rent shall be paid without any deduction or
offset whatsoever. All Rent shall be paid in lawful currency of the United
States of America. Proration of Rent due for any partial month shall be
calculated by dividing the number of days in the month for which Rent is due by
the actual number of days in that month and multiplying by the applicable
monthly rate. Tenant acknowledges that late payment by Tenant to Landlord of
any Rent or other sums due under this Lease will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of such cost being extremely
difficult and impracticable to ascertain. Such costs include, without
limitation, processing and accounting charges and late charges that may be
imposed on Landlord by the terms of any encumbrance or note secured by the
Premises. Therefore, if any Rent or other sum due from Tenant is not received
by the end of the 10th day after due (i.e. by the end of the 10th day of the
month for sums due on the first), Tenant shall pay to Landlord an additional sum
equal to 10% of such overdue payment. Landlord and Tenant hereby agree that
such late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of any such late payment and that the late charge
is in addition to any and all remedies available to the Landlord and that the
assessment and/or collection of the late charge shall not be deemed a waiver of
any other default. Additionally, all such delinquent Rent or other sums, plus
this late charge, shall bear interest at the rate of 12 percent per annum. If
the interest rate specified in this Lease is higher than the rate permitted by
law, the interest rate is hereby decreased to the maximum legal interest rate
permitted by law. Any payments of any kind returned for insufficient funds will
be subject to an
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additional handling charge of $25.00, and thereafter, Landlord may require
Tenant to pay all future payments of Rent or other sums due by money order or
cashier's check.
5. PREPAID RENT
Upon the execution of this Lease, Tenant shall, in addition to the payment
of the first month's Rent as set forth in Section 4.a, pay to Landlord the
prepaid Rent set forth in Section 1.k, and if Tenant is not in default of any
provisions of this Lease, such prepaid Rent shall be applied toward the Base
Monthly Rent for the months set forth in Section 1.k. Landlord's obligations
with respect to the prepaid Rent are those of a debtor and not of a trustee, and
Landlord can commingle the prepaid Rent with Landlord's general funds. Landlord
shall not be required to pay Tenant interest on the prepaid Rent. Landlord
shall be entitled to immediately endorse and cash Tenant's prepaid Rent;
however, such endorsement and cashing shall not constitute Landlord's acceptance
of this Lease. In the event Landlord does not accept this Lease, Landlord shall
return said prepaid Rent.
6. DEPOSIT
Upon execution of this Lease, Tenant shall deposit a security deposit and a
cleaning fee as set forth in Section 1.1 with Landlord. If Tenant is in
default, Landlord, upon 5 days notice, can use the security deposit or any
portion of it to cure the default or to compensate Landlord for any damages
sustained by Landlord resulting from Tenant's default. Upon demand, Tenant
shall immediately pay to Landlord a sum equal to the portion of the security
deposit expended or applied by Landlord to restore the security deposit to its
full amount. In no event will Tenant have the right to apply any part of the
security deposit to any Rent or other sums due under this Lease. If Tenant is
not in default at the expiration or termination of this Lease, Landlord shall
return the security deposit to Tenant, and retain the cleaning fee, which shall
equal 10% of first month's Base Monthly Rent or $125, whichever is greater.
Landlord's obligations with respect to the deposit are those of a debtor and not
of a trustee, and Landlord can commingle the security deposit with Landlord's
general funds. Landlord shall not be required to pay Tenant interest on the
deposit. Upon full execution of the lease, Landlord shall be entitled to
endorse and cash Tenant's prepaid deposit. Each time the Base Monthly Rent is
increased, Tenant shall deposit additional funds with Landlord sum sufficient to
increase the security deposit to an amount which bears the same relationship to
the adjusted Base Monthly Rent as the initial security deposit bore to the
initial Base Monthly Rent.
7. USE OF PREMISES AND PROJECT FACILITIES
Tenant shall use the Premises solely for the purposes set forth in Section
1 and for no other purpose without obtaining the prior written consent of
Landlord. Tenant
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acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty with respect to the Premises or with respect to the
suitability of the Premises or the Project for the conduct of Tenant's business,
nor has Landlord agreed to undertake any modification, alteration or improvement
to the Premises or the Project, except as provided in writing in this Lease.
Tenant acknowledges that Landlord may from time to time, at its sole discretion,
make such modifications, alterations, deletions or improvements to the Project
as Landlord may deem necessary or desirable, without compensation or notice to
Tenant. Tenant shall promptly comply with all laws, ordinances, orders and
regulations affecting the Premises and the Project, including, without
limitation, any rules and regulations that may be attached to this Lease and to
any reasonable modifications to these rules and regulations as Landlord may
adopt from time to time. Tenant acknowledges that, except for Landlord's
obligations pursuant to Section 13, Tenant is solely responsible for ensuring
that the Premises comply with any and all governmental regulations applicable to
Tenant's conduct of business on the Premises, and that Tenant is solely
responsible for any alterations or improvements that may be required by such
regulations, now existing or hereafter adopted. Tenant shall not do or permit
anything to be done in or about the Premises or bring or keep anything in the
Premises that will in any way increase the premiums paid by Landlord on its
insurance related to the Project or which will in any way increase the premiums
for fire or casualty insurance carried by other tenants in the Project. Tenant
will not perform any act or carry on any practices that may injure the Premises
or the Project; that may be a nuisance or menace to other tenants in the
Project; or that shall in any way interfere with the quiet enjoyment of such
other tenants. Tenant shall not use the Premises for sleeping, washing clothes,
cooking or the preparation, manufacture or mixing of anything that might emit
any objectionable odor, noises, vibrations or lights onto such other tenants. If
sound insulation is required to muffle noise produced by Tenant on the Premises,
Tenant at its own cost shall provide all necessary insulation. Tenant shall not
do anything on the premises which will overload any existing parking or service
to the Premises. Pets and/or animals of any type shall not be kept on the
Premises.
8. HAZARDOUS SUBSTANCES; DISRUPTIVE ACTIVITIES
A. HAZARDOUS SUBSTANCES
(1) Presence and Use of Hazardous Substances. Tenant shall not, without
----------------------------------------
Landlord's prior written consent, keep on or around the Premises, Common Areas
or Building, for use, disposal, treatment, generation, storage or sale, any
substances designed as, or containing components designated as hazardous,
dangerous, toxic or harmful (collectively referred to as "Hazardous
Substances"), and/or is subject to regulation, statute or ordinance. With
respect to any such Hazardous Substance, Tenant shall:
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(i) Comply promptly, timely, and completely with all governmental
requirements for reporting, keeping, and submitting manifests, and
obtaining and keeping current identification numbers;
(ii) Submit to Landlord true and correct copies of all reports,
manifests, and identification numbers at the same time as they are required
to be and/or are submitted to the appropriate governmental authorities;
(iii) Within five (5) days of Landlord's request, submit written
reports to Landlord regarding Tenant's use, storage, treatment,
transportation, generation, disposal or sale of Hazardous Substances and
provide evidence satisfactory to Landlord of Tenant's compliance with the
applicable government regulations;
(iv) Allow Landlord or Landlord's agent or representative to come
on the premises at all times to check Tenant's compliance with all
applicable governmental regulations regarding Hazardous Substances;
(v) Comply with minimum levels, standards or other performance
standards or requirements which may be set forth or established for certain
Hazardous Substances (if minimum standards or levels are applicable to
Hazardous Substances present on the Premises, such levels or standards
shall be established by an on-site inspection by the appropriate
governmental authorities and shall be set forth in an addendum to this
Lease); and
(vi) Comply with all applicable governmental rules, regulations and
requirements regarding the proper and lawful use, sale, transportation,
generation, treatment, and disposal of Hazardous Substances.
(2) Any and all costs incurred by Landlord and associated with Landlord's
monitoring of Tenant's compliance with this Section 8, including Landlord's
attorneys' fees and costs, shall be Additional Rent and shall be due and payable
to Landlord immediately upon demand by Landlord.
B. CLEANUP COSTS, DEFAULT AND INDEMNIFICATION
(1) Tenant shall be fully and completely liable to Landlord for any and
all cleanup costs, and any and all other charges, fees, penalties (civil and
criminal) imposed by any governmental authority with respect to Tenant's use,
disposal, transportation, generation and/or sale of Hazardous Substances, in or
about the Premises, Common Areas, or Building.
(2) Tenant shall indemnify, defend and save Landlord and Landlord's
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lender, if any, harmless from any and all of the costs, fees, penalties and
charges assessed against or imposed upon Landlord (as well as Landlord's and
Landlord's lender's attorneys' fees and costs) as a result of Tenant's use,
disposal, transportation, generation and/or sale of Hazardous Substances.
(3) Upon Tenant's default under this Section 8, in addition to the rights
and remedies set forth elsewhere in this Lease, Landlord shall be entitled to
the following rights and remedies:
(i) At Landlord's option, to terminate this Lease immediately;
and/or
(ii) To recover any and all damages associated with the default,
including, but not limited to cleanup costs and charges, civil and criminal
penalties and fees, loss of business and sales by Landlord and other
tenants of the Building, any and all damages and claims asserted by third
parties and Landlord's attorneys' fees and costs.
C. DISRUPTIVE ACTIVITIES
Tenant shall not:
1) Produce, or permit to be produced, any intense glare, light or
heat except within an enclosed or screened area and then only in such
manner that the glare, light or heat shall not, outside the Premises, be
materially different that the light or heat from other sources outside the
Premises;
2) Create, or permit to be created, any sound pressure level which
will interfere with the quiet enjoyment of any real property outside the
Premises, or which will create a nuisance or violate any governmental law,
rule, regulation or requirement;
3) Create, or permit to be created, any ground vibration that is
materially discernible outside the Premises;
4) Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation which is harmful or hazardous
to any person or property in, or about the Project; or
5) Create, or permit to be created, any noxious odor that is
disruptive to the business operations of any other tenant in the Project.
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9. SIGNAGE
All signing shall comply with rules and regulations set forth by Landlord
as may be modified from time to time. Current rules and regulations relating to
interior and exterior signs are described on Exhibit C. Tenant shall place no
non-building standard window covering (e.g., shades, blinds, curtains, drapes,
screens, or tinting materials), stickers, signs, lettering, banners or
advertising or display material on or near exterior windows or doors if such
materials are visible from the exterior of the Premises, without Landlord's
prior written consent. Similarly, Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without Landlord's
prior written consent, other than provided for in this Lease. Any material
violating this provision may be destroyed by Landlord, on three (3) days notice
to Tenant, without compensation to Tenant.
10. PERSONAL PROPERTY TAXES
Tenant shall pay before delinquency all taxes, assessments, license fees
and public charges levied, assessed or imposed upon its business operations as
well as upon all trade fixtures, leasehold improvements, merchandise and other
personal property in or about the Premises.
11. PARKING
Landlord grants to Tenant and Tenant's customers, suppliers, employees and
invitees, a non-exclusive license to use the designated parking areas in the
Project for the use of motor vehicles during the term of this Lease. Landlord
reserves the right at any time to grant similar non-exclusive use to other
tenants, to promulgate rules and regulations relating to the use of such parking
areas, including reasonable restrictions on parking by tenants and employees, to
designate specific spaces for the use of any tenant, to make changes in the
parking layout from time to time, and to establish reasonable time limits on
parking. Overnight parking is prohibited and any vehicle violating this or any
other vehicle regulation adopted by Landlord is subject to removal at the
owner's expense The Project's parking ratio is currently at least 3.5 stalls
per 1,000 square feet of rentable area. The stalls available to Tenant shall
not be reduced below 3.0 stalls per 1,000 square feet of rentable area except as
may be needed to accomplish compliance with changes in governmental regulations.
As part of the overall parking ratio, Landlord shall at all times make available
to Tenant designated covered stalls under Tenant's Building in a number not less
than one stall per 1,000 rentable square feet of the Premises then under lease.
12. UTILITIES
Landlord shall furnish the Premises with electricity for office use,
including
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lighting and low power usage (110 volt) for office machines and water for
restroom facilities. Landlord shall also provide customary building or
janitorial and trash disposal service on weekdays, other than holidays. From
7:00 a.m. to 6:00 p.m. on weekdays and 9:00 a.m. to 1:00 p.m. on Saturday,
excluding legal holidays ("Normal Business Hours"), Landlord shall furnish the
Premises with heat and air conditioning services. If requested by Tenant,
Landlord shall furnish heat and air conditioning services at times other than
Normal Business Hours, and janitorial services on other days. The costs of all
utilities and services provided pursuant to this Section 12 shall be Expenses
allocated to Tenant as part of Tenant's Share of Expenses pursuant to Section
4.c. and 8.c.(1) above. Tenant shall pay when due and directly to the service
provider any telephone or other services metered, chargeable or provided to the
Premises and not charged as part of Tenant's Share of Expenses.
13. MAINTENANCE
Landlord shall maintain, in good condition, the structural parts of the
Premises, which shall include only the foundations, bearing and exterior walls
(excluding glass), subflooring and roof (excluding skylights), the unexposed
electrical, plumbing and sewerage systems, including those portions of the
systems lying outside the Premises, gutters and downspouts on the Building and
the heating, ventilating and air conditioning system servicing the Premises;
provided, however, the cost of all such maintenance shall be considered
"Expenses" for purposes of Section 4.c. Except as provided above, Tenant shall
maintain and repair the Premises in good condition, including, without
limitation, maintaining and repairing all walls, storefronts, floors, ceilings,
interior and exterior doors, exterior and interior windows and fixtures and
interior plumbing as well as damage caused by Tenant, its agents, employees or
invitees. Upon expiration or termination of this Lease, Tenant shall surrender
the Premises to Landlord in the same condition as existed at the commencement of
the term, except for reasonable wear and tear or damage caused by fire or other
casualty for which Landlord has received all funds necessary for restoration of
the Premises from insurance proceeds.
14. ALTERATIONS
Upon completion of the initial Premises improvements, Tenant shall not make
any alterations to the Premises, or to the Project, including any changes to the
existing landscaping, without Landlord's prior written consent, which consent
(in the case of non-structural alterations) shall not be unreasonably withheld.
If Landlord gives its consent to such alterations, Landlord may post notices in
accordance with the laws of the state in which the premises are located. Any
alterations made shall remain on and be surrendered with the Premises upon
expiration or termination of this Lease, except that Landlord may, within 30
days before or 30 days after expiration of the term, elect
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to require Tenant to remove any alterations which Tenant may have made to the
Premises. If Landlord so elects, at its own cost Tenant shall restore the
Premises to the original condition, reasonable wear and tear excepted, before
the last day of the term or within 30 days after notice of its election is
given, whichever is later.
Should Landlord consent in writing to Tenant's alteration of the Premises,
Tenant shall contract with a contractor approved by Landlord for the
construction of such alterations, shall secure all appropriate governmental
approvals and permits, and shall complete such alterations with due diligence in
compliance with plans and specifications approved by Landlord. All such
construction shall be performed in a manner which will not interfere with the
quiet enjoyment of other tenants of the Project. Tenant shall pay all costs for
such construction and shall keep the Premises and the Project free and clear of
all mechanics' liens which may result from construction by Tenant.
15. RELEASE AND INDEMNITY
A. TENANT INDEMNITY
Except as otherwise provided in this Section, Tenant shall indemnify,
defend (using legal counsel acceptable to Landlord) and save Landlord harmless
from all claims, suits, losses, damages, fines, penalties, liabilities and
expenses (including Landlord's personnel and overhead costs and attorneys fees
and other costs incurred in connection with claims, regardless of whether such
claims involve litigation) resulting from any actual or alleged injury
(including death) of any person or from any actual or alleged loss of or damage
to, any property arising out of or in connection with (i) Tenant's occupation,
use or improvement of the Premises, or that of its employees, agents or
contractors, (ii) Tenant's breach of its obligations hereunder, or (iii) any act
or omission of Tenant or any subtenant, licensee, assignee or concessionaire of
Tenant, or of any officer, agent, employee, guest or invitee of Tenant, or of
any such entity in or about the Premises. Tenant agrees that the foregoing
indemnity specifically covers actions brought by its own employees. This
indemnity with respect to acts or omissions during the term of this Lease shall
survive termination or expiration of this Lease. The foregoing indemnity is
specifically and expressly intended to, constitute a waiver of Tenant's immunity
under Washington's Industrial Insurance Act, RCW Title 51, to the extent
necessary to provide Landlord with a full and complete indemnity from claims
made by Tenant and its employees, to the extent provided herein. Tenant shall
promptly notify Landlord of casualties or accidents occurring in or about the
Premises. LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS
OF SECTION 8.f. AND THIS SECTION 15 WERE SPECIFICALLY NEGOTIATED AND AGREED UPON
BY THEM.
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B. LANDLORD INDEMNITY
Except as otherwise provided in this Section 15, Landlord shall indemnify,
defend (using legal counsel acceptable to Tenant) and save Tenant harmless from
all claims, suits, losses, fines, penalties, liabilities and expenses (including
Tenant's personnel and overhead costs and attorneys' fees and other costs
incurred in connection with claims, regardless of whether such claims involve
litigation) resulting from any actual or alleged injury (including death) of any
person or from any actual or alleged loss of or damage to, any property to the
extent caused by negligent acts of Landlord on the Common Areas. Landlord
agrees that the foregoing indemnity specifically covers actions brought by its
own employees. This indemnity with respect to actions or omissions during the
term of this Lease shall survive termination or expiration of this Lease. The
foregoing indemnity is specifically and expressly intended to constitute a
waiver of Landlord's immunity under Washington's Industrial Insurance Act, RCW
Title 51, to the extent necessary to provide Tenant with a full and complete
indemnity from claims made by Landlord and its employees to the extent provided
herein. LANDLORD AND TENANT ACKNOWLEDGE THAT THE INDEMNIFICATION PROVISIONS OF
SECTION 15 WERE SPECIFICALLY NEGOTIATED AND AGREED UPON BY THEM.
C. RELEASE
Tenant hereby fully and completely waives and releases all claims against
Landlord for any losses or other damages sustained by Tenant or any person
claiming through Tenant resulting from any accident or occurrence in or upon the
Premises, including but not limited to: any defect in or failure of Project
equipment; any failure to make repairs; any defect, failure, surge in, or
interruption of Project facilities or services; any defect in or failure of
Common Areas; broken glass; water leakage; the collapse of any Building
component; or any act, omission or negligence of co-tenants, licensees or any
other persons or occupants of the Building, provided only that the release
contained in this Section 15.c shall not apply to claims for actual damage to
persons or property (excluding consequential damages such as lost profits)
resulting directly from Landlord's gross negligence or willful misconduct or
Landlord's breach of its express obligations under this Lease which Landlord has
not cured within a reasonable time after receipt of written notice of such
breach from Tenant.
D. LIMITATION ON INDEMNITY
In compliance with RCW 4.24.115 as in effect on the date of this Lease, all
provisions of this Lease pursuant to which Landlord or Tenant (the "Indemnitor")
agrees to indemnify the other (the "Indemnitee") against liability for damages
arising out of bodily injury to Persons or damage to property relative to the
construction,
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alteration, repair, addition to, subtraction from, improvement to, or
maintenance of, any building, road, or other structure, project, development, or
improvement attached to real estate, including the Premises, (i) shall not apply
to damages caused by or resulting from the sole negligence of the Indemnitee,
its agents or employees, and (ii) to the extent caused by or resulting from the
concurrent negligence of (a) the Indemnitee or the Indemnitee's agents or
employees, and (b) the Indemnitor or the Indemnitor's agents or employees, shall
apply only to the extent of the Indemnitor's negligence; PROVIDED, HOWEVER, the
limitations on indemnity set forth in this Section shall automatically and
without further act by either Landlord or Tenant be deemed amended so as to
remove any of the restrictions contained in this Section no longer required by
then applicable law.
E. DEFINITIONS
As used in any Section establishing indemnity or release of Landlord,
"Landlord" shall include Landlord, its partners, officers, agents, employees and
contractors, and "Tenant" shall include Tenant and any person or entity claiming
through Tenant.
16. INSURANCE
Tenant, at its cost, shall maintain public liability and property damage
insurance and products liability insurance with a single combined liability
limit of $1,000,000, insuring against all liability of Tenant and its
representatives, employees, invitees, and agents arising out of or in connection
with Tenant's use or occupancy of the Premises. Public liability insurance,
products liability insurance and property damage insurance shall insure
performance by Tenant of the indemnity provisions of Section 15. Landlord shall
be named as additional insured and the policy shall contain cross-liability
endorsements. On all its personal property, at its cost, Tenant shall maintain
a policy of standard fire and extended coverage insurance with vandalism and
malicious mischief endorsements and "all risk" coverage on all Tenant's
improvements and alterations, including without limitation, all items of Tenant
responsibility described in Section 13 in or about the Premises, to the extent
of at least 90% of their full replacement value. The proceeds from any such
policy shall be used by Tenant for the replacement of personal property and the
restoration of Tenant's improvements or alterations. All insurance required to
be provided by Tenant under this Lease shall release Landlord from any claims
for damage to business or to any person or the Premises and the Project, and to
Tenant's fixtures, personal property, improvements and alterations in or on the
Premises or the Project, caused by or resulting from risks insured against under
any insurance policy carried by Tenant in force at the time of such damage. In
addition, Tenant hereby independently releases Landlord from any and all claims
for damage to business or to
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any person or the Premises and the Project, and to Tenant's fixtures, personal
property, improvements and alterations in or on the Premises or the Project,
caused by or resulting from risks that would have been insured against under any
insurance policy required by this Lease to be carried by Tenant, even if Tenant
failed to so carry the required insurance. All insurance required to be provided
by Tenant under this Lease: (a) shall be issued by Insurance companies
authorized to do business in the state in which the premises are located with a
financial rating of at least an A+XII status as rated in the most recent edition
of Best's Insurance Reports; (b) shall be issued as a primary policy; and (c)
shall contain an endorsement requiring at least 30 days prior written notice of
cancellation to Landlord and Landlord's lender, before cancellation or change in
coverage, scope or amount of any policy. Tenant shall deliver a certificate or
copy of such policy together with evidence of payment of all current premiums to
Landlord within 30 days of execution of this Lease. If Tenant fails at any time
to maintain the insurance required by this Lease, and fails to cure such default
within five (5) business days of written notice from Landlord then, in addition
to all other remedies available under this Lease and applicable law, Landlord
may purchase such insurance on Tenant's behalf and the cost of such insurance
shall be Additional Rent due within ten (10) days of written invoice from
Landlord to Tenant.
17. DESTRUCTION
If during the term, the Premises or Project are more than 10% destroyed
from any cause, or rendered inaccessible or unusable from any cause, Landlord
may, in its sole discretion, terminate this Lease by delivery of notice to
Tenant within 30 days of such event without compensation to Tenant. If in
Landlord's estimation, the Premises cannot be restored within 90 days following
such destruction, the Landlord shall notify Tenant and Tenant may terminate this
Lease by delivery of notice to Landlord within 30 days of receipt of Landlord's
notice. If neither Landlord nor Tenant terminates this Lease as provided above,
then Landlord shall commence to restore the Premises in compliance with then
existing laws and shall complete such restoration with due diligence. In such
event, this Lease shall remain in full force and effect, but there shall be an
abatement of Base Monthly Rent and Tenant's Share of Expenses between the date
of destruction and the date of completion of restoration, based on the extent to
which destruction interferes with Tenant's use of the Premises.
18. CONDEMNATION
A. TAKING
If all of the Premises are taken by Eminent Domain, this Lease shall
terminate as of the date Tenant is required to vacate the Premises and all Base
and Additional
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<PAGE>
Rent shall be paid to that date. The term "Eminent Domain" shall include the
taking or damaging of property by, through or under any governmental or
statutory authority, and any purchase or acquisition in lieu thereof, whether
the damaging or taking is by government or any other person. If, in the
reasonable judgment of Landlord, a taking of any part of the Premises by Eminent
Domain renders the remainder thereof unusable for the business of Tenant (or the
cost of restoration of the Premises is not commercially reasonable), the Lease
may, at the option of either party, be terminated by written notice given to the
other party not more than thirty (30) days after Landlord gives Tenant written
notice of the taking, and such termination shall be effective as of the date
when Tenant is required to vacate the portion of the Premises so taken. If this
Lease is so terminated, all Base and Additional Rent shall be paid to the date
of termination. Whenever any portion of the Premises is taken by Eminent Domain
and this Lease is not terminated, Landlord shall at its expense proceed with all
reasonable dispatch to restore, to the extent of available proceeds and to the
extent it is reasonably prudent to do so, the remainder of the Premises to the
condition they were in immediately prior to such taking, and Tenant shall at its
expense proceed with all reasonable dispatch to restore its personal property
and all improvements made by it to the Premises to the same condition they were
in immediately prior to such taking. The Base and Additional Rent payable
hereunder shall be reduced from the date Tenant is required to partially vacate
the Premises in the same proportion that the Rentable Area taken bears to the
total Rentable Area of the Premises prior to taking.
B. AWARD
Landlord reserves all right to the entire damage award or payment for any
taking by Eminent Domain, and Tenant waives all claim whatsoever against
Landlord for damages for termination of its leasehold interest in the Premises
or for interference with its business. Tenant hereby grants and assigns to
Landlord any right Tenant may now have or hereafter acquire to such damages and
agrees to execute and deliver such further instruments of assignment as Landlord
may from time to time request. Tenant shall, however, have the right to claim
from the condemning authority all compensation that may be recoverable by Tenant
on account of any loss incurred by Tenant in moving Tenant's merchandise,
furniture, trade fixtures and equipment, provided, however, that Tenant may
claim such damages only if they are awarded separately in the eminent domain
proceeding and not out of or as part of Landlord's damages.
19. ASSIGNMENT OR SUBLEASE
Tenant shall not assign or encumber its interest in this Lease or the
Premises or sublease all or any part of the Premises or allow any other person
or entity (except Tenant's authorized representatives, employees, invitees, or
guests) to occupy or use
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<PAGE>
all or any part of the Premises without first obtaining Landlord's consent which
Landlord may withhold or condition in its sole discretion, provided only that
(a) Landlord shall consent to a merger or combination and associated assignment
or sublease for the same use where (i) the succeeding entity has a net worth
equal to or greater than that of Tenant immediately prior to the assignment or
sublease and (ii) Tenant's management team is a substantial part of the
management team of the successor entity and (b) Landlord shall consent to a
sublease for the same use to a subtenant of equal or greater financial strength
from Tenant. No assignment or sublease shall release Tenant from the obligation
to perform all obligations under this Lease. Any assignment, encumbrance or
sublease without Landlord's written consent shall be voidable and at Landlord's
election, shall constitute a default. If Tenant is a partnership, a withdrawal
or change, voluntary, involuntary or by operation of law of any partner, or the
dissolution of the partnership, shall be deemed a voluntary assignment. If
Tenant consists of more than one person, a purported assignment, voluntary or
involuntary or by operation of law from one person to the other shall be deemed
a voluntary assignment. If Tenant is a corporation, any dissolution, merger,
consolidation or other reorganization of Tenant, or sale or other transfer of a
controlling percentage of the capital stock of Tenant, or the sale of at least
25% of the value of the assets of Tenant shall be deemed a voluntary assignment.
The phrase "controlling percentage" means ownership of and right to vote stock
possessing at least 25% of the total combined voting power of all classes of
Tenant's capital stock issued, outstanding and entitled to vote for election of
directors. This Section 19 shall not apply to corporations the stock of which is
traded through an exchange or over the counter. All rent received by Tenant from
its subtenants in excess of the Rent payable by Tenant to Landlord under this
Lease shall be paid to Landlord, or any sums to be paid by an assignee to Tenant
in consideration of the assignment of this Lease shall be paid to Landlord. If
Tenant requests Landlord to consent to a proposed assignment or subletting,
Tenant shall pay to Landlord, whether or not consent is ultimately given, $100
or Landlord's reasonable attorney's fees incurred in connection with such
request, whichever is greater, not to exceed $250 per transaction.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including without limitation the transfer
of this Lease by testacy or intestacy). Each of the following acts shall be
considered an involuntary assignment: (a) if Tenant is or becomes bankrupt or
insolvent, makes an assignment for the benefit of creditors, or institutes
proceedings under the Bankruptcy Act in which Tenant is the bankrupt; or if
Tenant is a partnership or consists of more than one person or entity, if any
partner of the partnership or other person or entity is or becomes bankrupt or
insolvent, or makes an assignment for the benefit of creditors; or (b) if a writ
of attachment or execution is levied on this Lease; or (c) if in any proceeding
or action to which Tenant is a party, a receiver is appointed with authority to
take possession of the Premises. An involuntary assignment shall constitute a
PAGE 20
<PAGE>
default by Tenant and Landlord shall have the right to elect to terminate this
Lease, in which case this Lease shall not be treated as an asset of Tenant.
20. DEFAULT
The occurrence of any of the following shall constitute a default by
Tenant: (a) a failure to pay Rent or other charge when due provided that
Landlord shall not exercise any of its rights under this Section 20 until
Landlord has given Tenant notice of such default and Tenant has failed to pay
such rent or other charge within three (3) days of the effective date of such
notice; (b) abandonment and vacation of the Premises (failure to occupy and
operate the Premises for ten consecutive days shall be conclusively deemed an
abandonment and vacation); or (c) failure to perform any other provision of this
Lease, provided that Landlord shall not exercise any of its rights under this
Section 20(c) until Landlord has given Tenant notice of such default and Tenant
has failed to cure such default and provided further that if more than thirty
(30) days are required to complete such performance, Landlord shall not exercise
any of its rights if Tenant commences to cure such default within the thirty
(30) day period and thereafter diligently pursues such cure completion. The
notice required by this Section is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
21. LANDLORD'S REMEDIES
Landlord shall have the following remedies if Tenant is in default and has
failed to cure such default within any applicable cure period. (These remedies
are not exclusive; they are cumulative and in addition to any remedies now or
later allowed by law): Landlord may terminate Tenant's right to possession of
the Premises at any time. No act by Landlord other than giving notice to Tenant
shall terminate this Lease. Acts of maintenance, efforts to relet the Premises,
or the appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination of Tenant's right
to possession. Upon termination of Tenant's right to possession, Landlord has
the right to recover from Tenant: (1) the worth of the unpaid Rent that had
been earned at the time of termination of Tenant's right to possession; (2) the
worth of the amount of the unpaid Rent that would have been earned after the
date of termination of Tenant's right to possession; (3) any other amount,
including but not limited to, expenses incurred to relet the Premises, court,
attorney and collection costs, necessary to compensate Landlord for all
detriment caused by Tenant's default. "The Worth," as used for Item (1) in this
Paragraph 21 is to be computed by allowing interest at the rate of 12 percent
per annum. If the interest rate specified in this Lease is higher than the rate
permitted by law, the interest rate is hereby decreased to the maximum legal
interest rate permitted by law. "The Worth" as used for Item (2) in this
Paragraph 21 is to be computed by
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<PAGE>
discounting the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of termination of Tenant's right of possession.
22. ENTRY ON PREMISES
Landlord and its authorized representatives shall have the right to enter
the Premises at all reasonable times and upon reasonable notice except in an
emergency, when no notice shall be required, for any of the following purposes:
(a) to determine whether the Premises are in good condition and whether Tenant
is complying with its obligations under this Lease; (b) to do any necessary
maintenance and to make any restoration to the Premises or the Project that
Landlord has the right or obligation to perform; (c) to post "for sale" signs at
any time during the term, to post "for rent" or "for lease" signs during the
last 90 days of the term, or during any period while Tenant is in default; (d)
to show the Premises to prospective brokers, agents, buyers, tenants or persons
interested in leasing or purchasing the Premises, at any time during the term;
or (e) to repair, maintain or improve the Project and to erect scaffolding and
protective barricades around and about the Premises but not so as to prevent
entry to the Premises and to do any other act or thing necessary for the safety
or preservation of the Premises or the Project. Landlord shall not be liable in
any manner for any inconvenience, disturbance, loss of business, nuisance or
other damage arising out of Landlord's entry onto the Premises as provided in
this Section 22. Tenant shall not be entitled to an abatement or reduction of
Rent if Landlord exercises any rights reserved in this Section 22. Landlord
shall conduct his activities on the Premises as provided herein in a
commercially reasonable manner so as to limit inconvenience, annoyance or
disturbance to Tenant to the maximum extent practicable. For each of these
purposes, Landlord shall at all times have and retain a key with which to unlock
all the doors in, upon and about the Premises, excluding Tenant's vaults and
safes. Tenant shall not alter any lock or install a new or additional lock or
bolt on any door of the Premises without prior written consent of Landlord. If
Landlord gives its consent, Tenant shall furnish Landlord with a key for any
such lock.
23. SUBORDINATION
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, and at the election of Landlord or
any mortgagee or any beneficiary of a Deed of Trust with a lien on the Project
or any ground lessor with respect to the Project, this Lease shall be subject
and subordinate at all times to (a) all ground leases or underlying leases which
may now exist or hereafter be executed affecting the Project, and (b) the lien
of any mortgage or deed of trust which may now exist or hereafter be executed in
any amount for which the Project, ground leases or underlying leases, or
Landlord's interest or estate in any of said items is specified as security. In
the event that any ground lease or underlying
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<PAGE>
lease terminates for any reason or any mortgage or Deed of Trust is foreclosed
or a conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination, attorn to and become the Tenant of the
successor in interest to Landlord, at the option of such successor in interest.
Tenant covenants and agrees to execute and deliver, upon demand by Landlord and
in the form requested by Landlord any additional documents evidencing the
priority or subordination of this Lease with respect to any such ground lease or
underlying leases or the lien of any such mortgage or Deed of Trust. Tenant
hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute,
deliver and record any such document in the name and on behalf of Tenant.
Tenant, within ten days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this Lease is
not in default, is unmodified and in full force and effect, or in full force and
effect as modified, and stating the modifications. This certificate should also
state the amount of current monthly Rent, the dates to which Rent has been paid
in advance, and the amount of any security deposit and prepaid Rent. Failure to
deliver this certificate to Landlord within ten days shall be conclusive upon
Tenant that this Lease is in full force and effect and has not been modified
except as may be represented by Landlord.
24. NOTICE
Any notice, demand or request required hereunder shall be given in writing
to the party's facsimile number or address set forth in Section I hereof by any
of the following means: (a) personal service; (b) electronic communication,
whether by telex, telegram or facsimile; (c) overnight courier; or (d)
registered or certified, first class mail, return receipt requested. Such
addresses may be changed by notice to the other parties given in the same manner
as above provided. Any notice, demand or request sent pursuant to either
subsection (a) or (b) hereof shall be deemed received upon such personal service
or upon dispatch by electronic means with electronic confirmation of receipt.
Any notice, demand or request sent pursuant to subsection (c) hereof shall be
deemed received on the business day immediately following deposit with the
overnight courier and, if sent pursuant to subsection (d), shall be deemed
received forty-eight (48) hours following deposit in the U.S. mail.
25. WAIVER
No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver. No act or
conduct of Landlord, including without limitation, acceptance of the keys to the
Premises, shall constitute an acceptance of the surrender of the Premises by
Tenant before the expiration of the term. Only written notice from Landlord to
Tenant shall constitute
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<PAGE>
acceptance of the surrender of the Premises and accomplish termination of the
Lease. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
Any waiver by Landlord of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease. TENANT SPECIFICALLY ACKNOWLEDGES AND AGREES THAT, WHERE TENANT HAS
RECEIVED A NOTICE TO CURE DEFAULT (WHETHER RENT OR NON-RENT), NO ACCEPTANCE BY
LANDLORD OF RENT SHALL BE DEEMED A WAIVER OF SUCH NOTICE, AND, INCLUDING BUT
WITHOUT LIMITATION, NO ACCEPTANCE BY LANDLORD OF PARTIAL RENT SHALL BE DEEMED TO
WAIVE OR CURE ANY RENT DEFAULT. LANDLORD MAY, IN ITS DISCRETION, AFTER RECEIPT
OF PARTIAL PAYMENT OF RENT, REFUND SAME AND CONTINUE ANY PENDING ACTION TO
COLLECT THE FULL AMOUNT DUE, OR MAY MODIFY ITS DEMAND TO THE UNPAID PORTION. IN
EITHER EVENT THE DEFAULT SHALL BE DEEMED UNCURED UNTIL THE FULL AMOUNT IS PAID
IN GOOD FUNDS.
26. SURRENDER OF PREMISES; HOLDING OVER
Upon expiration of the term, Tenant shall surrender to Landlord the
Premises and all Tenant improvements and alterations in good condition, except
for ordinary wear and tear and alterations Tenant has the right or is obligated
to remove under the provisions of Section 14 herein. Tenant shall remove all
personal property including, without limitation, all wallpaper, paneling and
other decorative improvements or fixtures and shall perform all restoration made
necessary by the removal of any alterations or Tenant's personal property before
the expiration of the term, including for example, restoring all wall surfaces
to their condition prior to the commencement of this Lease. Landlord can elect
to retain or dispose of in any manner Tenant's personal property not removed
from the Premises by Tenant prior to the expiration of the term. Tenant waives
all claims against Landlord for any damage to Tenant resulting from Landlord's
retention or disposition of Tenant's personal property. Tenant shall be liable
to Landlord for Landlord's cost for storage, removal or disposal of Tenant's
personal property.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration or termination of the term, or after the date in any notice
given by Landlord to Tenant terminating this Lease, such possession by Tenant
shall be deemed to be a month-to-month tenancy terminable as provided under
Washington law, by either party. All provisions of this Lease, except those
pertaining to term and Rent, shall apply to the month-to-month tenancy. During
any holdover term, Tenant shall pay Base Monthly Rent in an amount equal to 125%
of Base Monthly Rent for the last full
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<PAGE>
calendar month during the regular term plus 100% of Tenant's share of Expenses
pursuant to Section 4.c.3.
27. BUILDING PLANNING
If Landlord requires the Premises for use in conjunction with another suite
or for other reasons connected with the Project planning program, upon notifying
Tenant in writing, Landlord shall have the right to move Tenant to other space
in the Project that is substantially the same in size, configuration and tenant
improvements, such move (including out-of-pocket ancillary costs such as
reprinting of stationary) to be at Landlord's sole cost and expense. Upon such
move, the terms and conditions of the original Lease shall remain in full force
and effect, save and excepting that a revised Exhibit "A" shall become part of
this Lease and shall reflect the location of the new space and Section 1 of this
Lease shall be amended to include and state all correct data as to the new
space. Notwithstanding the above, if Landlord notifies Tenant of Landlord's
intention to exercise the relocation rights provided in this Section 27, Tenant
may, within 30 days of receipt of such notice, notify Landlord of Tenant's
intention to terminate this Lease. If Tenant so notifies Landlord, then either
(i) Landlord shall, within 30 days of receipt of Tenant's notice, rescind the
relocation notice and this Lease shall continue unaltered, or (ii) this Lease
shall terminate 90 days following Landlord's receipt of Tenant's notice without
any liability to Landlord or Tenant for such early termination.
28. MISCELLANEOUS PROVISIONS
A. TIME OF ESSENCE
Time is of the essence of each provision of this Lease.
B. SUCCESSOR
This Lease shall be binding on and inure to the benefit of the parties and
their successors, except as provided in Section 19 herein.
C. LANDLORD'S CONSENT
Except as otherwise specifically provided, any consent required by Landlord
under this Lease must be granted in writing and may be withheld or conditioned
by Landlord in its sole and absolute discretion.
D. COMMISSIONS
Each party represents that it has not had dealings with any real estate
broker, finder or other person with respect to this Lease in any manner, except
for the broker
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<PAGE>
identified in Section 1, who shall be compensated by Landlord. Landlord and
Tenant recognize that it is possible that they may hereafter make additional
agreements regarding further extension or renewal of this Lease or a new lease
or leases for all or one or more parts of the Premises or other space in the
Project for a term or terms commencing after the Commencement Date of this
Lease. Landlord and Tenant recognize that it is also possible that they may
hereafter modify this Lease to add additional space or to substitute space as
part of the Premises. If any such additional agreements, new leases or
modifications to this Lease are made, Landlord shall not have any obligation to
pay any compensation to any real estate broker or to any other third person
engaged by Tenant to render services to Tenant in connection with negotiating
such matters, regardless of whether under the circumstances such person is or is
not regarded by the law as an agent of Landlord.
E. OTHER CHARGES
If either party commences any litigation against the other party or files
an appeal of a decision arising out of or in connection with the Lease, the
prevailing party shall be entitled to recover from the other party reasonable
attorney's fees and costs of suit. If Landlord employs a collection agency to
recover delinquent charges, Tenant agrees to pay all collection agency and
attorneys' fees charged to Landlord in addition to Rent, late charges, interest
and other sums payable under this Lease. Tenant shall pay a charge of $75 to
Landlord for preparation of a demand for delinquent Rent.
F. FORCE MAJEURE
Landlord shall not be deemed in default hereof nor liable for damages
arising from its failure to perform its duties or obligations hereunder if such
is due to causes beyond its reasonable control, including, but not limited to,
acts of God, acts of civil or military authorities, fires, floods, windstorms,
earthquakes, strikes or labor disturbances, civil commotion, delays in
transportation, governmental delays or war.
G. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the "Rules and
Regulations", a copy of which is attached hereto, and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord shall not be responsible to Tenant for
the violation or non-performance by any other tenant or occupant of the building
or Project of said tenant or occupant's lease or of any of said Rules and
Regulations.
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<PAGE>
H. LANDLORD'S SUCCESSORS
In the event of a sale or conveyance by Landlord of the Project, the same
shall operate to release Landlord from any liability under this Lease, and in
such event Landlord's successor in interest shall be solely responsible for all
obligations of Landlord under this Lease.
I. INTERPRETATION
This Lease shall be construed and interpreted in accordance with the laws
of the state in which the premises are located. This Lease constitutes the
entire agreement between the parties with respect to the Premises and the
Project, except for such guarantees or modifications as may be executed in
writing by the parties from time to time. When required by the context of this
Lease, the singular shall include the plural, and the masculine shall include
the feminine and/or neuter. "Party" shall mean Landlord or Tenant. If more
than one person or entity constitutes Landlord or Tenant, the obligations
imposed upon that party shall be joint and several. The enforceability,
invalidity or illegality of any provision shall not render the other provisions
unenforceable, invalid or illegal.
J. CLEAN AIR ACT
Tenant acknowledges that Landlord has not made any portion of the Premises
or the Building accessible for smoking in compliance with WAC 296-62-12000. If
Tenant wishes to make any portion of the Premises accessible for smoking, Tenant
shall make all improvements necessary to comply with all applicable governmental
rules and regulations. Tenant acknowledges that the indemnity contained in
Section 15 of the Lease includes, but is not limited to claims based on the
presence of tobacco smoke as a result of the activities of Tenant, its
employees, agents, or guests.
29. CARDKEY SYSTEM
Tenant shall be allowed to install a card access entry pad on the exterior
of the main entrance to the Premises, so as to work in conjunction with its
existing card key system in the Project. At the expiration of the Lease, Tenant
at its own cost shall remove such card access entry pad and repair any damage
resulting therefrom.
LANDLORD:
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<PAGE>
Teachers Insurance & Annuity Association of America,
Inc.
By: JAMES P. GAROFALO
-------------------------------------
James Garofalo
Its: Assistant Secretary
TENANT:
ONYX Software Corporation
By: AMY KELLERAN
-------------------------------------
Its: Controller
------------------------------------
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<PAGE>
STATE OF New York )
) ss.
COUNTY OF New York )
I certify that I know or have satisfactory evidence that James Garofalo is
the person who appeared before me, and said person acknowledged that he signed
this instrument, on oath stated that he was authorized to execute the instrument
and acknowledged it as the Assistant Secretary of Teachers Insurance & Annuity
Association of America, to be the free and voluntary act of such party for the
uses and purposes mentioned in the instrument.
Dated: 4-6-98
-------------------------------
DEBORAH A. REESE
-------------------------------------
(Signature)
Deborah A. Reese
-------------------------------------
(Print Name)
Notary Public, in and for the State
of NY , residing at Queens
----------- ---------
My Commission Expires 1-20-00
---------------
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<PAGE>
STATE OF Washington )
--------------
) ss.
COUNTY OF King )
-------------
I certify that I know or have satisfactory evidence that Alan Kinisky
------------------
is the person who appeared before me, and said person acknowledged that he/she
signed this instrument, on oath stated that he/she was authorized to execute the
instrument and acknowledged it as the _____________ of ONYX Software Corporation
to be the free and voluntary act of such party for the uses and purposes
mentioned in the instrument.
Dated: March 4, 1998
-------------------------------
JILL RANKIN
-------------------------------------
(Signature)
Jill Rankin
-------------------------------------
(Print Name)
Notary Public, in and for the State
of WA , residing at Bothell
----------- ---------
My Commission Expires 5-19-01
---------------
PAGE 30
<PAGE>
EXHIBIT 10.6
================================================================================
LOAN AND SECURITY AGREEMENT
================================================================================
<PAGE>
<TABLE>
CONTENTS
<S> <C> <C>
1. ACCOUNTING AND OTHER TERMS ........................................................ 1
2. LOAN AND TERMS OF PAYMENT ......................................................... 1
2.1 Credit Extensions ........................................................ 1
2.1.1 Revolving Advances .............................................. 1
2.1.2 Term Loan Advances .............................................. 2
2.1.3 Letters of Credit ............................................... 3
2.2 Overadvances ............................................................. 3
2.3 Interest Rates, Payments ................................................. 3
2.4 Fees ..................................................................... 4
3. CONDITIONS OF LOANS ............................................................... 4
3.1 Conditions Precedent to Initial Credit Extension ......................... 4
3.2 Conditions Precedent to all Credit Extensions ............................ 4
4. CREATION OF SECURITY INTEREST ..................................................... 5
4.1 Grant of Security Interest ............................................... 5
5. REPRESENTATIONS AND WARRANTIES .................................................... 5
5.1 Due Organization and Authorization ....................................... 5
5.2 Collateral ............................................................... 5
5.3 Litigation ............................................................... 6
5.4 No Material Adverse Change in Financial Statements ....................... 6
5.5 Solvency ................................................................. 6
5.6 Regulatory Compliance .................................................... 6
5.7 Subsidiaries ............................................................. 6
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
5.8 Full Disclosure .......................................................... 7
6. AFFIRMATIVE COVENANTS ............................................................. 7
6.1 Government Compliance .................................................... 7
6.2 Financial Statements, Reports, Certificates .............................. 7
6.3 Inventory; Returns ....................................................... 8
6.4 Taxes .................................................................... 8
6.5 Insurance ................................................................ 8
6.6 Primary Accounts ......................................................... 8
6.7 Financial Covenants ...................................................... 9
6.8 Further Assurances ....................................................... 9
7. NEGATIVE COVENANTS ................................................................ 9
7.1 Dispositions ............................................................. 9
7.2 Changes in Business, Ownership, Management or Business Locations ......... 10
7.3 Mergers or Acquisitions .................................................. 10
7.4 Indebtedness ............................................................. 10
7.5 Encumbrance .............................................................. 11
7.6 Distributions; Investments ............................................... 11
7.7 Transactions with Affiliates ............................................. 11
7.8 Subordinated Debt ........................................................ 11
7.9 Compliance ............................................................... 11
8. EVENTS OF DEFAULT ................................................................. 11
8.1 Payment Default .......................................................... 11
8.2 Covenant Default ......................................................... 12
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
8.3 Material Adverse Change .................................................. 12
8.4 Attachment ............................................................... 12
8.5 Insolvency ............................................................... 12
8.6 Other Agreements ......................................................... 13
8.7 Judgments ................................................................ 13
8.6 Misrepresentations ....................................................... 13
9. BANK'S RIGHTS AND REMEDIES ........................................................ 13
9.1 Rights and Remedies ...................................................... 13
9.2 Power of Attorney ........................................................ 14
9.3 Accounts Collection ...................................................... 14
9.4 Bank Expenses ............................................................ 14
9.5 Bank's Liability for Collateral .......................................... 15
9.6 Remedies Cumulative ...................................................... 15
9.7 Demand Waiver ............................................................ 15
10. NOTICES ........................................................................... 15
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER ........................................ 15
12. GENERAL PROVISIONS ................................................................ 16
12.1 Successors and Assigns ................................................... 16
12.2 Indemnification .......................................................... 16
12.3 Time of Essence .......................................................... 16
12.4 Severability of Provision ................................................ 16
12.5 Amendments in Writing, Integration ....................................... 16
12.6 Counterparts ............................................................. 16
</TABLE>
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<TABLE>
<S> <C> <C>
12.7 Survival ................................................................. 16
12.8 Confidentiality .......................................................... 17
13. DEFINITIONS ....................................................................... 17
13.1 Definitions .............................................................. 17
</TABLE>
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This LOAN AND SECURITY AGREEMENT dated _____________, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 with a loan production office located 915 - 118th Avenue S.E.,
Suite 250, Bellevue, WA 98005 and ONYX SOFTWARE CORPORATION ("Borrower"), whose
address is 330 120th Avenue NE, Bellevue, Washington 98005, provides the terms
on which Bank will lend to Borrower and Borrower will repay Bank. The parties
agree as follows:
1. ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed following
GAAP Calculations and determinations must be made following GAAP. The term
"financial statements" includes the notes and schedules. The terms "including"
and includes" always mean "including (or includes) without limitation," in this
or any Loan Document. This Agreement shall be construed to impart upon Bank a
duty to act reasonably at all times.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS
Borrower will pay Bank the unpaid principal amount of all Credit Extensions
and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES
(a) Bank will make Advances not exceeding (i) the lesser of (A)
the Committed Revolving Line or (B) the Borrowing Base, whichever is less, minus
(ii) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit). Advances of up to $1,000,000 outstanding in the
aggregate may be made without regard to any limitation under the Borrowing Base.
However, if Borrower requests Advances beyond $1,000,000 in the aggregate, total
Advances may not exceed 25% of eligible accounts receivable until the initial
accounts receivable audit has been performed. Once an accounts receivable audit
has been completed that is deemed satisfactory to the Bank, if the total
outstanding Advances exceed $1,000,000, the entire amount must comply with the
Borrowing Based limitation set forth above. Amounts borrowed under this Section
may be repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile
or telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
<PAGE>
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving
Maturity Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.1.2 TERM LOAN ADVANCES
(a) Bank will make Term Loan Advances not exceeding the lesser of
(i) the Committed Term Loan, or (ii) the Term Loan Borrowing Base, whichever is
less. Amounts borrowed under this Section may not be repaid and reborrowed
during the term of this Agreement.
(b) To obtain a Term Loan Advance, Borrower must notify Bank by
facsimile or telephone by 3:00 p.m. Pacific time on the Business Day the Term
Loan Advance is to be made. Borrower must promptly confirm the notification by
delivering to Bank the Payment/Advance Form attached as Exhibit B, along with
copies of appropriate equipment Invoices. Bank will credit Term Loan Advances
to Borrower's deposit account. Bank may make Term Loan Advances under this
Agreement based on Instructions from a Responsible Officer or his or her
designee or without instructions if the Term Loan Advances are necessary to meet
Obligations which have become due. Bank may rely on any telephone notice given
by a person whom Bank believes is a Responsible Officer or designee. Borrower
will indemnify Bank for any loss Bank suffers due to reliance.
(c) Bank shall make Term Loan Advances under the Committed Term
Loan, in accordance with the conditions described above, during the twelve month
period beginning with the date of this Agreement, and ending on that date which
is twelve months thereafter (the "Advance Period"). During the Advance Period,
interest shall be paid monthly, in arrears, on the first day of each month. At
the end of the Advance Period, the Committed Term Line shall convert to a fully
amortizing term loan, with thirty-six (36) equal monthly payments of principal,
plus interest. The first monthly payment of principal and interest shall be due
and payable on the first day of the first full month following the end of the
Advance Period. The final payment of all outstanding principal, plus any accrued
but unpaid interest, shall be due on the first day of that month which is
thirty-six (36) months from the end of the Advance Period (the "Term Loan
Maturity Date").
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2.1.3 LETTERS OF CREDIT
Bank will issue or have issued Letters of Credit for Borrower's account not
exceeding (i) the lesser of the Committed Revolving Line or the Borrowing Base
minus (ii) the outstanding principal balance of the Advances; however, the face
amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) may not exceed $8,000,000.
Each Letter of Credit will have an expiry date of no later than 180 days after
the Revolving Maturity Date, but Borrower's reimbursement obligation will be
secured by cash on terms acceptable to Bank at any time after the Revolving
Maturity Date if the term of this Agreement is not extended by Bank.
2.2 OVERADVANCES
If Borrower's Obligations under Section 2.1.1, and 2.1.3 exceed the lesser
of either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower
must immediately pay Bank the excess. In addition, if Borrower's Obligations
under Sections 2.1.1 and 2.1.3 exceed $1,000,000, and the Borrowing Base does
not support Advances in excess of $1,000,000, Borrower must immediately pay Bank
the excess.
2.3 INTEREST RATES, PAYMENTS
(a) Committed Revolving Line Interest Rate. Advances accrue interest on
the outstanding principal balance at a per annum rate of (i) the Prime Rate, or
(ii) a rate equal to the LIBOR Rate, based on a 30-, 60- or 90-day LIBOR
interest period, plus 2.00% per annum, all as set forth in the LIBOR Supplement
to Agreement of even date herewith. Borrower may elect between (i) or (ii)
above at its own discretion. After an Event of Default, Obligations accrue
interest at 5 percent above the rate effective immediately before the Event of
Default. The interest rate shall increase or decrease when the Prime Rate or
LIBOR Rate changes. Interest is computed on a 360-day year for the actual
number of days elapsed.
(b) Committed Term Loan Interest Rate. Term Loan Advances accrue interest
on the outstanding principal balance at a per annum rate of 0.25% percentage
points above the Prime Rate. After an Event of Default, Obligations accrue
interest at 5 percent above the rate effective immediately before the Event of
Default. The interest rate increases or decreases when the Prime Rate changes.
Interest is computed on a 360-day year for the actual number of days elapsed.
(c) Payments. Interest due on the Committed Revolving Line and the
Committed Term Loan is payable on the first day of each month. Bank may debit
any of Borrower's deposit accounts including Account Number _______ for
principal and interest payments or any amounts Borrower owes Bank. Bank will
notify Borrower when it debits Borrower's accounts. These debits are not a set-
off. Payments received
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<PAGE>
after 12:00 noon Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.4 FEES
Borrower will pay:
(a) Committed Revolving Line Facility Fee. A fully earned, non-
refundable Facility Fee of $2,500 due on the Closing Date, plus a fee of 0.20%
per annum on the unused portion of the facility, paid quarterly in arrears.
(b) Committed Term Loan Facility Fee. A fully earned non-refundable
Facility Fee of, at Borrower's discretion, (i) 0.30 % of the Committed Term
Line, payable at closing, or (ii) 0.50% per annum of the unused portion of the
facility during the Advance Period, paid quarterly in arrears.
(c) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.
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<PAGE>
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral. Borrower does not grant Bank a security interest in, or lien on,
any assets except the Collateral. Borrower agrees not to grant a security
interest in those assets that are not part of the Collateral to any Person so
long as this Agreement, as amended or modified, remains in effect.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it
is bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL
Borrower has good title to the Collateral, free of Liens except Permitted
Liens. The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base
Certificate. All inventory is in all material respects of good and marketable
quality, free from material defects.
5.3 LITIGATION
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
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5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; Borrower is not
left with unreasonably small capital after the transactions in this Agreement
and Borrower is able to pay its debts (including trade debts) as they mature.
5.6 REGULATORY COMPLIANCE
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 SUBSIDIARIES
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
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<PAGE>
6. AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify could have a material adverse
effect on Borrower's business or operations. Borrower will comply, and have
each Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES
(a) Borrower will deliver to Bank: (i) as soon as available, but no later
than 30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 90 days after the last day
of Borrower's fiscal year, audited consolidated financial statements prepared
under GAAP, consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; and (iv) budgets, sales
projections, operating plans or other financial information Bank requests.
(b) Within 20 days after the last day of each month, Borrower will deliver
to Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
of Exhibit C with aged listings of accounts receivable and accounts payable.
This information shall not be required if less $1,000,000 is outstanding under
the Committed Revolving Line.
(c) Within 30 days after the last day of each quarter Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D. A Compliance
Certificate shall not be required if Borrower is not utilizing the Committed
Revolving Line or the Committed Term Loan.
(d) Bank has the right to audit Borrower's Accounts at Borrower's expense,
but the audits will be conducted no more often than every year unless an Event
of Default has occurred and is continuing. Borrower's initial audit must be
conducted
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<PAGE>
within 45 days of the execution of this Agreement. Borrower's expense for such
audits is limited to $750 per audit.
6.3 INVENTORY; RETURNS
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 TAXES
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE
Borrower will keep its business and the Collateral insured for risks and in
amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any
policy will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS
Borrower will maintain its primary depository and operating accounts with
Bank.
6.7 FINANCIAL COVENANTS
Borrower will maintain as of the last day of each quarter:
(i) ADJUSTED QUICK RATIO. A ratio of Quick Assets to Current
Liabilities of at least 1.25 to 1.00.
(ii) Borrower shall maintain either:
(a) DEBT SERVICE COVERAGE of at least 1.40 to 1.00; or
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<PAGE>
(b) LIQUIDITY COVERAGE of at least 1.40 to 1.00.
(iii) PROFITABILITY. Borrower shall not incur a maximum quarterly
"Loss," as defined below, in excess of $2,000,000 for the quarter ending
September 30, 1998; in excess of $2,000,000, for the quarter ending December 31,
1998; in excess of $1,000,000 for the quarter ending March 31, 1999; in excess
of $750,000 for the quarter ending June 30, 1999; and in excess of $500,000 for
the quarter ending September 30, 1999. For purposes of this Section, "Loss"
means net income after taxes of less than $0.00, as reported on Borrower's
financial statements, and as adjusted to exclude non-recurring charges, fees and
expenses associated with mergers and acquisitions (other non-recurring items
shall not be excluded).
6.8 FURTHER ASSURANCES
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS
Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or have a material change
in its ownership of greater than 25%. Borrower will not, without at least 30
days prior written notice, relocate its chief executive office. (Prior to the
date of this Agreement Borrower provided Bank with satisfactory notice of its
intention to relocate its chief executive office in 1999).
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7.3 MERGERS OR ACQUISITIONS
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, Subsidiary or with Borrower, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person, unless the following conditions are
satisfied:
(i) Borrower shall be the surviving entity in any merger,
consolidation or acquisition;
(ii) The merger, consolidation or acquisition must be in the same
industry as Borrower is currently engaged in, or a related industry;
(iii) Borrower shall provide Bank with written notice of any such
merger, consolidation or acquisition upon execution of a letter of intent
documenting the transaction; and
(iv) Borrower shall remain in compliance with all terms and
conditions of this Loan and Security Agreement, including financial covenants,
and no Event of Default shall have occurred or be caused by the merger,
consolidation or acquisition.
7.4 INDEBTEDNESS
Create, incur, assume, or be liable for any indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness. If the additional
Indebtedness arises in connection with a transaction pursuant to Section 7.3
above, such additional Indebtedness shall be deemed Permitted Indebtedness
provided that the additional Indebtedness has no effect upon the priority or
validity of Bank's security interest in the Collateral.
7.5 ENCUMBRANCE
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 DISTRIBUTIONS; INVESTMENTS
Pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock.
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7.7 TRANSACTIONS WITH AFFILIATES
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT
Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Advance for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards
Act or violate any other law or regulation, if the violation could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8. EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);
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8.3 MATERIAL ADVERSE CHANGE
(i) If there occurs a material impairment in the perfection or priority of
Bank's security interest in the Collateral or in the value of such Collateral
which is not covered by adequate insurance or (ii) if Bank determines, based
upon information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower will fail to comply with one or more of the
financial covenants in Section 6 during the next succeeding financial reporting
period;
8.4 ATTACHMENT
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS
If there is a default in any agreement between Borrower and a third party
that gives the third Party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.6 MISREPRESENTATIONS
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
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representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest or
compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount hold by Bank owing to or for the credit or
the account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's
name on any checks or other forms of payment or security: (ii) sign Borrower's
name on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust
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disputes and claims about the Accounts directly with account debtors, for
amounts and on terms Bank determines reasonable; and (v) transfer the Collateral
into the name of Bank or a third party as the Code permits. Bank may exercise
the power of attorney to sign Borrower's name on any documents necessary to
perfect or continue the perfection of any security interest regardless of
whether an Event of Default has occurred. Bank's appointment as Borrower's
attorney in fact, and all of Bank's rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank's obligation to provide Credit Extensions terminates.
9.3 ACCOUNTS COLLECTION
When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a waiver, election, or acquiescence. No waiver is
effective unless signed by Bank and then is only effective for the specific
instance and purpose for which it was given.
-14-
<PAGE>
9.7 DEMAND WAIVER
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10. NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
Washington law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in King County, Washington.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS
This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank's prior written consent which may be granted or withheld
in Bank's discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank's obligations, rights and benefits under this
Agreement.
12.2 INDEMNIFICATION
If any claim or demand is brought against Bank because of Bank's lending
relationship with Borrower, Borrower agrees to reimburse Bank for all reasonable
expenses, including attorneys' fees.
-15-
<PAGE>
12.3 TIME OF ESSENCE
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION
Each provision of this Agreement is severable from every other provision in
determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION
All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.
12.6 COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information
that either: (a) is in the public domain or in Bank's possession when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank; or (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.
-16-
<PAGE>
13. DEFINITIONS
13.1 DEFINITIONS
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" is an Advance or Advances under the Committed Revolving Line.
"ADVANCE PERIOD" is defined in Section 2.1.2.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees (except as limited by Section 6.2(d)
above) and expenses and reasonable costs or expenses (including reasonable
attorneys' fees and expenses) for preparing, negotiating, administering,
defending and enforcing the Loan Documents (including appeals or Insolvency
Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"BORROWING BASE" is 80% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate for all Advances in excess of
$1,000,000 in the aggregate. All Advances up to an aggregate amount of
$1,000,000 shall not be subject to the margin requirement of the Borrowing Base.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on which
Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the Washington Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
-17-
<PAGE>
"COMMITTED REVOLVING LINE" is an Advance of up to $8,000,000.
"COMMITTED TERM LOAN" is a Term Loan Advance of up to $3,000.000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Advance, Letter of Credit, Exchange Contract, or
any other extension of credit by Bank for Borrower's benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year, excluding the current portion of
Borrower's deferred revenue.
"DEBT SERVICE COVERAGE" is defined as net income, plus interest expense,
plus depreciation, plus the change in capitalized software for the most recent
quarter, annualized (multiplied by four) and divided by the current portion of
long term debt plus annualized (multiplied by four) interest expense for the
most recent quarter.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice. Unless
Bank agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date, or 120 days if extended terms have been granted to the account
debtor;
(b) Accounts for an account debtor, 50% or more of whose Accounts
have not been paid within 90 days of invoice date, or 120 days if extended terms
have been granted to the account debtor;
-18-
<PAGE>
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that exceed
that percentage, unless Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States, if such accounts exceed 20% of eligible
accounts receivable;
(f) Accounts for which the account debtor is a federal, state or
local government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up
to the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval, bill
and hold, or other terms if account debtor's payment may be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up to the
disputed or claimed amount), or if the Account Debtor is subject to an
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
-19-
<PAGE>
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust charge, pledge, security interest
or other encumbrance.
"LIQUIDITY COVERAGE" is defined as Borrower's unrestricted cash balances,
plus 80% of Borrower's eligible accounts receivable (or 60% of Borrower's total
accounts receivable if less than $1,000,000 is outstanding under the Committed
Revolving Line), less the balance outstanding under the Committed Revolving
Line, divided by the principal balance of the Committed Term Loan.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"LOSS" is defined in Section 6.7.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"PERMITTED INDEBTEDNESS" is:
-20-
<PAGE>
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agency or any State maturing within one year from
its acquisition, (ii) commercial paper maturing no more than one year after its
creation and having the highest rating from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., and (iii) Bank's certificates of deposit
issued maturing no more than one year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on equipment when acquired, if the Lien is confined
to the property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
-21-
<PAGE>
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"QUICK ASSETS" is, on any date, Borrower's consolidated, unrestricted cash,
cash equivalents, net billed accounts receivable and investments with maturities
of fewer than 12 months determined according to GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is June 1, 2000.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one of more Affiliates of the Person.
"TERM LOAN ADVANCE" is an advance or advances under the Committed Term
Loan.
"TERM LOAN BORROWING BASE," for each advance under the Committed Term Line,
100% of invoice amounts for equipment purchased by Borrower after June 1, 1998.
However, non-standard equipment, including charges for taxes, shipping and
installation, shall be limited to 35% of the amount outstanding under the
Committed Term Loan.
"TERM LOAN MATURITY DATE" is defined in Section 2.1.2.
BORROWER: BANK:
ONYX SOFTWARE CORPORATION SILICON VALLEY BANK
-22-
<PAGE>
By: /s/ SARWAT RAMADAN 9-3-98 By: /s/ GERI B. HAUSER
------------------------------- ----------------------------------
Title: C.F.O Title: AVP
---------------------------- -------------------------------
-23-
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
-24-
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:______________
FAX#: (408) 496-2426 TIME:______________
- --------------------------------------------------------------------------------
FROM: ONYX Software Corporation
-----------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:________________________________________________________
PHONE NUMBER:________________________________________________________________
FROM ACCOUNT #_____________________ TO ACCOUNT #______________________
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $________________________________
PRINCIPAL PAYMENT (ONLY) $________________________________
INTEREST PAYMENT (ONLY) $________________________________
PRINCIPAL AND INTEREST (PAYMENT) $________________________________
OTHER INSTRUCTIONS:__________________________________________________________
_____________________________________________________________________________
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
___________________________ _____________________________
Authorized Requester Phone #
___________________________ _____________________________
Received By (Bank) Phone #
-2-
<PAGE>
- --------------------------------------------------------------------------------
__________________________________
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
-3-
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
-2-
<PAGE>
BORROWING BASE CERTIFICATE
- ------------------------------------------------------------------------------
Borrower: ONYX Software Corporation Lender: Silicon Valley Bank
330 120th Avenue NE 3003 Tasman Drive
Bellevue, WA 98005 Santa Clara, CA 95054
Commitment Amount: $8,000.000
- ------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ________ $________
2. Additions (please explain on reverse). $________
3. TOTAL ACCOUNTS RECEIVABLE $________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90/120 days from invoice date* $_____________
5. Balance if over 50% of total owing from account
debtor is over 90/120 days from invoice date* $_____________
6. Credit balances $_____________
7. Concentration Limits $_____________
8. Governmental Accounts $_____________
9. Contra Accounts $_____________
10. Promotion or Demo Accounts $_____________
11. Intercompany/Employee Accounts $_____________
12. Other (please explain on reverse) $_____________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $________
14. Eligible Accounts (#3 minus #13) $________
15. Deduction for amount by which
accounts over 90 days
from invoice date and less than 120
days from invoice
date exceed 20% of Eligible Accounts $________
16. Foreign Accounts* $________
17. Net Eligible Accounts (#14 minus #15 and #16) $________
18. LOAN VALUE OF ACCOUNTS (80% of #17) $________
BALANCES
19. Maximum Loan Amount $8,000,000
20. Total Funds Available [Lesser of #19 or #18]* $________
21. Present balance owing on Line of Credit $_____________
22. Outstanding under Sublimits (LC) $_____________
23. RESERVE POSITION (#20 minus #21 and #22) $________
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS:*
4. If extended terms are offered, then amounts over 120 days from invoice date
shall be deducted.
5. If extended terms are offered, balance is ineligible if over 50% of
accounts owing from account debtor is over 120 days from invoice date.
16. Deduction for amount by which foreign accounts exceed 20% of Eligible
Accounts.
-3-
<PAGE>
BANK USE ONLY
Rec'd by: __________________________________
Authorized Signer
Date: _____________________________________
Verified: __________________________________
Authorized Signer
Date: _____________________________________
_____________________________________
20. Advances up to $1,000,000 in the aggregate may be made without regard to
the Loan Value of Accounts (Line 18); Advances may not exceed, in the
aggregate, 25% of Line 17 until the initial accounts receivable examination
has been completed.
ONYX SOFTWARE CORPORATION
By:_______________________________
Authorized Signer
-4-
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
-5-
<PAGE>
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: ONYX SOFTWARE CORPORATION
330 120th Avenue NE
Bellevue, WA 98005
The undersigned authorized officer of ONYX Software Corporation certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending ______________________ with all required covenants except as
noted below and (ii) all representations and warranties in the Agreement are
true and correct in all material respects on this date. Attached are the
required documents supporting the certification. The Officer certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) consistently applied from one period to the next except as explained in
an accompanying letter or footnotes. The Officer acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANTS REQUIRED COMPLIES
------------------- -------- --------
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
+Comp. Cert/1/
Annual (Audited) FYE within 90 days Yes No
A/R & A/P Agings/2/ Monthly within 20 days Yes No
A/R Audit/3/ Initial and Annual Yes No
Borrowing Base Certificate/4/ Monthly within 20 days Yes No
</TABLE>
______________________
/1/ Only required when borrowing.
/2/ Only required when more than $1,000,000 is outstanding under the
Committed Revolving Line.
/3/ Initial A/R audit must be completed within 45 days of closing of the loan.
/4/ Borrower shall be deemed in compliance if either the Liquidity Coverage
Ratio or Debt Service Coverage Ratio Covenants are met (see Loan Agreement).
-6-
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL COVENANTS REQUIRED ACTUAL COMPLIES
------------------- -------- ------ --------
<S> <C> <C> <C>
Maintain on a Quarterly Basis.
---------------------------------------------------------------------------------------------------------
Profitability: Quarterly "Loss" not to exceed: $_________ Yes No
$2,000,000 for 9/30/98;
$2,000,000 for 12/31/98;
$1,000,000 for 3/31/99;
$750,000 for 6/30/99; and
$500,000 for 9/30/99
---------------------------------------------------------------------------------------------------------
Adjusted Quick Ratio: 1.25:1.00 :1.00 Yes No
---------------------------------------------------------------------------------------------------------
Liquidity Coverage Ratio/4/: 1.40:1.00 :1.00 Yes No
---------------------------------------------------------------------------------------------------------
Debt Service Coverage Ratio/4/: 1.40:1.00 :1.00 Yes No
---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
----------------------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached BANK USE ONLY
Received by:______________________________
AUTHORIZED SIGNER
Sincerely,
Date:_____________________________________
ONYX SOFTWARE CORPORATION
Verified:_________________________________
AUTHORIZED SIGNER
__________________________________________________ Date:_____________________________________
Signature
Compliance Status: Yes No
__________________________________________________ ----------------------------------------------
Title
__________________________________________________
Date
</TABLE>
-7-
<PAGE>
LIBOR SUPPLEMENT TO AGREEMENT
This LIBOR Supplement to Agreement (the "Supplement") is a supplement to
the Loan and Security Agreement (the "Loan Agreement") between Silicon Valley
Bank ("Bank") and ONYX Software Corporation, a Washington corporation
("Borrower"), and forms a part of and is incorporated into the Loan Agreement.
1. Definitions.
-----------
"Business Day" means a day of the year (a) that is not a Saturday, Sunday
or other day on which banks in the State of California or the City of London are
authorized or required to close and (b) on which dealings are carried on in the
interbank market in which Bank customarily participates.
"Interest Period" means for each LIBOR Rate Loan, a period of approximately
one, two or three months as the Borrower may elect, provided that the last day
--------
of an Interest Period for a LIBOR Rate Loan shall be determined in accordance
with the practices of the LIBOR interbank market as from time to time in effect,
provided, further, in all cases such period shall expire not later than the
- -------- -------
applicable Maturity Date.
"Interest Rate" shall mean as to: (a) Prime Rate Loans, a rate equal to
the Prime Rate; and (b) LIBOR Rate Loans, a rate of 2.00% per annum in excess of
the LIBOR Rate (based on the LIBOR Rate applicable for the Interest Period
selected by the Borrower).
"LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate Loan, the
rate of interest per annum determined by Bank to be the per annum rate of
interest as which deposits in United States Dollars are offered to Bank in the
London interbank market in which Bank customarily participates at 11:00 A.M.
(local time in such interbank market) TWO (2) BUSINESS DAYS before the first day
of such Interest Period for a period approximately equal to such Interest Period
and in an amount approximately equal to the amount of such Loan.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate Loan, a
rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal
to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1 minus the
Reserve Requirement for such Interest Period.
"LIBOR Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the LIBOR Rate in accordance with the terms hereof.
<PAGE>
"Prime Rate" means the variable rate of interest per annum, most recently
announced by Bank as its "prime rate," whether or not such announced rate is the
lowest rate available from Bank. The interest rate applicable to the Prime Rate
Loans shall change on each date there is a change in the Prime Rate.
"Prime Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
"Regulatory Change" means, with respect to Bank, any change on or after the
date of this Loan Agreement in United States federal, state or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives or requests applying to a class of
lenders including Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reserve Requirement" means, for any Interest Period, the average maximum
rate at which reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Bank by reason of any Regulatory Change
against (i) any category of liabilities which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of "LIBOR
Base Rate" or (ii) any category of extensions of credit or other assets which
include Loans.
2. Requests for Loans; Confirmation of Initial Loans. Each LIBOR Rate
-------------------------------------------------
Loan shall be made upon the irrevocable written request of Borrower RECEIVED BY
BANK NOT LATER THAN 11:00 A.M. (SANTA CLARA, CALIFORNIA TIME) ON THE BUSINESS
DAY THREE (3) BUSINESS DAYS PRIOR TO THE DATE SUCH LOAN IS TO BE MADE. Each
such notice shall specify the date such Loan is to be made, which day shall be a
Business Day; the amount of such Loan, the Interest Period for such Loan, and
comply with such other requirements as Bank determines are reasonable or
desirable in connection therewith.
Each written request for a LIBOR Rate Loan shall be in the form of a LIBOR
Rate Loan Borrowing Certificate as set forth on Exhibit A, which shall be duly
executed by the Borrower.
EACH PRIME RATE LOAN SHALL BE MADE UPON THE IRREVOCABLE WRITTEN REQUEST OF
BORROWER RECEIVED BY BANK NOT LATER THEN 11:00 A.M. (SANTA CLARA, CALIFORNIA
-2-
<PAGE>
TIME) ON THE BUSINESS DAY ONE (1) BUSINESS DAY PRIOR TO THE DATE SUCH LOAN IS TO
BE MADE. Each such notice shall specify the date such Loan is to be made, which
day shall be a Business Day and the amount of such Loan, and comply with such
other requirements as Bank determines are reasonable or desirable in connection
therewith.
3. Conversion/Continuation of Loans.
--------------------------------
(a) Borrower may from time to time submit in writing a request that
Prime Rate Loans be converted to LIBOR Rate Loans or that any existing LIBOR
Rate Loans continue for an additional Interest Period. Such request shall
specify the amount of the Prime Rate Loans which will constitute LIBOR Rate
Loans (subject to the limits set forth below) and the Interest Period to be
applicable to such LIBOR Rate Loans. Each written request for a conversion to a
LIBOR Rate Loan or a continuation of a LIBOR Rate Loan shall be substantially in
the form of a LIBOR Rate Conversion/Continuation Certificate as set forth on
Exhibit B, which shall be duly executed by the Borrower. Subject to the terms
and conditions contained herein THREE (3) BUSINESS DAYS AFTER BANK'S RECEIPT OF
SUCH A REQUEST FROM BORROWER, such Prime Rate Loans shall be converted to LIBOR
Rate Loans or such LIBOR Rate Loans shall continue, as the case may be provided
that:
(i) no Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists;
(ii) no party hereto shall have sent any notice of termination
of this Supplement or of the Loan Agreement.
(iii) Borrower shall have complied with such customary procedures
as Bank has established from time to time for Borrower's requests for LIBOR Rate
Loans;
(iv) the amount of a LIBOR Rate Loan shall be $500,000 or such
greater amount which is an integral multiple of $50,000; and
(v) Bank shall have determined that the Interest Period or
LIBOR Rate is available to Bank which can be readily determined as of the date
of the request for such LIBOR Rate Loan.
Any request by Borrower to convert Prime Rate Loans to LIBOR Rate Loans or
continue any existing LIBOR Rate Loans shall be irrevocable. Notwithstanding
anything to the contrary contained herein, Bank shall not be required to
purchase United States Dollar deposits in the London interbank market or other
applicable LIBOR Rate market to fund any LIBOR Rate Loans, but the provisions
hereof shall
-3-
<PAGE>
be deemed to apply as if Bank had purchased such deposits to fund the LIBOR Rate
Loans.
(b) Any LIBOR Rate Loans shall automatically convert to Prime Rate
Loans upon the last day of the applicable Interest Period, UNLESS BANK HAS
RECEIVED AND APPROVED A COMPLETE AND PROPER REQUEST TO CONTINUE SUCH LIBOR RATE
LOAN AT LEAST THREE (3) BUSINESS DAYS PRIOR TO SUCH LAST DAY in accordance with
the terms hereof. Any LIBOR Rate Loans shall, at Bank's option, convert to Prime
Rate Loans in the event that (i) an Event of Default, or event which with the
notice or passage of time or both would constitute an Event of Default, shall
exist, (ii) this Supplement or the Loan Agreement shall terminate, or (iii) the
aggregate principal amount of the Prime Rate Loans which have previously been
converted to LIBOR Rate Loans, or the aggregate principal amount of existing
LIBOR Rate Loans continued, as the case may be, at the beginning of an Interest
Period shall at any time during such Interest Period exceeds the Borrower's
availability under the Committed Revolving Line. Borrower agrees to pay to Bank,
upon demand by Bank (or Bank may, at its option, charge Borrower's loan account)
any amounts required to compensate Bank for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as a result of
the conversion of LIBOR Rate Loans to Prime Rate Loans pursuant to any of the
foregoing.
(c) On all Loans, Interest shall be payable by Borrower to Bank
monthly in arrears not later than the first (1st) day of each calendar month at
the applicable Interest Rate.
4. Additional Requirements/Provisions Regarding LIBOR Rate Loans; Etc.
------------------------------------------------------------------
(a) IF FOR ANY REASON (INCLUDING VOLUNTARY OR MANDATORY PREPAYMENT OR
ACCELERATION), BANK RECEIVES ALL OR PART OF THE PRINCIPAL AMOUNT OF A LIBOR RATE
LOAN PRIOR TO THE LAST DAY OF THE INTEREST PERIOD FOR SUCH LOAN, BORROWER SHALL
IMMEDIATELY NOTIFY BORROWER'S ACCOUNT OFFICER AT BANK AND, ON DEMAND BY BANK,
PAY BANK THE AMOUNT (if any) by which (i) the additional interest which would
have been payable on the amount so received had it not been received until the
last day of such Interest Period exceeds (ii) the interest which would have been
recoverable by Bank by placing the amount so received on deposit in the
certificate of deposit markets or the offshore currency interbank markets or
United States Treasury investment products, as the case may be, for a period
starting on the date on which it was so received and ending on the last day of
such Interest Period at the interest rate determined by Bank in its reasonable
discretion. Bank's determination as to such amount shall be conclusive absent
manifest error.
-4-
<PAGE>
(b) Borrower shall pay to Bank, upon demand by Bank, from time to time
such amounts as Bank may determine to be necessary to compensate it for any
costs incurred by Bank that Bank determines are attributable to its making or
maintaining of any amount receivable by Bank hereunder in respect of any Loans
relating thereto (such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), in each case resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
Bank under this Supplement in respect of any Loans (other than changes which
affect taxes measured by or imposed on the overall net income of Bank by the
jurisdiction in which such Bank has its principal office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of Bank (including any Loans or any deposits
referred to in the definition of "LIBOR Base Rate"); or
(iii) imposes any other condition affecting this Supplement (or
any of such extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the date of the Loan
Agreement which will entitle Bank to compensation pursuant to this section as
promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Bank will furnish Borrower with a statement setting
forth the basis and amount of each request by Bank for compensation under this
Section 4. Determinations and allocations by Bank for purposes of this Section
4 of the effect of any Regulatory Change on its costs of maintaining its
obligations to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans, and of the additional amounts required to
compensate Bank in respect of any Additional Costs, shall be conclusive absent
manifest error.
(c) Borrower shall pay to Bank, upon the request of Bank, such amount
or amounts as shall be sufficient (in the sole good faith opinion of such Bank)
to compensate it for any loss, costs or expense incurred by it as a result of
any failure by Borrower to borrow a Loan on the date for such borrowing
specified in the relevant notice of borrowing hereunder.
(d) If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
-5-
<PAGE>
interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with any respect or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank (a "Parent")
as a consequence of its obligations hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material, then from time to time, within 15 days
after demand by Bank, Borrower shall pay to Bank such additional amount or
amounts as will compensate Bank for such reduction. A statement of Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive absent manifest error.
(e) If at any time Bank, in its sole and absolute discretion,
determines that: (i) the amount of the LIBOR Rate Loans for periods equal to the
corresponding Interest Periods are not available to Bank in the offshore
currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect
the cost to Bank of lending the LIBOR Rate Loan, then Bank shall promptly give
notice thereof to Borrower, and upon the giving of such notice Bank's obligation
to make the LIBOR Rate Loans shall terminate, unless Bank and the Borrower agree
in writing to a different interest rate Loans shall terminate, unless Bank and
the Borrower agree in writing to a different interest rate applicable to LIBOR
Rate Loans. If it shall become unlawful for Bank to continue to fund or maintain
any Loans, or to perform its obligations hereunder, upon demand by Bank,
Borrower shall prepay the Loans in full with accrued interest thereon and all
other amounts payable by Borrower hereunder (including, without limitation, any
amount payable in connection with such prepayment pursuant to Section 4(a)).
-6-
<PAGE>
EXHIBIT A
LIBOR RATE LOAN BORROWING CERTIFICATE
The undersigned hereby certifies as follows:
I, __________________, am the duly elected and acting ______________ of
_______________ ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain LIBOR
Supplement to Agreement together with the Loan and Security Agreement by and
between Borrower and Silicon Valley Bank ("Bank") (the "Loan Agreement"). The
terms used in this Borrowing Certificate which are defined in the Loan Agreement
have the same meaning herein as ascribed to them therein.
Borrower hereby requests on __________, 19__ a LIBOR Rate Loan (the "Loan")
as follows:
(a) The date on which the Loan is to be made is _______, 19__.
(b) The amount of the Loan is to be _____________ ($_________), for an
Interest Period of ________ month(s).
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
IN WITNESS WHEREOF, this Borrowing Base Certificate is executed by the
undersigned as of this _________ day of ___________, 19__.
_________________________________________
By: _____________________________________
Title: __________________________________
FOR INTERNAL BANK USE ONLY
- --------------------------------------------------------------------------------
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
- --------------------------------------------------------------------------------
%
- --------------------------------------------------------------------------------
-7-
<PAGE>
EXHIBIT B
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, ___________, am the duly elected and acting _____________ of
_______________ ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain LIBOR
Supplement to Agreement together with the Loan and Security Agreement by and
between Borrower and Silicon Valley Bank ("Bank") (the "Loan Agreement"). The
terms used in this LIBOR Rate Conversion/Continuation Certificate which are
defined in the Loan Agreement have the same meaning herein as ascribed to them
therein.
Borrower hereby requests on ____________, 19__ a LIBOR Rate Loan (the
"Loan") as follows:
(a) ___(i) A rate conversion of an existing Prime Rate Loan from a
Prime Rate Loan to a LIBOR Rate Loan; or
____(ii) A continuation of an existing LIBOR Rate Loan as a LIBOR
Rate Loan;
[Check (i) or (ii) above]
(b) The date on which the Loan is to be made is ______, 19__.
(c) The amount of the Loan is to be _________($__________), for an
Interest Period of _________ month(s).
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of this
request for a loan, provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
-8-
<PAGE>
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate is
executed by the undersigned as of this _____ day of _________, 19__.
_________________________________________
By: _____________________________________
Title: __________________________________
FOR INTERNAL BANK USE ONLY
- --------------------------------------------------------------------------------
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
- --------------------------------------------------------------------------------
%
- --------------------------------------------------------------------------------
-9-
<PAGE>
CORPORATE BORROWING RESOLUTION
BORROWER: ONYX SOFTWARE CORPORATION BANK: SILICON VALLEY BANK
330 - 120TH AVENUE N.E. 11000 S.W. STRATUS, STE. 170
BELLEVUE, WA 98005 BEAVERTON, OR 97008-7113
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF ONYX SOFTWARE
CORPORATION ("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly
organized and existing under and by virtue of the laws of the State of
Washington.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by
other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of Borrower, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
SARWAT H. RAMADAN C.F.O. SARWAT RAMADAN
- ----------------- ----------------------- -----------------------
- ----------------- ----------------------- -----------------------
- ----------------- ----------------------- -----------------------
- ----------------- ----------------------- -----------------------
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment
should be borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan
documents of Borrower, on Bank's forms, at such rates of interest and
on such terms as may be agreed upon, evidencing the sums of money so
borrowed or any indebtedness of Borrower to Bank, and also to execute
and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
loan documents, or any portion of the loan documents.
-10-
<PAGE>
GRANT SECURITY. To grant a security interest to Bank in any of
Borrower's assets, which security interest shall secure all of
Borrower's obligations to Bank.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to Borrower or in which Borrower
may have an interest, and either to receive cash for the same or to
cause such proceeds to be credited to the account of Borrower with
Bank, or to cause such other disposition of the proceeds derived
therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount
as, in the judgment of the officer or officers herein authorized.
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital
stock, for such class, series and number, and on such terms, as an
officer of Borrower shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements, including agreements waiving the
right to a trial by jury, as they may in their discretion deem
reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
-11-
<PAGE>
I FURTHER CERTIFY that the persons named above are principal officers of the
Corporation and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that they are in full force and effect and have not been modified or revoked
in any manner whatsoever.
-12-
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand on ______________, and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X ________________________________________
*Secretary or Assistant Secretary
X ________________________________________
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
-13-
<PAGE>
CORPORATE BORROWING RESOLUTION
BORROWER: ONYX SOFTWARE CORPORATION BANK: SILICON VALLEY BANK
330 - 120TH AVENUE N.E. 11000 S.W. STRATUS, STE. 170
BELLEVUE, WA 98005 BEAVERTON, OR 97008-7113
I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF ONYX SOFTWARE
CORPORATION ("BORROWER"), HEREBY CERTIFY that Borrower is a corporation duly
organized and existing under and by virtue of the laws of the State of
Washington.
I FURTHER CERTIFY that at a meeting of the Directors of Borrower (or by
other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of Borrower, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
SARWAT H. RAMADAN C.F.O. SARWAT RAMADAN
- ----------------- -------------- --------------
Amy E. Kelleran Controller AMY KELLERAN
- ----------------- -------------- --------------
Brent R. Frei CEO BRENT FREI
- ----------------- -------------- --------------
- ----------------- -------------- --------------
acting for and on behalf of Borrower and as its act and deed be, and they hereby
are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers of
Borrower and Bank, such sum or sums of money as in their judgment
should be borrowed.
EXECUTE LOAN DOCUMENTS. To execute and deliver to Bank the loan
documents of Borrower, on Bank's forms, at such rates of interest and
on such terms as may be agreed upon, evidencing the sums of money so
borrowed or any indebtedness of Borrower to Bank, and also to execute
and deliver to Bank one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for one or more of the
loan documents, or any portion of the loan documents.
-14-
<PAGE>
GRANT SECURITY. To grant a security interest to Bank in any of
Borrower's assets, which security interest shall secure all of
Borrower's obligations to Bank.
NEGOTIATE ITEMS. To draw, endorse, and discount with Bank all drafts,
trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to Borrower or in which Borrower
may have an interest, and either to receive cash for the same or to
cause such proceeds to be credited to the account of Borrower with
Bank, or to cause such other disposition of the proceeds derived
therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
FOREIGN EXCHANGE CONTRACTS. To execute and deliver foreign exchange
contracts, either spot or forward, from time to time, in such amount
as, in the judgment of the officer or officers herein authorized.
ISSUE WARRANTS. To issue warrants to purchase Borrower's capital
stock, for such class, series and number, and on such terms, as an
officer of Borrower shall deem appropriate.
FURTHER ACTS. In the case of lines of credit, to designate additional
or alternate individuals as being authorized to request advances
thereunder, and in all cases, to do and perform such other acts and
things, to pay any and all fees and costs, and to execute and deliver
such other documents and agreements, including agreements waiving the
right to a trial by jury, as they may in their discretion deem
reasonably necessary or proper in order to carry into effect the
provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of Borrower's agreements or commitments in effect at the
time notice is given.
-15-
<PAGE>
I FURTHER CERTIFY that the persons named above are principal officers of the
Corporation and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that they are in full force and effect and have not been modified or revoked
in any manner whatsoever.
-16-
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand on ______________, and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X BRENT FREI
---------------------------------------
*Secretary or Assistant Secretary
X_______________________________________
*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.
-17-
<PAGE>
EXHIBIT 10.7
ONYX SOFTWARE CORPORATION
1994 COMBINED INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
AS AMENDED AND RESTATED ON OCTOBER 23, 1998
SECTION 1. PURPOSE
The purpose of the ONYX Software Corporation 1994 Combined Incentive and
Nonqualified Stock Option Plan (the "Plan") is to enable ONYX Software
Corporation, a Washington corporation (the "Company"), to attract and retain the
services of people with training, experience and ability and to provide
additional incentive to such persons by granting them an opportunity to
participate in the ownership of the Company.
SECTION 2. STOCK SUBJECT TO PLAN
The stock subject to the Plan shall be the Company's common stock, no par
value (the "Common Stock"), presently authorized but unissued or now held or
subsequently acquired by the Company. Subject to adjustment as provided in
Section 10, the aggregate amount of Common Stock reserved for issuance or
delivery upon exercise of all options granted under the Plan shall not exceed
5,000,000 shares of Common Stock. If any option granted under the Plan shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall thereupon again be available for
purposes of the Plan.
SECTION 3. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company, in
accordance with the following terms and conditions:
3.1 GENERAL AUTHORITY
Subject to the express provisions of the Plan, the Board of Directors shall
have the authority, in its discretion, to determine all matters relating to
options to be granted under the Plan, including the selection of individuals to
be granted options, the number of shares to be subject to each option, the
exercise price, the term, whether such options shall be immediately exercisable
or shall become exercisable in increments over time, and all other terms and
conditions thereof. Grants under the Plan to persons eligible need not be
identical in any respect, even when made simultaneously. The Board of Directors
may from time to time adopt rules and regulations relating to the administration
of the Plan. The interpretation and construction by the Board of Directors of
any terms or provisions of the Plan or any
<PAGE>
option issued hereunder, or of any rule or regulation promulgated in connection
herewith, shall be conclusive and binding on all interested parties. The Board
of Directors, in its sole discretion, may grant incentive stock options
("Incentive Stock Options") as such term is defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and/or nonqualified
stock options ("Nonqualified Stock Options"). A Nonqualified Stock Option is a
stock option which is not an Incentive Stock Option. The type of option granted,
whether an Incentive Stock Option or a Nonqualified Stock Option shall be
clearly identified by the Board of Directors when granted. The term "option,"
when used in the Plan, should refer to Incentive Stock Options and Nonqualified
Stock Options, collectively.
3.2 DIRECTORS
A member of the Board of Directors may be eligible to participate in or
receive or hold options under the Plan; provided, however, that no member of the
Board of Directors shall vote with respect to the granting of an option
hereunder to himself or herself, as the case may be.
3.3 DELEGATION TO A COMMITTEE
Notwithstanding the foregoing, the Board of Directors, if it so determines,
may delegate to a committee of the Board of Directors any or all authority for
the administration of the Plan, and thereafter references to the Board of
Directors in the Plan shall be deemed to be references to the committee to the
extent provided in the resolution establishing the committee.
3.4 PERSONS SUBJECT TO SECTION 16(B)
Notwithstanding anything in the Plan to the contrary, the Board of
Directors, in its absolute discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to participants who are
officers and directors subject to Section 16(b) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), without so restricting, limiting or
conditioning the Plan with respect to other participants.
3.5 REPLACEMENT OF OPTIONS
The Board of Directors, in its absolute discretion, may grant options
subject to the condition that options previously granted at a higher or lower
exercise price under the Plan be cancelled or exchanged in connection with such
grant. The number of shares covered by the new options, the exercise price, the
term and the other terms and conditions of the new option, shall be determined
in accordance with the Plan and
2
<PAGE>
may be different from the provisions of the cancelled or exchanged options.
Alternatively, the Board of Directors may, with the agreement of the Optionee,
amend previously granted options to establish the exercise price at the then
current fair market value of the Company's Common Stock, maintaining existing
vesting and expiration dates.
3.6 LOANS TO OPTIONEES
The Board of Directors, in its absolute discretion, may provide that the
Company loan to Optionees sufficient funds to exercise any option granted under
the Plan and/or to pay withholding tax due upon exercise of such option. The
Board of Directors shall have the authority to make such determinations at the
time of grant or exercise and shall establish repayment terms thereof, including
installments, maturity and interest rate; provided, however, that repayment of
any Company loan to the Optionee shall be secured by delivery of a full-recourse
promissory note for the loan amount executed by the Optionee, together with any
other form of security determined by the Board of Directors. The maximum credit
available is the purchase price, if any, of the Common Stock acquired, plus the
maximum federal and state income and employment liability that may be incurred
in connection with the acquisition. The amount of any promissory note delivered
in connection with an Incentive Stock Option shall bear interest at a rate
specified by the Board of Directors but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 4. ELIGIBILITY
Options may be granted only to persons who, at the time the option is
granted, are employees, directors, consultants or independent contractors of the
Company or any of its present or future parent or subsidiary corporations (as
those terms are used in Section 422(a)(2) and (d)(1) and Section 424(e) and (f)
of the Code, hereafter a "Parent" or "Subsidiary"). Any individual to whom an
option is granted under the Plan shall be referred to as "Optionee." Any
Optionee may receive one or more grants of options as the Board of Directors
shall from time to time determine, and such determinations may be different as
to different Optionees and may vary as to different grants. Optionees who are
not employees will only be eligible to receive Nonqualified Stock Options. No
Optionee shall be granted options in any calendar year in excess of 40% of the
shares of Common Stock issuable under the Plan pursuant to Section 2, as amended
from time to time.
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SECTION 5. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Board of Directors shall deem advisable and which are not inconsistent with the
Plan. Each option granted hereunder shall clearly indicate whether it is an
Incentive Stock Option or a Nonqualified Stock Option. Notwithstanding the
foregoing, all such options shall include or incorporate by reference the
following terms and conditions:
5.1 NUMBER OF SHARES
The maximum number of shares that may be purchased pursuant to the exercise
of each option and the price per share at which such option is exercisable (the
"exercise price") shall be as established by the Board of Directors, provided
that the exercise price of Incentive Stock Options shall not be less than the
fair market value per share of the Common Stock at the time the option is
granted, as determined in good faith by the Board of Directors. The exercise
price of Nonqualified Stock Options may be greater or less than the fair market
value per share of the Common Stock at the time the option is granted.
5.2 DURATION OF OPTIONS
Subject to the restrictions contained in Sections 7 and 9, the term of each
option shall be established by the Board of Directors and, if not so
established, shall be ten years from the date it is granted, but in no event
shall the term of any Incentive Stock Option exceed ten years.
5.3 EXERCISABILITY
Each option shall prescribe the installments, if any, in which an option
granted under the Plan shall become exercisable. The Board of Directors, in its
absolute discretion, may waive or accelerate any installment requirement
contained in outstanding options. In no case may an option be exercised as to
less than 100 shares at any one time (or the remaining shares covered by the
option if less than 100) during the term of the option. Only whole shares shall
be issued pursuant to the exercise of any option.
5.4 INCENTIVE STOCK OPTION
Any option which is issued as an Incentive Stock Option under the Plan,
shall, notwithstanding any other provisions of the Plan or the option terms to
the contrary,
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contain all of the terms, conditions, restrictions, rights and limitations
required to be an Incentive Stock Option, and any provision to the contrary
shall be disregarded.
SECTION 6. TRANSFERABILITY OF OPTIONS
Options granted under the Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or the applicable
laws of descent and distribution, and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under the Plan or any right or
privilege conferred hereby, contrary to the provisions hereof, or upon the sale
or levy or any attachment or similar process, such option thereupon shall
terminate and become null and void. During an Optionee's lifetime, any options
granted under the Plan are personal to him or her and are exercisable solely by
such Optionee. Notwithstanding the foregoing, and to the extent permitted by
Section 422 of the Code, the Board of Directors, in its sole discretion, may
permit such assignment, transfer and exercisability and may permit an Optionee
to designate a beneficiary who may exercise the option after the Optionee's
death; provided, however, that any option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the option.
SECTION 7. CERTAIN LIMITATIONS REGARDING INCENTIVE STOCK OPTIONS
The grant of Incentive Stock Options shall be subject to the following
special limitations:
7.1 LIMITATION ON AMOUNT OF GRANTS
To the extent that any Optionee is granted Incentive Stock Options that in
the aggregate (together with all other Incentive Stock Options granted by the
Company or any Parents or Subsidiaries) entitle the Optionee to purchase, in any
calendar year during which such options first become exercisable, stock of the
Company, any Parent or any Subsidiary having a fair market value (determined as
of the time such options are granted) which exceeds $100,000, such excess
portion shall be treated as a Nonqualified Stock Option. No limitation shall
apply to Nonqualified Stock Options.
7.2 GRANTS TO 10% SHAREHOLDERS
Incentive Stock Options may be granted to a person owning more than 10% of
the total combined voting power of all classes of stock of the Company and any
Parent or Subsidiary only if (i) the exercise price is at least 110% of the fair
market
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value of the stock at the time of grant and (ii) the option is not exercisable
after the expiration of five years from the date of grant.
SECTION 8. EXERCISE OF OPTIONS
Options shall be exercised in accordance with the following terms and
conditions:
8.1 PROCEDURE
Options shall be exercised by delivery to the Company of written notice of
the number of shares with respect to which the option is exercised.
8.2 PAYMENT
(i) For options granted on or after October 23, 1998, the exercise price
for shares purchased under an option shall be paid in full to the Company by
delivery of consideration equal to the product of the option exercise price and
the number of shares purchased. Such consideration must be paid in cash or by
check or, unless the Board of Directors in its sole discretion determines
otherwise, either at the time the option is granted or at any time before it is
exercised, a combination of cash and/or check (if any) and one or both of the
following alternative forms: (a) tendering (either actually or, if and so long
as the Common Stock is registered under Section 12(b) or 12(g) of the 1934 Act,
by attestation) Common Stock already owned by the Optionee for at least six
months (or any shorter period necessary to avoid a charge to the Company's
earnings for financial reporting purposes) having a fair market value on the day
prior to the exercise date equal to the aggregate option exercise price; or (b)
if and so long as the Common Stock is registered under Section 12(b) or 12(g) of
the 1934 Act, delivery of a properly executed exercise notice, together with
irrevocable instructions, to (1) a brokerage firm designated by the Company to
deliver promptly to the Company the aggregate amount of sale or loan proceeds to
pay the option exercise price and any withholding tax obligations that may arise
in connection with the exercise and (2) the Company to deliver the certificates
for such purchased shares directly to such brokerage firm, all in accordance
with the regulations of the Federal Reserve Board. In addition, to the extent
permitted by the Board of Directors in its sole discretion, the price for shares
purchased under an option may be paid, either singly or in combination with one
or more of the alternative forms of payment authorized by this subsection 8.2 by
(y) a promissory note delivered pursuant to subsection 3.6 or (z) such other
consideration as the Board of Directors may permit.
(ii) For options granted before October 23, 1998, payment of the option
price shall be made in full within three business days of the notice of exercise
of the
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option and shall be in cash or bank-certified or cashier's checks, or personal
check if permitted by the Board of Directors. To the extent permitted by
applicable laws and regulations (including, but not limited to, federal tax and
securities laws and regulations), an option may be exercised by delivery of
shares of Common Stock of the Company held by the Optionee having a fair market
value equal to the exercise price, such fair market value to be determined in
good faith by the Board of Directors. Such payment in stock may occur in the
context of a single exercise of an option or successive and simultaneous
exercises, sometimes referred to as "pyramiding," which provides that, rather
than physically exchanging certificates for a series of exercises, bookkeeping
entries will be made pursuant to which the Optionee is permitted to retain his
existing stock certificate and a new stock certificate is issued for the net
shares.
If the Company's Common Stock is registered under the 1934 Act, and if
permitted by the Board of Directors, and to the extent permitted by applicable
laws and regulations (including, but not limited to, federal tax and securities
laws and regulations), an option also may be exercised by delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds to pay the
exercise price.
8.3 FEDERAL WITHHOLDING TAX REQUIREMENTS
Upon exercise of an option, the Optionee shall, upon notification of the
amount due and prior to or concurrently with the delivery of the certificates
representing the shares, pay to the Company amounts necessary to satisfy
applicable federal, state and local withholding tax requirements or shall
otherwise make arrangements satisfactory to the Company for such requirements.
Such arrangements may include payment of the appropriate withholding tax in
shares of Common Stock having a fair market value equal to such withholding tax,
either through delivery of shares held by the Optionee or by reduction in the
number of shares to be delivered to the Optionee upon exercise of such option.
SECTION 9. TERMINATION OF EMPLOYMENT, DISABILITY AND DEATH
9.1 GENERAL
If the employment of the Optionee by the Company, a Parent or a Subsidiary
shall terminate by retirement or for any reason other than death, disability or
cause as hereinafter provided, the option may be exercised by the Optionee at
any time prior to the expiration of three months after the date of such
termination of employment (unless by its terms the option sooner terminates or
expires), but only if, and to the
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extent, the Optionee was entitled to exercise the option at the date of such
termination.
9.2 DISABILITY
If the employment of the Optionee by the Company, a Parent or a Subsidiary
is terminated because of the Optionee's disability (as herein defined), the
option may be exercised by the Optionee at any time prior to the expiration of
one year after the date of such termination (unless by its terms the option
sooner terminates or expires), but only if, and to the extent, the Optionee was
entitled to exercise the option at the date of such termination. For purposes
of this section, an Optionee will be considered to be disabled if the Optionee
is unable to engage in any substantial gainful activity by reason of any
medically determinable mental or physical impairment which can be expected to
result in death or which has lasted or can be expected to last a continuous
period of not less than 12 months.
9.3 DEATH
In the event of the death of an Optionee while in the employ of the
Company, a Parent or a Subsidiary, the option shall be exercisable on or prior
to the expiration of one year after the date of such death (unless by its terms
the option sooner terminates and expires), but only if and to the extent the
Optionee was entitled to exercise the option at the date of such death and only
by the Optionee's personal representative if then subject to administration as
part of the Optionee's estate, designated beneficiary, or by the person or
persons to whom such Optionee's rights under the option shall have passed by the
Optionee's will or by the applicable laws of descent and distribution.
9.4 TERMINATION FOR CAUSE
If the Optionee's employment with the Company, a Parent or a Subsidiary is
terminated for cause, any option granted hereunder shall automatically terminate
as of the first advice or discussion thereof, and such Optionee shall thereupon
have no right to purchase any shares pursuant to such option. "Termination for
Cause" shall mean dismissal for dishonesty, conviction or confession of a crime
punishable by law (except minor violations), intoxication while at work, fraud,
misconduct or disclosure of confidential information, in each case as determined
by the Board of Directors, and its determination shall be conclusive and
binding.
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9.5 WAIVER OR EXTENSION OF TIME PERIODS
The Board of Directors shall have the authority, prior to or within the
times specified in this Section 9 for the exercise of any such option, to extend
such time period or waive in its entirety any such time period to the extent
that such time period expires prior to the expiration of the term of such
option. In addition, the Board of Directors may grant, pursuant to a specific
resolution adopted at the time of grant, modify or eliminate the time periods
specified in this Section 9. If an Optionee holding an Incentive Stock Option
exercises such option, by permission, after the expiration of the time period
specified in this Section 9, the option will no longer be treated as an
Incentive Stock Option under the Code and shall automatically be converted into
a Nonqualified Stock Option.
9.6 TERMINATION OF OPTIONS
To the extent that the option of any deceased Optionee or of any Optionee
whose employment is terminated shall not have been exercised within the limited
periods prescribed in this Section 9, all further rights to purchase shares
pursuant to such option shall cease and terminate at the expiration of such
period. No Incentive Stock Option may be exercised after the expiration of ten
years from the date such option is granted, notwithstanding any provision to the
contrary.
9.7 NONEMPLOYEE OPTIONEES
Options granted to Optionees who are not employees of the Company, a Parent
or a Subsidiary at the time of grant shall not be subject to the provisions of
this Section 9, except as specifically provided in the option.
SECTION 10. OPTION ADJUSTMENTS
10.1 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares on which options may be granted
under the Plan, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total price), and
all such options, shall each be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a split-
up or consolidation of shares or any like capital adjustment, or the payment of
any stock dividend, or any other increase or decrease in the number of shares of
Common Stock without the receipt of consideration by the Company.
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10.2 EFFECT OF CERTAIN TRANSACTIONS
Except as provided in subsection 10.3, upon a merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation of
the Company, as a result of which the shareholders of the Company receive cash,
stock or other property in exchange for their shares of Common Stock, any option
granted hereunder shall terminate, but, provided that the Optionee shall have
the right immediately prior to any such merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation to exercise his or
her option in whole or in part whether or not the vesting requirements set forth
in the option agreement have been satisfied.
10.3 CONVERSION OF OPTIONS ON STOCK FOR STOCK EXCHANGE
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger, consolidation, acquisition of property or
stock, separation or reorganization, all options granted hereunder shall
terminate in accordance with the provision of subsection 10.2 unless the Board
of Directors and the corporation issuing the Exchange Stock, in their sole and
arbitrary discretion and subject to any required action by the shareholders of
the Company and such corporation, agree that all such options granted hereunder
are converted into options to purchase shares of Exchange Stock. The amount and
price of such options shall be determined by adjusting the amount and price of
the options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization. The vesting schedule set forth in the option agreement shall
continue to apply to the options granted for the Exchange Stock.
10.4 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by an
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
10.5 DETERMINATION OF BOARD OF DIRECTORS TO BE FINAL
All such adjustments shall be made by the Board of Directors and its
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
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SECTION 11. SECURITIES REGULATIONS
11.1 COMPLIANCE
Shares shall not be issued with respect to an option granted under the Plan
unless the exercise of such option and the issuance and delivery of such shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act of
1933, as amended, the 1934 Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall further be subject to the approval of counsel for the
Company with respect to such compliance. Inability of the Company to obtain
from any regulatory body having jurisdiction, the authority deemed by the
Company's counsel to be necessary for the lawful issuance and sale of any shares
hereunder, shall relieve the Company of any liability in respect of the
nonissuance or sale of such shares as to which such requisite authority shall
not have been obtained.
11.2 REPRESENTATIONS BY OPTIONEE
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares, if, in the opinion of counsel for the
Company, such representation is required by any relevant provision of the laws
referred to in subsection 11.1. At the option of the Company, a stop transfer
order against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel was provided
(concurred in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on the stock
certificate in order to assure exemption from registration. The Board of
Directors may also require such other action or agreement by the Optionees as
may from time to time be necessary to comply with the federal and state
securities laws. This provision shall not obligate the Company to undertake
registration of options or stock hereunder.
SECTION 12. EMPLOYMENT RIGHTS
Nothing in the Plan or any option or right granted pursuant hereto shall
confer upon any Optionee any right to be continued in the employment of the
Company, a Parent or any Subsidiary of the company or to remain a director, or
to interfere in any way with the right of the Company, a Parent or any
Subsidiary, in its sole discretion,
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to terminate such Optionee's employment at any time or to remove the Optionee as
a director at any time.
SECTION 13. AMENDMENT AND TERMINATION
13.1 ACTION BY SHAREHOLDERS
The Plan may be terminated, modified or amended by the shareholders of the
Company.
13.2 ACTION BY BOARD OF DIRECTORS
The Board of Directors may also terminate the Plan, or modify or amend the
Plan in such respects as it shall deem advisable in order to conform to any
changes in law or regulation applicable thereto, or in other respects; provided,
however, that the Board of Directors may not, without further approval by the
shareholders of the Company:
(i) Increase the number of shares in the aggregate which may be
sold pursuant to options granted under the Plan;
(ii) Increase the period during which options may be granted or
exercised; or
(iii) Change the terms of the Plan which causes the Plan to lose its
qualification as an incentive stock option plan under Section 422 of the Code.
No termination, suspension or amendment of the Plan may, without the
consent of each Optionee to whom any option shall theretofore have been granted,
adversely affect the rights of such Optionees under such options.
13.3 AUTOMATIC TERMINATION
Unless the Plan shall theretofore have been terminated as herein provided,
the Plan shall terminate ten years from the earlier of: (i) the date on which
the Plan is adopted or (ii) the date on which the Plan is approved by the
shareholders of the Company. No option may be granted after such termination,
or during any suspension of the Plan. The amendment or termination of the Plan
shall not, without the consent of the Optionee, alter or impair any rights or
obligations under any option theretofore granted under the Plan.
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SECTION 14. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective on the date of its adoption by the Board of
Directors of the Company and options may be granted immediately thereafter but
no option may be exercised under the Plan unless and until the Plan shall have
been approved by the shareholders within 12 months after the date of adoption of
the Plan by the Board of Directors. If such approval is not obtained within
such period the Plan and any options granted thereunder shall be null and void.
SECTION 15. GENERAL
15.1 NO RIGHTS AS A SHAREHOLDER
--------------------------
No option shall entitle the Optionee to any dividend, voting or other right
of a shareholder unless and until the date of issuance under the Plan of the
shares that are the subject of such option, free of all applicable restrictions.
15.2 NO TRUST OR FUND
----------------
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Optionee, and no Optionee
shall have any rights that are greater than those of a general unsecured
creditor of the Company.
15.3 SEVERABILITY
------------
If any provision of the Plan or any option is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any option under any law deemed applicable by the Board
of Directors, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Board of Director's determination, materially altering the intent of the
Plan or the option, such provision shall be stricken as to such jurisdiction,
person or option, and the remainder of the Plan and any such option shall remain
in full force and effect.
Original plan adopted by the Board of Directors on April 19th, 1994 and
approved by the shareholders on April 20, 1994. Plan pool increase to 5,000,000
shares adopted by the Board of Directors on September 20, 1996 and approved by
shareholders on December 27, 1996. Amended and Restated Plan adopted by the
Board of Directors on October 23, 1998.
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EXHIBIT 10.8
ONYX SOFTWARE CORPORATION
1998 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the ONYX Software Corporation 1998 Stock Incentive
Compensation Plan (the "Plan") is to enhance the long-term shareholder value of
ONYX Software Corporation, a Washington corporation (the "Company"), by offering
opportunities to employees, directors, officers, consultants, agents, advisors
and independent contractors of the Company and its Subsidiaries (as defined in
Section 2) to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Subsidiaries and to acquire
and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 AWARD
"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Options and Stock Awards, or any
combination of the foregoing.
2.2 BOARD
"Board" means the Board of Directors of the Company.
2.3 CAUSE
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
2.4 CODE
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 COMMON STOCK
"Common Stock" means the common stock, no par value per share, of the
Company.
2.6 CORPORATE TRANSACTION
"Corporate Transaction" means any of the following events:
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(a) Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation, or
pursuant to which shares of the Common Stock are converted into cash,
securities or other property, if following such merger or consolidation the
holders of the Company's outstanding voting securities immediately prior to
such merger or consolidation own less than a majority of the outstanding
voting securities of the surviving corporation;
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all
of the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation"
is defined in Section 8.3) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.
2.7 DISABILITY
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.8 EFFECTIVE DATE
"Effective Date" has the meaning set forth under Section 18.
2.9 EXCHANGE ACT
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.10 FAIR MARKET VALUE
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (b)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for a single trading day. If there is no such
reported price for the Common Stock for the date in question, then such price on
the last preceding date for which such price exists shall be determinative of
Fair Market Value.
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2.11 GOOD REASON
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice from the Holder:
(a) a change in the Holder's status, title, position or
responsibilities (including reporting responsibilities) that, in the Holder's
reasonable judgment, represents a substantial reduction in the status, title,
position or responsibilities as in effect immediately prior thereto; the
assignment to the Holder of any duties or responsibilities that, in the Holder's
reasonable judgment, are materially inconsistent with such status, title,
position or responsibilities; or any removal of the Holder from or failure to
reappoint or reelect the Holder to any of such positions, except in connection
with the termination of the Holder's employment for Cause, for Disability or as
a result of his or her death, or by the Holder other than for Good Reason;
(b) a reduction in the Holder's annual base salary;
(c) the Successor Corporation's requiring the Holder (without the
Holder's consent) to be based at any place outside a 35-mile radius of his or
her place of employment prior to a Corporate Transaction, except for reasonably
required travel on the Successor Corporation's business that is not materially
greater than such travel requirements prior to the Corporate Transaction;
(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof) in
which the Holder was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Holder with
compensation and benefits substantially equivalent (in terms of benefit levels
and/or reward opportunities) to those provided for under each material employee
benefit plan, program and practice as in effect immediately prior to the
Corporate Transaction;
(e) any material breach by the Successor Corporation of its
obligations to the Holder under the Plan or any substantially equivalent plan of
the Successor Corporation; or
(f) any purported termination of the Holder's employment or service
for Cause by the Successor Corporation that does not comply with the terms of
the Plan or any substantially equivalent plan of the Successor Corporation.
2.12 GRANT DATE
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
2.13 HOLDER
"Holder" means: (i) the person to whom an Award is granted; (ii) for a
Holder who has died, the personal representative of the Holder's estate, the
person(s) to whom the Holder's rights
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under the Award have passed by will or by the applicable laws of descent and
distribution, or the beneficiary designated in accordance with Section 10; or
(iii) the person(s) to whom an Award has been transferred in accordance with
Section 10.
2.14 INCENTIVE STOCK OPTION
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.15 NONQUALIFIED STOCK OPTION
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.16 OPTION
"Option" means the right to purchase Common Stock granted under Section 7.
2.17 PLAN ADMINISTRATOR
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.18 RESTRICTED STOCK
"Restricted Stock" means shares of Common Stock granted under Section 9,
the rights of ownership of which are subject to restrictions prescribed by the
Plan Administrator.
2.19 SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended.
2.20 STOCK AWARD
"Stock Award" means an Award granted under Section 9.
2.21 SUBSIDIARY
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that is or may
become a direct or indirect parent of the Company.
2.22 SUCCESSOR CORPORATION
"Successor Corporation" has the meaning set forth under Section 11.2.
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SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible persons to different committees consisting of two
or more members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time. To the extent
consistent with applicable law, the Board may authorize the Chief Executive
Officer or the President of the Company to grant Awards to individuals eligible
to receive grants under the Plan, within the limits specifically prescribed by
the Board.
3.2 Administration and Interpretation by the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 11.1, the
maximum number of shares of Common Stock that shall be available for issuance
under the Plan shall be equal to the sum of
(a) 1,500,000 shares;
(b) an annual increase to be added on the first day of the Company's fiscal
year beginning in 2000 equal to the lesser of (i) 1,675,763 shares or (ii) 5% of
the adjusted average common shares outstanding of the Company used to calculate
fully diluted earnings per shares as reported
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in the Annual Report to shareholders for the preceding year; provided, however,
that any shares from any such increases in previous years but not actually
issued, shall be added to the aggregate number of shares available for delivery
under the Plan;
(c) any shares available for future option grants under the Company's 1994
Combined Incentive and Nonqualified Stock Option Plan (the "Predecessor Plan")
as of the Effective Date; and
(d) any shares that are represented by options granted under the
Predecessor Plan which cease to be subject to an option other than by reason of
exercise of the option to the extent it is exercised for shares.
4.2 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 FORM AND GRANT OF AWARDS
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly or in combination.
6.2 ACQUIRED COMPANY AWARDS
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan
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Administrator without any further action by the Plan Administrator, except as
may be required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such Awards shall be deemed to be Holders.
SECTION 7. AWARDS OF OPTIONS
7.1 GRANT OF OPTIONS
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 OPTION EXERCISE PRICE
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options.
7.3 TERM OF OPTIONS
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 EXERCISE OF OPTIONS
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option will vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
<TABLE>
<CAPTION>
PERIOD OF HOLDER'S CONTINUOUS EMPLOYMENT
OR SERVICE WITH THE COMPANY OR ITS PERCENT OF TOTAL OPTION
SUBSIDIARIES FROM THE OPTION GRANT DATE THAT IS VESTED AND EXERCISABLE
- ------------------------------------------- -------------------------------------------
<S> <C>
After 18 months 25%
Each additional six-month period An additional 12.5%
completed thereafter
After 4 years and six months 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of remaining
shares covered by the Option).
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7.5 PAYMENT OF EXERCISE PRICE
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Holder for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price; or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. In addition, to the extent permitted by the Plan Administrator
in its sole discretion, the price for shares purchased under an Option may be
paid, either singly or in combination with one or more of the alternative forms
of payment authorized by this Section 7.5, by (y) a promissory note delivered
pursuant to Section 13; or (z) such other consideration as the Plan
Administrator may permit.
7.6 POST-TERMINATION EXERCISES
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
In case of termination of the Holder's employment or services other than by
reason of death or Cause, the Option shall be exercisable, to the extent of the
number of shares purchasable by the Holder at the date of such termination, only
(a) within one year if the termination of the Holder's employment or services is
coincident with Disability or (b) within three months after the date the Holder
ceases to be an employee, director, officer, consultant, agent, advisor or
independent contractor of the Company or a Subsidiary if termination of the
Holder's employment or services is for any reason other than Disability, but in
no event later than the remaining term of the Option. Any Option exercisable at
the time of the Holder's death may be exercised, to the extent of the number of
shares purchasable by the Holder at the date of the Holder's death, by the
personal representative of the Holder's estate, the person(s) to whom the
Holder's rights under the Award have passed by will or the applicable laws of
descent and distribution or the beneficiary designated pursuant to Section 10,
at any time or from time to time within one year after the date
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<PAGE>
of death, but in no event later than the remaining term of the Option. Any
portion of an Option that is not exercisable on the date of termination of the
Holder's employment or services shall terminate on such date, unless the Plan
Administrator determines otherwise. In case of termination of the Holder's
employment or services for Cause, the Option shall automatically terminate upon
first notification to the Holder of such termination, unless the Plan
Administrator determines otherwise. If a Holder's employment or services with
the Company are suspended pending an investigation of whether the Holder shall
be terminated for Cause, all the Holder's rights under any Option likewise shall
be suspended during the period of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence on the terms and conditions of
an Option shall be determined by the Plan Administrator, in its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 DOLLAR LIMITATION
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable by a Holder for the first time during any calendar year (under the
Plan and all other stock option plans of the Company) exceeds $100,000, such
portion in excess of $100,000 shall be treated as a Nonqualified Stock Option.
In the event the Holder holds two or more such Options that become exercisable
for the first time in the same calendar year, such limitation shall be applied
on the basis of the order in which such Options are granted.
8.2 10% SHAREHOLDERS
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 TERM
The term of an Incentive Stock Option shall not exceed 10 years.
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<PAGE>
8.5 EXERCISABILITY
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Holder's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or physical
impairment of the Holder that is expected to result in death or that has lasted
or is expected to last for a continuous period of 12 months or more and that
causes the Holder to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any substantial gainful activity. Total disability shall be deemed
to have occurred on the first day after the Company and the two independent
physicians have furnished their opinion of total disability to the Plan
Administrator.
8.6 TAXATION OF INCENTIVE STOCK OPTIONS
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Holder must hold the shares issued upon the
exercise of an Incentive Stock Option for two years after the Grant Date of the
Incentive Stock Option and one year from the date of exercise. A Holder may be
subject to the alternative minimum tax at the time of exercise of an Incentive
Stock Option. The Plan Administrator may require a Holder to give the Company
prompt notice of any disposition of shares acquired by the exercise of an
Incentive Stock Option prior to the expiration of such holding periods.
8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 13 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK AWARDS
9.1 GRANT OF STOCK AWARDS
The Plan Administrator is authorized to make Awards of Common Stock on such
terms and conditions and subject to such restrictions, if any (which may be
based on continuous service with the Company or the achievement of performance
goals), as the Plan Administrator shall determine, in its sole discretion, which
terms, conditions and restrictions shall be set forth in the instrument
evidencing the Award. The terms, conditions and restrictions that the Plan
Administrator shall have the power to determine shall include, without
limitation, the manner in which shares subject to Stock Awards are held during
the periods they are subject to restrictions and the circumstances under which
forfeiture of Restricted Stock shall occur by reason of termination of the
Holder's services.
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<PAGE>
9.2 ISSUANCE OF SHARES
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, the appropriate number of
shares of Common Stock.
9.3 WAIVER OF RESTRICTIONS
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Restricted Stock under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 10. ASSIGNABILITY
No Option granted under the Plan may be assigned or transferred by the
Holder other than by will or by the applicable laws of descent and distribution,
and, during the Holder's lifetime, such Awards may be exercised only by the
Holder. Notwithstanding the foregoing, and to the extent permitted by Section
422 of the Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit a Holder of such Awards
to designate a beneficiary who may exercise the Award or receive compensation
under the Award after the Holder's death; provided, however, that any Award so
assigned or transferred shall be subject to all the same terms and conditions
contained in the instrument evidencing the Award.
SECTION 11. ADJUSTMENTS
11.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms
of any of the foregoing adjustments shall be conclusive and binding.
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<PAGE>
11.2 CORPORATE TRANSACTION
Except as otherwise provided in the instrument that evidences the Award, in
the event of any Corporate Transaction, each Award that is at the time
outstanding shall automatically accelerate so that each such Award shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested and exercisable, except that such acceleration will not occur
if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment. Such Award shall not so
accelerate, however, if and to the extent that such Award is, in connection with
the Corporate Transaction, either to be assumed by the successor corporation or
parent thereof (the "Successor Corporation") or to be replaced with a comparable
award for the purchase of shares of the capital stock of the Successor
Corporation. The determination of Award comparability shall be made by the Plan
Administrator, and its determination shall be conclusive and binding. All such
Awards shall terminate and cease to remain outstanding immediately following the
consummation of the Corporate Transaction, except to the extent assumed by the
Successor Corporation. Any such Awards that are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that time shall be
accelerated in the event that the Holder's employment or services should
subsequently terminate within two years following such Corporate Transaction,
unless such employment or services are terminated by the Successor Corporation
for Cause or by the Holder voluntarily without Good Reason.
11.3 FURTHER ADJUSTMENT OF AWARDS
Subject to Section 11.2, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Holders, with respect to Awards. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional time for
exercise, lifting restrictions and other modifications, and the Plan
Administrator may take such actions with respect to all Holders, to certain
categories of Holders or only to individual Holders. The Plan Administrator may
take such action before or after granting Awards to which the action relates and
before or after any public announcement with respect to such sale, merger,
consolidation, reorganization, liquidation or change in control that is the
reason for such action.
11.4 LIMITATIONS
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
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SECTION 12. WITHHOLDING
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, vesting or exercise of any Award. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Holder to
satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock or by transferring
shares of Common Stock to the Company, in such amounts as are equivalent to the
Fair Market Value of the withholding obligation. The Company shall have the
right to withhold from any Award or any shares of Common Stock issuable pursuant
to an Award or from any cash amounts otherwise due or to become due from the
Company to the Holder an amount equal to such taxes. The Company may also
deduct from any Award any other amounts due from the Holder to the Company or a
Subsidiary.
SECTION 13. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES
To assist a Holder (including a Holder who is an officer or a director of
the Company) in acquiring shares of Common Stock pursuant to an Award granted
under the Plan, the Plan Administrator, in its sole discretion, may authorize,
either at the Grant Date or at any time before the acquisition of Common Stock
pursuant to the Award, (a) the extension of a loan to the Holder by the Company,
(b) the payment by the Holder of the purchase price, if any, of the Common Stock
in installments, or (c) the guarantee by the Company of a loan obtained by the
Holder from a third party. The terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment,
will be subject to the Plan Administrator's discretion. Loans, installment
payments and loan guarantees may be granted with or without security. The
maximum credit available is the purchase price, if any, of the Common Stock
acquired, plus the maximum federal and state income and employment tax liability
that may be incurred in connection with the acquisition.
SECTION 14. REPURCHASE AND FIRST REFUSAL RIGHTS
14.1 REPURCHASE RIGHTS
The Plan Administrator shall have the discretion to authorize the issuance
of unvested shares of Common Stock pursuant to the exercise of an Option.
Should the Holder cease to be employed by or provide services to the Company,
then all shares of Common Stock issued upon exercise of an Option which are
unvested at the time of cessation of employment or services shall be subject to
repurchase at the exercise price paid for such shares. The terms and conditions
upon which such repurchase right shall be exercisable (including the period and
procedure for exercise) shall be established by the Plan Administrator and set
forth in the agreement evidencing such right.
All of the Company's outstanding repurchase rights under this Section 14.1
are assignable by the Company at any time. Such rights shall automatically
terminate, and all shares subject to such terminated rights shall immediately
vest in full, upon the occurrence of a Corporate
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Transaction, except to the extent: (i) any such repurchase right is expressly
assigned to the Successor Corporation in connection with the Corporate
Transaction or (ii) such termination is precluded by other limitations imposed
by the Plan Administrator at the time the repurchase right is issued.
The Plan Administrator shall have the discretionary authority, exercisable
either before or after the Holder's cessation of employment or service, to
cancel the Company's outstanding repurchase rights with respect to one or more
shares purchased or purchasable by the Holder under an Option and thereby
accelerate the vesting of such shares in whole or in part at any time.
14.2 FIRST REFUSAL RIGHTS
Until the date on which the initial registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act first becomes effective, the Company
shall have the right of first refusal with respect to any proposed sale or other
disposition by the Holder of any shares of Common Stock issued pursuant to an
Award granted under the Plan. Such right of first refusal shall be exercisable
in accordance with the terms and conditions established by the Plan
Administrator and set forth in the agreement evidencing such right.
SECTION 15. MARKET STANDOFF
In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a person
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any shares issued pursuant to an Award granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be
in effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering.
Holders of shares issued pursuant to an Award granted under the Plan shall be
subject to the market standoff provisions of this paragraph only if the officers
and directors of the Company are also subject to similar arrangements.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 15, to the same extent the purchased shares are
at such time covered by such provisions.
In order to enforce the limitations of this Section 15, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.
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SECTION 16. AMENDMENT AND TERMINATION OF PLAN
16.1 AMENDMENT OF PLAN
The Plan may be amended only by the Board in such respects as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan or that may be issued as Stock
Awards, (b) modify the class of persons eligible to receive Options, or (c)
otherwise require shareholder approval under any applicable law or regulation.
16.2 TERMINATION OF PLAN
The Board may suspend or terminate the Plan at any time. Unless sooner
terminated as provided herein, the Plan shall terminate 10 years after the
earlier of the Plan's adoption by the Board and approval by the shareholders.
16.3 CONSENT OF HOLDER
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, impair or diminish any rights or
obligations under any Award theretofore granted under the Plan. Any change or
adjustment to an outstanding Incentive Stock Option shall not, without the
consent of the Holder, be made in a manner so as to constitute a "modification"
that would cause such Incentive Stock Option to fail to continue to qualify as
an Incentive Stock Option.
SECTION 17. GENERAL
17.1 AWARD AGREEMENTS
Awards granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
17.2 CONTINUED EMPLOYMENT OR SERVICES; RIGHTS IN AWARDS
None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.
17.3 REGISTRATION
The Company shall be under no obligation to any Holder to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on
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transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
As a condition to the exercise of an Option or any other receipt of Common
Stock pursuant to an Award under the Plan, the Company may require the Holder to
represent and warrant at the time of any such exercise or receipt that such
shares are being purchased or received only for the Holder's own account and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
relevant provision of the aforementioned laws. At the option of the Company, a
stop-transfer order against any such shares may be placed on the official stock
books and records of the Company, and a legend indicating that such shares may
not be pledged, sold or otherwise transferred, unless an opinion of counsel is
provided (concurred in by counsel for the Company) stating that such transfer is
not in violation of any applicable law or regulation, may be stamped on stock
certificates to ensure exemption from registration. The Plan Administrator may
also require such other action or agreement by the Holder as may from time to
time be necessary to comply with the federal and state securities laws.
17.4 NO RIGHTS AS A SHAREHOLDER
No Option shall entitle the Holder to any cash dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option, free of all applicable
restrictions.
17.5 COMPLIANCE WITH LAWS AND REGULATIONS
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Holders who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Holders. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.
17.6 NO TRUST OR FUND
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts
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payable to any Holder, and no Holder shall have any rights that are greater than
those of a general unsecured creditor of the Company.
17.7 SEVERABILITY
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 18. EFFECTIVE DATE
The Plan's Effective Date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
Adopted by the Board on October 23, 1998 and approved by the Company's
shareholders on November 24, 1998.
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EXHIBIT 10.9
ONYX SOFTWARE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the ONYX Software Corporation 1998 Employee Stock Purchase
Plan (the "Plan") are (a) to assist employees of ONYX Software Corporation, a
Washington corporation (the "Company"), and its designated subsidiaries in
acquiring a stock ownership interest in the Company pursuant to a plan that is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended, and (b) to encourage employees to
remain in the employ of the Company and its subsidiaries.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Company's Compensation Committee.
"COMPANY" means ONYX Software Corporation, a Washington corporation.
"CORPORATE TRANSACTION" means either of the following events:
(a) Consummation of any merger or consolidation of the Company with or into
another corporation; or
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all of
the Company's assets other than a transfer of the Company's assets to a
Subsidiary Corporation.
"DESIGNATED SUBSIDIARY" has the meaning set forth under the definition of
"Eligible Employee" in this Section 2.
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"ELIGIBLE COMPENSATION" means all regular cash compensation including
overtime, cash bonuses and commissions. Regular cash compensation does not
include severance pay, hiring and relocation bonuses, pay in lieu of vacations,
sick leave or any other special payments.
"ELIGIBLE EMPLOYEE" means any employee of the Company or any domestic
Subsidiary Corporation or any other Subsidiary Corporation designated by the
Board or the Committee (each a "Designated Subsidiary"), who is in the employ of
the Company (or any Designated Subsidiary) on one or more Offering Dates and who
meets the following criteria:
(a) the employee does not, immediately after the option is granted,
own stock (as defined by the Code) possessing 5% or more of the
total combined voting power or value of all classes of stock of
the Company or of a Parent Corporation or a Subsidiary
Corporation of the Company;
(b) the employee's customary employment is for more than 20 hours per
week; provided, however, that the Plan Administrator may decrease
this minimum requirement for future Offering Periods; and
(c) the employee has been employed for at least three months as of
the Offering Date.
If the Company permits any employee of a Designated Subsidiary to participate in
the Plan, then all employees of that Designated Subsidiary who meet the
requirements of this paragraph shall also be considered Eligible Employees.
"ENROLLMENT PERIOD" has the meaning set forth in Section 7.1.
"ESPP BROKER" has the meaning set forth in Section 10.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"NEW PURCHASE DATE" has the meaning set forth in Sections 20.2 and 20.3.
"OFFERING" has the meaning set forth in Section 5.1.
"OFFERING DATE" means the first day of an Offering.
"OFFERING PERIOD" has the meaning set forth in Section 5.1.
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"OPTION" means an option granted under the Plan to an Eligible Employee to
purchase shares of Stock.
"PARENT CORPORATION" means any corporation, other than the Company, in an
unbroken chain of corporations ending with the Company, if, at the time of the
granting of the Option, each of the corporations, other than the Company, owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"PARTICIPANT" means any Eligible Employee who has elected to participate in
an Offering in accordance with the procedures set forth in Section 7.1 and who
has not withdrawn from the Plan or whose participation in the Plan is not
terminated.
"PLAN" means the ONYX Software Corporation 1998 Employee Stock Purchase
Plan.
"PURCHASE DATE" means the last day of each Purchase Period.
"PURCHASE PERIOD" has the meaning set forth in Section 5.2.
"PURCHASE PRICE" has the meaning set forth in Section 6.
"STOCK" means the common stock of the Company.
"SUBSCRIPTION" has the meaning set forth in Section 7.1.
"SUBSIDIARY CORPORATION" means any corporation, other than the Company, in
an unbroken chain of corporations beginning with the Company, if, at the time of
the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or the Committee or, if and to
the extent the Board or the Committee designates an executive officer of the
Company to administer the Plan, by such executive officer (each, the "Plan
Administrator"). Any decisions made by the Plan Administrator shall be
applicable equally to all Eligible Employees.
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3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Subject to the provisions of the Plan, the Plan Administrator shall have
the authority, in its sole discretion, to determine all matters relating to
Options granted under the Plan, including all terms, conditions, restrictions
and limitations of Options; provided, however, that all Participants granted
Options pursuant to the Plan shall have the same rights and privileges within
the meaning of Code Section 423. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, unless revised by the Board or the
Committee, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's other officers or employees as the Plan Administrator so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 20, the
maximum number of shares of the Company's Stock which shall be available for
issuance under the Plan shall be 500,000 shares, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2000 equal to
the lesser of (a) 200,000 shares of Stock and (b) 1.2% of the adjusted average
common shares outstanding of the Company used to calculate fully diluted
earnings per share as reported in the Annual Report to shareholders for the
preceding year, or (c) a lesser amount determined by the Board; provided,
however, that any shares from any increases in previous years that are not
actually issued shall be added to the aggregate number of shares available for
issuance under the Plan. Shares issued under the Plan shall be drawn from
authorized and unissued shares or shares now held or subsequently acquired by
the Company.
SECTION 5. OFFERING DATES
5.1 OFFERING PERIODS
(a) Except as otherwise set forth below, the Plan shall be implemented by a
series of Offerings (each, an "Offering"). Offerings shall commence on January
1 and July 1 of each year and end on the next June 30 and December 31,
respectively, occurring thereafter (each, an "Offering Period"); provided,
however, that the first Offering Period shall begin on the day (the "IPO Date")
on which shares of the Company's Stock are first offered to the public in an
underwritten initial public offering of such Stock pursuant to a registration
statement filed with and declared
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effective by the Securities and Exchange Commission (such day being the first
trading day for the Stock on the Nasdaq National Market, the New York Stock
Exchange or other applicable trading market), and shall end on June 30, 1999.
(b) Notwithstanding the foregoing, the Board may establish (i) a different
term for one or more Offerings and (ii) different commencing and ending dates
for such Offerings; provided, however, that an Offering Period may not exceed
five years; and provided, further, that if the Purchase Price may be less than
85% of the fair market value of the Stock on the Purchase Date, the Offering
Period may not exceed 27 months.
(c) In the event the first or the last day of an Offering Period is not a
regular business day, then the first day of the Offering Period shall be deemed
to be the next regular business day and the last day of the Offering Period
shall be deemed to be the last preceding regular business day. An employee who
becomes eligible to participate in the Plan after an Offering Period has
commenced shall not be eligible to participate in such Offering but may
participate in any subsequent Offering, provided that such employee is still an
Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time.
5.2 PURCHASE PERIODS
Each Offering Period shall consist of one or more consecutive purchase
periods (each, a "Purchase Period"). The last day of each Purchase Period shall
be the Purchase Date for such Purchase Period. Except as otherwise set forth
below, each Purchase Period shall commence on January 1 and July 1 of each year
and end on the next June 30 and December 31, respectively, occurring thereafter;
provided, however, that the Purchase Period for the first Offering shall
commence on the IPO Date and end on June 30, 1999. Notwithstanding the
foregoing, the Board may establish (a) a different term for one or more Purchase
Periods and (b) different commencing and ending dates for any such Purchase
Period. In the event the first or last day of a Purchase Period is not a
regular business day, then the first day of the Purchase Period shall be deemed
to be the next regular business day and the last day of the Purchase Period
shall be deemed to be the last preceding regular business day.
5.3 GOVERNMENTAL APPROVAL; SHAREHOLDER APPROVAL
Notwithstanding any other provision of the Plan to the contrary, an Option
granted pursuant to the Plan shall be subject to (a) obtaining all necessary
governmental approvals and qualifications of the Plan and the issuance of
Options and sale of Stock pursuant to the Plan and (b) obtaining shareholder
approval of the Plan.
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SECTION 6. PURCHASE PRICE
The purchase price (the "Purchase Price") at which Stock may be acquired in
an Offering pursuant to the exercise of all or any portion of an Option granted
under the Plan (the "Offering Exercise Price") shall be 85% of the lesser of (a)
the fair market value of the Stock on the Offering Date of such Offering and (b)
the fair market value of the Stock on the Purchase Date; provided, however, that
the Purchase Price for the first Offering Period that begins on the IPO Date
shall be the lesser of (a) 100% of the initial public offering price per share
of Stock, before underwriters' discounts or concessions, set forth in that
certain Underwriting Agreement between the Company and the representatives of
the underwriters when executed in connection with the Company's initial public
offering of the Stock and (b) 85% of the fair market value of the Stock on the
Purchase Date. The fair market value of the Stock on the Offering Date or on
the Purchase Date shall be the closing price for the Stock as reported for such
day by the Nasdaq National Market, the New York Stock Exchange or other trading
market on which the Company's Stock may then be traded (the "Exchange"). If no
sales of the Stock were made on the Exchange on such day, fair market value
shall mean the closing price for the Stock as reported for the next preceding
day on which sales of the Stock were made on the Exchange. If the Stock is not
listed on an Exchange, the Board shall designate an alternative method of
determining the fair market value of the Stock.
SECTION 7. PARTICIPATION IN THE PLAN
7.1 INITIAL PARTICIPATION
An Eligible Employee shall become a Participant on the first Offering Date
after satisfying the eligibility requirements and delivering to the Plan
Administrator during the enrollment period established by the Plan Administrator
(the "Enrollment Period") a subscription (the "Subscription"):
(a) indicating the Eligible Employee's election to participate in the Plan;
(b) authorizing payroll deductions and stating the amount to be deducted
regularly from the Participant's pay; and
(c) authorizing the purchase of Stock for the Participant in each Purchase
Period.
An Eligible Employee who does not deliver a Subscription as provided above
during the Enrollment Period shall not participate in the Plan for that Offering
Period or for any subsequent Offering Period unless such Eligible Employee
subsequently
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enrolls in the Plan by filing a Subscription with the Company during the
Enrollment Period for such subsequent Offering Period. The Company may, from
time to time, change the Enrollment Period for any future Offering as deemed
advisable by the Plan Administrator, in its sole discretion, for the proper
administration of the Plan.
7.2 CONTINUED PARTICIPATION
A Participant shall automatically participate in the next Offering Period
until such time as such Participant withdraws from the Plan pursuant to Section
11.1 or 11.2 or terminates employment as provided in Section 12.
SECTION 8. LIMITATIONS ON RIGHT TO PURCHASE SHARES
8.1 NUMBER OF SHARES PURCHASED
The maximum number of shares of Stock that may be offered to a Participant
on any Offering Date shall be equal to $25,000 divided by the fair market value
of one share of Stock on the applicable Offering Date. Further, no Participant
shall be entitled to purchase Stock under the Plan (or any other employee stock
purchase plan that is intended to meet the requirements of Code Section 423
sponsored by the Company, a Parent Corporation or a Subsidiary Corporation) with
a fair market value exceeding $25,000, determined as of the Offering Date for
each Offering Period (or such other limit as may be imposed by the Code), in any
calendar year in which a Participant participates in the Plan (or other employee
stock purchase plan described in this Section 8.1).
8.2 PRO RATA ALLOCATION
In the event the number of shares of Stock that might be purchased by all
Participants in the Plan exceeds the number of shares of Stock available in the
Plan, the Plan Administrator shall make a pro rata allocation of the remaining
shares of Stock in as uniform a manner as shall be practicable and as the Plan
Administrator shall determine to be equitable. Fractional shares may not be
issued under the Plan unless the Plan Administrator determines otherwise for
future Offering Periods.
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 GENERAL RULES
Subject to Section 9.12, Stock that is acquired pursuant to the exercise of
all or any portion of an Option may be paid for only by means of payroll
deductions from the Participant's Eligible Compensation. Except as set forth in
this Section 9, the
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amount of compensation to be withheld from a Participant's Eligible Compensation
during each pay period shall be determined by the Participant's Subscription.
9.2 CHANGE NOTICES
During an Offering Period, a Participant may elect to decrease, but not
increase, the amount withheld from his or her Eligible Compensation by filing an
amended Subscription with the Company on or before the change notice date. The
change notice date shall initially be the seventh day prior to the end of the
first pay period for which such election is to be effective; provided, however,
that the Plan Administrator may change such change notice date from time to
time. Unless otherwise determined by the Plan Administrator for a future
Offering, a Participant may elect to increase or decrease the amount to be
withheld from his or her Eligible Compensation for future Offerings; provided,
however, that notice of such election must be delivered to the Plan
Administrator in such form and in accordance with such terms as the Plan
Administrator may establish for an Offering.
9.3 PERCENT WITHHELD
The amount of payroll withholding for each Participant for purchases
pursuant to the Plan during any pay period shall be at least 1% but shall not
exceed 10% of the Participant's Eligible Compensation for such pay period.
Amounts shall be withheld in whole percentages only.
9.4 PAYROLL DEDUCTIONS
Payroll deductions shall commence on the first payday following the
Offering Date and shall continue through the last payday of the Offering Period
unless sooner altered or terminated as provided in the Plan.
9.5 MEMORANDUM ACCOUNTS
Individual accounts shall be maintained for each Participant for memorandum
purposes only. All payroll deductions from a Participant's Eligible
Compensation shall be credited to such account but shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
9.6 NO INTEREST
No interest shall be paid on payroll deductions received or held by the
Company.
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9.7 ACQUISITION OF STOCK
On each Purchase Date of an Offering Period, each Participant shall
automatically acquire, pursuant to the exercise of the Participant's Option, the
number of shares of Stock arrived at by dividing the total amount of the
Participant's accumulated payroll deductions for the Purchase Period by the
Purchase Price; provided, however, that the number of shares of Stock purchased
by the Participant shall not exceed the number of whole shares of Stock so
determined, unless the Plan Administrator has determined for any future Offering
that fractional shares may be issued under the Plan; and provided, further, that
the number of shares of Stock purchased by the Participant shall not exceed the
number of shares for which Options have been granted to the Participant pursuant
to Section 8.1.
9.8 REFUND OF EXCESS AMOUNTS
Any cash balance remaining in the Participant's account at the termination
of each Purchase Period shall be refunded to the Participant as soon as
practical after the Purchase Date without the payment of any interest; provided,
however, that if the Participant participates in the next Purchase Period, any
cash balance remaining in the Participant's account shall be applied to the
purchase of Stock in the new Purchase Period, provided such purchase complies
with Section 8.1.
9.9 WITHHOLDING OBLIGATIONS
At the time the Option is exercised, in whole or in part, or at the time
some or all of the Stock is disposed of, the Participant shall make adequate
provision for federal and state withholding obligations of the Company, if any,
that arise upon exercise of the Option or upon disposition of the Stock. The
Company may withhold from the Participant's compensation the amount necessary to
meet such withholding obligations.
9.10 TERMINATION OF PARTICIPATION
No Stock shall be purchased on behalf of a Participant on a Purchase Date
if his or her participation in the Offering or the Plan has terminated on or
before such Purchase Date.
9.11 PROCEDURAL MATTERS
The Company may, from time to time, establish (a) limitations on the
frequency and/or the number of any permitted changes in the amount withheld
during an Offering, as set forth in Section 9.2, (b) an exchange ratio
applicable to amounts
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withheld in a currency other than U.S. dollars, (c) payroll withholding in
excess of the amount designated by a Participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections and (d) such other limitations or procedures as deemed advisable by
the Company in its sole discretion that are consistent with the Plan and in
accordance with the requirements of Code Section 423.
9.12 LEAVES OF ABSENCE
During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations promulgated under the Code,
a Participant may elect to continue participation in the Plan by delivering cash
payments to the Plan Administrator on the Participant's normal paydays equal to
the amount of his or her payroll deduction under the Plan had the Participant
not taken a leave of absence. Currently, the Treasury Regulations provide that
a Participant may continue participation in the Plan only during the first 90
days of a leave of absence unless the Participant's reemployment rights are
guaranteed by statute or contract.
SECTION 10. STOCK PURCHASED UNDER THE PLAN
10.1 ESPP BROKER
If the Plan Administrator designates or approves a stock brokerage or other
financial services firm (the "ESPP Broker") to hold shares purchased under the
Plan for the accounts of Participants, the following procedures shall apply.
Promptly following each Purchase Date, the number of shares of Stock purchased
by each Participant shall be deposited into an account established in the
Participant's name with the ESPP Broker. A Participant shall be free to
undertake a disposition of the shares of Stock in his or her account at any time
but, in the absence of such a disposition, the shares of Stock must remain in
the Participant's account at the ESPP Broker until the holding period set forth
in Code Section 423 has been satisfied. With respect to shares of Stock for
which the holding periods set forth above have been satisfied, the Participant
may move those shares of Stock to another brokerage account of the Participant's
choosing or request that a stock certificate be issued and delivered to him or
her. Any dividends paid in the form of shares of Stock with respect to Stock in
a Participant's account shall be credited to such account. A Participant who is
not subject to payment of U.S. income taxes may move his or her shares of Stock
to another brokerage account of his or her choosing or request that a stock
certificate be delivered to him or her at any time, without regard to the Code
Section 423 holding period.
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10.2 NOTICE OF DISPOSITION
By entering the Plan, each Participant agrees to promptly give the Company
notice of any Stock disposed of within the later of one year from the Purchase
Date and two years from the Offering Date for such Stock, showing the number of
such shares disposed of and the Purchase Date and Offering Date for such Stock.
This notice shall not be required if and so long as the Company has a designated
ESPP Broker.
SECTION 11. VOLUNTARY WITHDRAWAL
11.1 WITHDRAWAL FROM AN OFFERING
A Participant may withdraw from an Offering by signing and delivering to
the Company's Plan Administrator a written notice of withdrawal on a form
provided by the Company for such purpose. Such withdrawal must be elected at
least ten days prior to the end of the Purchase Period for which such withdrawal
is to be effective or by any other date specified by the Plan Administrator for
any future Offering. If a Participant withdraws after the Purchase Date for a
Purchase Period of an Offering, the withdrawal shall not affect Stock acquired
by the Participant in any earlier Purchase Periods. Unless otherwise indicated,
withdrawal from an Offering shall not result in a withdrawal from the Plan or
any succeeding Offering therein. A Participant is prohibited from again
participating in the same Offering at any time upon withdrawal from such
Offering. The Company may, from time to time, impose a requirement that the
notice of withdrawal be on file with the Plan Administrator for a reasonable
period prior to the effectiveness of the Participant's withdrawal.
11.2 WITHDRAWAL FROM THE PLAN
A Participant may withdraw from the Plan by signing a written notice of
withdrawal on a form provided by the Company for such purpose and delivering
such notice to the Plan Administrator. Such notice must be delivered at least
ten days prior to the end of the Purchase Period for which such withdrawal is to
be effective or by any other date specified by the Plan Administrator for any
future Offering. In the event a Participant voluntarily elects to withdraw from
the Plan, the Participant may not resume participation in the Plan during the
same Offering Period, but may participate in any subsequent Offering under the
Plan by again satisfying the definition of Eligible Employee. The Company may
impose, from time to time, a requirement that the notice of withdrawal be on
file with the Plan Administrator for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
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11.3 RETURN OF PAYROLL DEDUCTIONS
Upon withdrawal from an Offering pursuant to Section 11.1 or from the Plan
pursuant to Section 11.2, the withdrawing Participant's accumulated payroll
deductions that have not been applied to the purchase of Stock shall be returned
as soon as practical after the withdrawal, without the payment of any interest,
to the Participant and the Participant's interest in the Offering shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
SECTION 12. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any reason,
including retirement, death or the failure of a Participant to remain an
Eligible Employee, shall immediately terminate the Participant's participation
in the Plan. The payroll deductions credited to the Participant's account since
the last Purchase Date shall, as soon as practical, be returned to the
Participant or, in the case of a Participant's death, to the Participant's legal
representative or designated beneficiary as provided in Section 13.2, and all of
the Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned to a Participant pursuant to this Section 12.
SECTION 13. RESTRICTIONS ON ASSIGNMENT
13.1 TRANSFERABILITY
An Option granted under the Plan shall not be transferable and such Option
shall be exercisable during the Participant's lifetime only by the Participant.
The Company will not recognize, and shall be under no duty to recognize, any
assignment or purported assignment by a Participant of the Participant's
interest in the Plan, of his or her Option or of any rights under his or her
Option.
13.2 BENEFICIARY DESIGNATION
The Plan Administrator may permit a Participant to designate a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event the Participant dies after the Purchase Date for an
Offering but prior to delivery to such Participant of such shares and cash. In
addition, the Plan Administrator may permit a Participant to designate a
beneficiary who is to receive any cash from the Participant's account under the
Plan in the event that the Participant dies before the Purchase Date for an
Offering. Such designation may be changed by the Participant at any time by
written notice to the Plan Administrator.
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SECTION 14. NO RIGHTS AS SHAREHOLDER UNTIL SHARES ISSUED
With respect to shares of Stock subject to an Option, a Participant shall
not be deemed to be a shareholder of the Company, and he or she shall not have
any rights or privileges of a shareholder. A Participant shall have the rights
and privileges of a shareholder of the Company when, but not until, a
certificate or its equivalent has been issued to the Participant for the shares
of Stock following exercise of the Participant's Option.
SECTION 15. LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide Stock for investment and not for resale.
The Company does not, however, intend to restrict or influence any Participant
in the conduct of his or her own affairs. A Participant, therefore, may sell
Stock purchased under the Plan at any time he or she chooses, subject to
compliance with any applicable federal and state securities laws. A Participant
assumes the risk of any market fluctuations in the price of the Stock.
SECTION 16. AMENDMENT OF THE PLAN
The Board may amend the Plan in such respects as it shall deem advisable;
provided, however, that, to the extent required for compliance with Code Section
423 or any applicable law or regulation, shareholder approval will be required
for any amendment that will (a) increase the total number of shares as to which
Options may be granted under the Plan, (b) modify the class of employees
eligible to receive Options, or (c) otherwise require shareholder approval under
any applicable law or regulation.
SECTION 17. TERMINATION OF THE PLAN
The Plan shall continue in effect for ten years after the date of its
adoption by the Board. Notwithstanding the foregoing, the Board may suspend or
terminate the Plan at any time. During any period of suspension or upon
termination of the Plan, no Options shall be granted; provided, however, that
suspension or termination of the Plan shall have no effect on Options granted
prior thereto.
SECTION 18. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent or Subsidiary Corporation or to affect the right of the
Company or a Parent or
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Subsidiary Corporation to terminate the employment of any person (including any
Eligible Employee or Participant) at any time with or without cause.
SECTION 19. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary
Corporation. Nothing in the Plan shall be construed to limit the right of the
Company, any Parent Corporation or Subsidiary Corporation to (a) establish any
other forms of incentives or compensation for employees of the Company, a Parent
Corporation or Subsidiary Corporation or (b) grant or assume options otherwise
than under the Plan in connection with any proper corporate purpose, including,
but not by way of limitation, the grant or assumption of options in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.
SECTION 20. ADJUSTMENTS
20.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Stock, then (subject to any required action by the
Company's shareholders), the Board or the Committee, in its sole discretion,
shall make such equitable adjustments as it shall deem appropriate in the
circumstances in (i) the maximum number and kind of shares of Stock subject to
the Plan as set forth in Section 4 and (ii) the number and kind of securities
that are subject to any outstanding Option and the per share price of such
securities. The determination by the Board or the Committee as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution or liquidation of the Company or a
Corporate Transaction shall not be governed by this Section 20.1 but shall be
governed by Sections 20.2 and 20.3, respectively.
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20.2 DISSOLUTION OR LIQUIDATION OF THE COMPANY
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period then in progress shall be shortened by setting a new Purchase
Date (the "New Purchase Date"), and shall terminate immediately prior to the
consummation of such proposed dissolution or liquidation, unless provided
otherwise by the Board. The New Purchase Date shall be a specified date before
the date of the Company's proposed dissolution or liquidation. The Board shall
notify each Participant in writing, at least ten business days prior to the New
Purchase Date, that the Purchase Date for the Participant's Option has been
changed to the New Purchase Date and that the Participant's Option shall be
exercised automatically on the New Purchase Date, unless prior to such date the
Participant has withdrawn from the Offering Period or the Plan as provided in
Section 11 hereof.
20.3 CORPORATE TRANSACTIONS
In the event of a Corporate Transaction, each outstanding Option shall be
assumed or an equivalent option substituted by the successor corporation or a
parent or subsidiary corporation of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option,
the Offering Period then in progress shall be shortened by setting a new
Purchase Date (the "New Purchase Date"). The New Purchase Date shall be a
specified date before the date of the Corporate Transaction. The Board shall
notify each Participant in writing, at least ten business days prior to the New
Purchase Date, that the Purchase Date for the Participant's Option has been
changed to the New Purchase Date and that the Participant's Option shall be
exercised automatically on the New Purchase Date, unless prior to such date the
Participant has withdrawn from the Offering Period or the Plan as provided in
Section 11 hereof.
20.4 LIMITATIONS
The grant of Options shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 21. REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register for
offering or resale under the Securities Act of 1933, as amended, or register or
qualify under state securities laws, any shares of Stock. The Company may issue
certificates for shares with such legends and subject to such restrictions on
transfer and
-15-
<PAGE>
stop-transfer instructions as counsel for the Company deems necessary or
desirable for compliance by the Company with federal and state securities laws.
SECTION 22. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by the
Company's shareholders.
-16-
<PAGE>
EXHIBIT 10.12
ONYX SOFTWARE CORPORATION
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") dated as of _______ __,
1998 is made between ONYX Software Corporation, a Washington corporation (the
"Company"), and ________________ ("Indemnitee").
RECITALS
A. Indemnitee is a director or officer of the Company and in such capacity
is performing valuable services for the Company.
B. The Company and Indemnitee recognize the difficulty in obtaining
directors' and officers' liability insurance and the significant cost of such
insurance.
C. The Company and Indemnitee further recognize the substantial increase
in litigation subjecting directors and officers to expensive litigation risks at
the same time that such liability insurance has been severely limited.
D. The Company has adopted bylaws (the "Bylaws") providing for
indemnification of the officers, directors, agents and employees of the Company
to the full extent permitted by the Business Corporation Act of Washington (the
"Statute").
E. The Bylaws and the Statute specifically provide that they are not
exclusive, and thereby contemplate that contracts may be entered into between
the Company and its directors and officers with respect to indemnification of
such directors and officers.
F. To induce Indemnitee to serve or continue to serve as a director or
officer of the Company, the Company desires to confirm the contract
indemnification rights provided in the Bylaws and agrees to provide the
Indemnitee with the benefits contemplated by this Agreement.
AGREEMENT
In consideration of the recitals above, the mutual covenants and agreements
herein contained, and Indemnitee's continued service as a director or officer,
as the case may be, of the Company after the date hereof, the parties to this
Agreement agree as follows:
1. INDEMNIFICATION OF INDEMNITEE
1.1. SCOPE
The Company agrees to hold harmless and indemnify Indemnitee to the full
extent provided under the provisions of the Company's Fourth Restated Articles
of Incorporation and
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<PAGE>
the Bylaws, and to the full extent permitted by law, notwithstanding that the
basis for such indemnification is not specifically enumerated in this Agreement,
the Company's Fourth Restated Articles of Incorporation, the Bylaws, any statute
or otherwise. In the event of any change, after the date of this Agreement, in
any applicable law, statute or rule regarding the right of a Washington
corporation to indemnify a member of its board of directors or an officer, such
change, to the extent that it would expand Indemnitee's rights hereunder, shall
be included within Indemnitee's rights and the Company's obligations hereunder,
and, to the extent that it would narrow Indemnitee's rights or the Company's
obligations hereunder, shall not affect or limit the scope of this Agreement;
provided, however, that in no event shall any part of this Agreement be
construed so as to require indemnification when such indemnification is not
permitted by then applicable law.
1.2. NONEXCLUSIVITY
The indemnification provided by this Agreement shall not be deemed
exclusive of any rights to which Indemnitee may be entitled under the Company's
Fourth Restated Articles of Incorporation, the Bylaws, any agreement, any vote
of shareholders or disinterested directors, the Statute, or otherwise, whether
as to action in Indemnitee's official capacity or otherwise.
1.3. INCLUDED COVERAGE
If Indemnitee was or is made a party, or is threatened to be made a party,
to or is otherwise involved (including, without limitation, as a witness) in any
Proceeding (as defined below), the Company shall hold harmless and indemnify
Indemnitee from and against any and all losses, claims, damages (compensatory,
exemplary, punitive or otherwise), liabilities or expenses, including, without
limitation, attorneys' fees, costs, judgments, fines, ERISA excise taxes or
penalties, witness fees, amounts paid in settlement and other expenses incurred
in connection with the investigation, defense, settlement or approval of such
Proceeding (collectively, "Damages").
1.4. DEFINITION OF PROCEEDING
For purposes of this Agreement, "Proceeding" shall mean any completed,
actual, pending or threatened action, suit, claim, hearing or proceeding,
whether civil, criminal, arbitrative, administrative, investigative or pursuant
to any alternative dispute resolution mechanism (including an action by or in
the right of the Company) and whether formal or informal, in which Indemnitee
is, was or becomes involved by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company or that, being or having
been such a director, officer, employee or agent, Indemnitee is or was serving
at the request of the Company as a director, officer, employee, trustee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise (collectively, a "Related Company"), including service with respect
to an employee benefit plan, whether the basis of such proceeding is alleged
action (or inaction) by Indemnitee in an official capacity as a director,
officer, employee, trustee or agent or in any other capacity while serving as a
director, officer, employee, trustee or agent; provided, however, that, except
with respect to
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<PAGE>
an Enforcement Action (defined in Section 3.1 below, an action challenging the
Company's determination that Indemnitee is not entitled to indemnification
pursuant to Section 1.5, and any other action to enforce the provisions of this
Agreement, "Proceeding" shall not include any action, suit, claim or proceeding
instituted by or at the direction of Indemnitee unless such action, suit, claim
or proceeding is or was authorized by the Company's Board of Directors.
1.5. DETERMINATION OF ENTITLEMENT
In the event that a determination of Indemnitee's entitlement to
indemnification is required pursuant to Section 23B.08.550 of the Statute or a
successor statute or pursuant to other applicable law, the appropriate decision-
maker shall make such determination; provided, however, that Indemnitee shall
initially be presumed in all cases to be entitled to indemnification, that
Indemnitee may establish a conclusive presumption of any fact necessary to such
a determination by delivering to the Company a declaration made under penalty of
perjury that such fact is true and that, unless the Company shall deliver to
Indemnitee written notice of a determination that Indemnitee is not entitled to
indemnification within twenty (20) calendar days after the Company's receipt of
Indemnitee's initial written request for indemnification, such determination
shall conclusively be deemed to have been made in favor of the Company's
provision of indemnification, and that the Company hereby agrees not to assert
otherwise.
1.6. CONTRIBUTION
If the indemnification provided under Section 1.1 is unavailable by reason
of a court decision, based on grounds other than any of those set forth in
paragraphs (b) through (d) of Section 4.1, then, in respect of any Proceeding in
which the Company is jointly liable with Indemnitee (or would be if joined in
such Proceeding), the Company shall contribute to the amount of Damages
(including attorneys' fees) actually and reasonably incurred and paid or payable
by Indemnitee in such proportion as is appropriate to reflect (i) the relative
benefits received by the Company on the one hand and Indemnitee on the other
from the transaction from which such Proceeding arose and (ii) the relative
fault of the Company on the one hand and of Indemnitee on the other in
connection with the events that resulted in such Damages as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such Damages.
The Company agrees that it would not be just and equitable if contribution
pursuant to this Section 1.6 were determined by pro rata allocation or any other
method of allocation that does not take account of the foregoing equitable
considerations.
1.7. SURVIVAL
The indemnification and contribution provided under this Agreement shall
apply to any and all Proceedings, notwithstanding that Indemnitee has ceased to
serve the Company or a Related Company and shall continue so long as Indemnitee
shall be subject to any possible
Page 3
<PAGE>
Proceeding, whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a director or officer of the Company or serving in any other
capacity referred to in Section 1.4 of this Agreement.
2. EXPENSE ADVANCES
2.1. GENERALLY
The right to indemnification of Damages conferred by Section 1 shall
include the right to have the Company pay Indemnitee's expenses in any
Proceeding as such expenses are incurred and in advance of such Proceeding's
final disposition (such right, an "Expense Advance").
2.2. CONDITIONS TO EXPENSE ADVANCE
The Company's obligation to provide an Expense Advance is subject to the
following conditions:
2.2.1. UNDERTAKING
If the Proceeding arose in connection with Indemnitee's service as a
director or an officer of the Company (and not in any other capacity in which
Indemnitee rendered service, including service to any Related Company), then
Indemnitee or Indemnitee's representative shall have executed and delivered to
the Company an undertaking, which need not be secured and shall be accepted
without reference to Indemnitee's financial ability to make repayment, by or on
behalf of Indemnitee to repay all Expense Advances if it shall ultimately be
determined by a final, unappealable decision rendered by a court having
jurisdiction over the parties that Indemnitee is not entitled to be indemnified
under this Agreement or otherwise.
2.2.2. COOPERATION
Indemnitee shall give the Company such information and cooperation as
it may reasonably request and as shall be within Indemnitee's legal power to so
provide.
2.2.3. AFFIRMATION
Indemnitee shall furnish, upon request by the Company and if required
under applicable law, a written affirmation of Indemnitee's good faith belief
that any applicable standards of conduct have been met by Indemnitee.
Page 4
<PAGE>
3. PROCEDURES FOR ENFORCEMENT
3.1. ENFORCEMENT
In the event that any claim for indemnification, whether an Expense Advance
or otherwise, is made hereunder and is not paid in full within thirty (30)
calendar days after written notice of such claim is delivered to the Company,
Indemnitee may, but need not, at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim (an "Enforcement Action").
3.2. PRESUMPTIONS IN ENFORCEMENT ACTION
In any Enforcement Action, the following presumptions (and limitation on
presumptions) shall apply:
(a) The Company expressly affirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on it hereunder to induce
Indemnitee to continue as a director or officer, as the case may be, of the
Company;
(b) Neither (i) the failure of the Company (including the Company's Board
of Directors, independent or special legal counsel or the Company's
shareholders) to have made a determination prior to the commencement of the
Enforcement Action that indemnification of Indemnitee is proper in the
circumstances nor (ii) an actual determination by the Company, its Board of
Directors, independent or special legal counsel or shareholders that Indemnitee
is not entitled to indemnification shall be a defense to the Enforcement Action
or create a presumption that Indemnitee is not entitled to indemnification
hereunder; and
(c) If Indemnitee is or was serving as a director or officer of a
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Company or as a partner, trustee or otherwise in
an executive or management capacity in a partnership, joint venture, trust or
other enterprise of which the Company or a wholly owned subsidiary of the
Company is a general partner or has a majority ownership, then such corporation,
partnership, joint venture, trust or other enterprise shall conclusively be
deemed a Related Company and Indemnitee shall conclusively be deemed to be
serving such Related Company at the Company's request.
3.3. ATTORNEYS' FEES AND EXPENSES FOR ENFORCEMENT ACTION
In the event Indemnitee is required to bring an Enforcement Action, the
Company shall pay all of Indemnitee's fees and expenses in bringing and pursuing
the Enforcement Action (including attorneys' fees at any stage, including on
appeal); provided, however, that the Company shall not be required to provide
such payment for such attorneys' fees or expenses if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such Enforcement Action was not made in good faith.
Page 5
<PAGE>
4. LIMITATIONS ON INDEMNITY; MUTUAL ACKNOWLEDGMENT
4.1. LIMITATION ON INDEMNITY
No indemnity pursuant to this Agreement shall be provided by the Company:
(a) On account of any suit in which a final, unappealable judgment is
rendered against Indemnitee for an accounting of profits made from the purchase
or sale by Indemnitee of securities of the Company in violation of the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended;
(b) For Damages that have been paid directly to Indemnitee by an insurance
carrier under a policy of insurance maintained by the Company;
(c) With respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(d) On account of Indemnitee's conduct which is finally adjudged by a court
having jurisdiction in the matter to have been intentional misconduct, a knowing
violation of law or the RCW 23B.08.310 or any successor provision of the
Statute, or a transaction from which Indemnitee derived an improper personal
benefit; or
(e) If a final decision by a court having jurisdiction in the matter with
no further right of appeal shall determine that such indemnification is not
lawful.
4.2. PARTIAL INDEMNIFICATION
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of any Damages in
connection with a Proceeding, but not, however, for the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion of such
Damages to which Indemnitee is entitled.
4.3. MUTUAL ACKNOWLEDGMENT
The Company and Indemnitee acknowledge that, in certain instances, federal
law or public policy may override applicable state law and prohibit the Company
from indemnifying Indemnitee under this Agreement or otherwise. For example,
the Company and Indemnitee acknowledge that the Securities and Exchange
Commission (the "SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
Page 6
<PAGE>
5. NOTIFICATION AND DEFENSE OF CLAIM
5.1. NOTIFICATION
Promptly after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee shall, if a claim in respect thereof is to be made
against the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not, however, relieve
the Company from any liability which it may have to Indemnitee under this
Agreement unless and only to the extent that such omission can be shown to have
prejudiced the Company's ability to defend the Proceeding.
If, at the time of the receipt of a notice of a claim pursuant to Section
5.1, the Company has director and officer liability 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 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.
5.2. DEFENSE OF CLAIM
With respect to any such Proceeding as to which Indemnitee notifies the
Company of the commencement thereof:
(a) The Company may participate therein at its own expense;
(b) The Company, jointly with any other indemnifying party similarly
notified, may assume the defense thereof, with counsel satisfactory to
Indemnitee. After notice from the Company to Indemnitee of its election so to
assume the defense thereof, the Company shall not be liable to Indemnitee under
this Agreement for any legal or other expenses (other than reasonable costs of
investigation) subsequently incurred by Indemnitee in connection with the
defense thereof unless (i) the employment of counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company (or any other person or
persons included in the joint defense) and Indemnitee in the conduct of the
defense of such action, (iii) the Company shall not, in fact, have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel shall be at the Company's expense, or (iv) the Company
is not financially or legally able to perform its indemnification obligations.
The Company shall not be entitled to assume the defense of any proceeding
brought by or on behalf of the Company or as to which Indemnitee shall have
reasonably made the conclusion provided for in (ii) or (iv) above;
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any Proceeding effected without
its written consent;
(d) The Company shall not settle any action or claim in any manner that
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; and
Page 7
<PAGE>
(e) Neither the Company nor Indemnitee will unreasonably withhold its, his
or her consent to any proposed settlement.
6. SEVERABILITY
Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or to fail to do any act in violation of applicable
law. The Company's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable, as provided in
this Section 6. If this Agreement or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify or make contribution to Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
7. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION
(a) This Agreement shall be interpreted and enforced in accordance with the
laws of the State of Washington.
(b) This Agreement shall be binding on Indemnitee and on the Company and
its successors and assigns (including any transferee of all or substantially all
its assets and any successor by merger or otherwise by operation of law), and
shall inure to the benefit of Indemnitee and Indemnitee's heirs, personal
representatives and assigns and to the benefit of the Company and its successors
and assigns. The Company shall not effect any merger, consolidation, sale of
all or substantially all of its assets or other reorganization in which it is
not the surviving entity, unless the surviving entity agrees in writing to
assure all of the Company's obligations under this Agreement.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
8. ENTIRE AGREEMENT
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
9. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
instrument.
10. AMENDMENTS; WAIVERS
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid
Page 8
<PAGE>
unless in writing, and no such waiver shall be deemed a waiver of any subsequent
breach or default.
11. NOTICES
All notices, claims and other communications hereunder shall be in writing
and made by hand delivery, registered or certified mail (postage prepaid, return
receipt requested), facsimile or overnight air courier guaranteeing next-day
delivery:
(a) If to the Company, to: with a copy to:
ONYX Software Corporation Perkins Coie
310 - 120th Avenue N.E. 1201 Third Avenue, 40th Floor
Bellevue, WA 98005 Seattle, WA 98101
Attn: Sarwat Ramadan, Attn: Gregory Gorder, Esq
Chief Financial Officer
(b) If to Indemnitee, to the address specified on the last page of this
Agreement or to such other address as either party may from time to time furnish
to the other party by a notice given in accordance with the provisions of this
Section 11. All such notices, claims and communications shall be deemed to have
been duly given if (i) personally delivered, at the time delivered, (ii) mailed,
five days after dispatched, (iii) sent by facsimile transmission, upon
confirmation of receipt, and (iv) sent by any other means, upon receipt.
12. DIRECTORS' AND OFFICERS' INSURANCE
(a) The Company hereby covenants and agrees that, subject to the provisions
of Section 12(c) hereof, the Company shall, from a date no later than the
closing date of the Company's first registered public offering of the Company's
Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, maintain directors' and officers' insurance
in full force and effect so long as Indemnitee continues to serve as a director
or officer of the Company and thereafter so long as Indemnitee shall be subject
to any possible Proceeding.
(b) In all policies of directors' and officers' insurance, Indemnitee shall
be named as an insured in such a manner as to provide Indemnitee the same rights
and benefits, subject to the same limitations, as are accorded to the Company's
directors or officers most favorably insured by such policy.
(c) Notwithstanding the foregoing provisions of this Section 12, the
Company shall have no obligation to maintain directors' and officers' 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, or the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit.
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<PAGE>
13. SPECIFIC PERFORMANCE
The Company and Indemnitee agree herein that a monetary remedy for breach
of this Agreement, at some later date, will be inadequate, impracticable and
difficult of proof, and further agree that such breach would cause Indemnitee
irreparable harm. Accordingly, the Company and Indemnitee agree that Indemnitee
shall be entitled to temporary and permanent injunctive relief to enforce this
Agreement without the necessity of proving actual damages or irreparable harm.
The Company and Indemnitee further agree that Indemnitee shall be entitled to
such injunctive relief, including temporary restraining orders, preliminary
injunctions and permanent injunctions, without the necessity of posting bond or
other undertaking in connection therewith. Any such requirement of bond or
undertaking is hereby waived by the Company, and the Company acknowledges that
in the absence of such a waiver, a bond or undertaking may be required by the
court.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
COMPANY:
ONYX SOFTWARE CORPORATION
By
-----------------------------------------
Its
---------------------------------------
INDEMNITEE:
--------------------------------------------
Print name:
--------------------------------
Address:
-----------------------------------
-----------------------------------
-----------------------------------
Page 10
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF ONYX SOFTWARE CORPORATION
EnCyc, Inc., a Michigan subsidiary
ONYX Software Canada Inc., an Ontario subsidiary
ONYX Software UK, Ltd., a Great Britain subsidiary
ONYX Software Asia Pte Ltd., a Singapore subsidiary
ONYX Software Australia Pty, Ltd., a New South Wales subsidiary
ONYX International Sales Corporation, a Barbados subsidiary
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports dated
November 16, 1998 (except Note 12 as to which the date is ) in the
Registration Statement on Form S-1 and the related Prospectus of ONYX Software
Corporation and Subsidiaries to be filed with the Securities and Exchange
Commission on December 8, 1998.
Seattle, Washington
December , 1998
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion
of the recapitalization described in Note 12 to the consolidated financial
statements.
ERNST & YOUNG LLP
Seattle, Washington
December 8, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
financial statements of ONYX Software Corporation as of September 30, 1998.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<CASH> 3,512,000 177,000
<SECURITIES> 2,064,000 0
<RECEIVABLES> 8,203,000 9,757,000
<ALLOWANCES> (553,000) (402,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 14,586,000 11,627,000
<PP&E> 2,217,000 3,257,000
<DEPRECIATION> (953,000) (1,644,000)
<TOTAL-ASSETS> 15,952,000 17,098,000
<CURRENT-LIABILITIES> 5,279,000 9,998,000
<BONDS> 0 0
0 0
12,070,000 2,981,000
<COMMON> (769,000) (291,000)
<OTHER-SE> (140,000) (161,000)
<TOTAL-LIABILITY-AND-EQUITY> 15,952,000 17,098,000
<SALES> 13,191,000 15,153,000
<TOTAL-REVENUES> 19,437,000 24,004,000
<CGS> 250,000 607,000
<TOTAL-COSTS> 23,183,000 29,400,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (314,000) (95,000)
<INCOME-PRETAX> (3,432,000) (5,301,000)
<INCOME-TAX> (888,000) 193,000
<INCOME-CONTINUING> (2,544,000) (5,494,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,544,000) (5,494,000)
<EPS-PRIMARY> (0.43) (0.78)
<EPS-DILUTED> (0.43) (0.78)
</TABLE>
<PAGE>
EXHIBIT 99.1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS,
ON FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated balance sheets of ONYX Software Corporation
as of December 31, 1996 and 1997 and September 30, 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997 and the nine
months ended September 30, 1998, and have issued our report thereon dated
November 16, 1998 (except Note 12 as to which the date is ) (included
elsewhere in this Registration Statement). 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.
Seattle, Washington
November 16, 1998
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the recapitalization described in Note 12 to the consolidated financial
statements.
ERNST & YOUNG LLP
Seattle, Washington
December 8, 1998
