<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996.
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
OPTIKA IMAGING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 95-4154552
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
----------------
5755 MARK DABLING BOULEVARD, SUITE 100
COLORADO SPRINGS, COLORADO 80919
(719) 548-9800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MARK K. RUPORT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
5755 MARK DABLING BOULEVARD, SUITE 100
COLORADO SPRINGS, COLORADO 80919
(719) 548-9800
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
WARREN T. LAZAROW, ESQ. DOUGLAS R. NEWKIRK, ESQ.
JEREMY W. MAKARECHIAN, ESQ. SACHNOFF & WEAVER, LTD.
BROBECK, PHLEGER & HARRISON LLP 30 SOUTH WACKER DRIVE, 29TH FLOOR
TWO EMBARCADERO PLACE, 2200 GENG ROAD CHICAGO, ILLINOIS 60606
PALO ALTO, CALIFORNIA 94303 (312) 207-1000
(415) 424-0160
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are 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, please 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, 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>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 3,335,000 $11.00 $36,685,000 $12,650
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 435,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to 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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
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<PAGE>
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 REGISTRATION
STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
-------------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................. Forepart of the Registration Statement;
2. Inside Front and Outside Back Cover Outside Front Cover Page
Pages of Prospectus.................... Inside Front Cover Page; Outside Back Cover
3. Summary Information, Risk Factors and Page
Ratio of Earnings to Fixed Charges..... Prospectus Summary; Risk Factors
4. Use of Proceeds......................... Prospectus Summary; Risk Factors; Use of
Proceeds
5. Determination of Offering Price......... Risk Factors; Underwriting
6. Dilution................................ Dilution
7. Selling Security Holders................ Principal and Selling Stockholders
8. Plan of Distribution.................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Prospectus Summary; Capitalization;
Registered.............................. Description of Capital Stock
10. Interests of Named Experts and Counsel.. Not Applicable
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page; Prospectus
Summary; Risk Factors; Dividend Policy;
Capitalization; Dilution; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Experts; Additional Information;
12. Disclosure of Commission Position on Consolidated Financial Statements
Indemnification for Securities Act
Liabilities............................ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 22, 1996
2,900,000 SHARES
[LOGO]
OPTIKA IMAGING SYSTEMS, INC.
COMMON STOCK
-----------
Of the 2,900,000 shares of Common Stock offered hereby, 2,200,000 shares are
being sold by Optika Imaging Systems, Inc. ("Optika" or the "Company"), and
700,000 shares are being sold by certain selling stockholders (the "Selling
Stockholders"). The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholders. See "Principal and Selling
Stockholders." Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price of the Common Stock will be between $9.00 and $11.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. Application has been made to
have the Common Stock listed on The Nasdaq National Market under the proposed
symbol "OPTK."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)...................... $ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, payable by the Company, estimated at $1,000,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
435,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
certificates for the shares of Common Stock will be available for delivery at
the offices of Volpe, Welty & Company, One Maritime Plaza, San Francisco,
California, on or about , 1996.
-----------
VOLPE, WELTY & COMPANY
PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1996
<PAGE>
[GRAPHICAL REPRESENTATION OF THREE COMPUTER SCREENS AND ONE CD-ROM APPEARS
HERE]
Optika(R) and FilePower(R) are registered trademarks of the Company.
FPreport, FPdisc, FPmulti, FPocr, FPtext, FPtransact, FPprint, FPfax,
FPenhance, PowerFlow and FPengine are trademarks of the Company. This
Prospectus contains other product names, trade names, service marks and
trademarks of the Company and of other organizations.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Prospective investors should consider carefully
the information discussed under "Risk Factors." This Prospectus contains
forward-looking statements which involve substantial risks and uncertainties.
The Company's actual results could differ materially from the results discussed
in these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and elsewhere in this Prospectus.
THE COMPANY
Optika Imaging Systems, Inc. ("Optika" or the "Company") is a leading
provider of high-performance, client/server, integrated imaging software
designed to meet the needs of paper intensive industries such as healthcare,
financial services, insurance and retail. The Company's FilePower Suite is
comprised of server software, which provides core imaging functions,
application software for document image management, computer output to laser
disc ("COLD") and automated workflow transaction processing and associated
development tools. The FilePower Suite is easy to install, use and integrate
with end-users' existing information systems and is designed to be deployed at
the departmental or workgroup level and then to scale throughout the
enterprise. The Company believes that the FilePower Suite enables end-users to
reduce costs, improve operational productivity and enhance customer service.
The Company has licensed over 25,000 seats to its end-users, which include John
Hancock Mutual Life Insurance Company, Merrill Lynch, Pierce, Fenner & Smith
Inc., Mitsubishi Finance International Plc, Pascack Valley Hospital,
PriceCostco Wholesale Corporation and St. Elizabeth Medical Center.
The open client/server architecture of the FilePower Suite enables it to be
tailored for industry-specific applications. According to industry sources, the
Company is one of the leading providers of imaging solutions to the healthcare
industry, based on over 65 installations of the FilePower Suite. The Company is
seeking to capitalize on the size of the installed base of the FilePower Suite
in the healthcare industry through the development of an integrated patient
accounting and medical records software suite (the "MediPower Suite") designed
to enable hospitals and other healthcare organizations to manage large amounts
of patient related documents. The MediPower Suite incorporates document image
management, COLD and automated workflow transaction processing technologies and
is designed to provide fast and efficient access to patient information from
workstations located throughout the enterprise, including the point of patient
care.
The growth of the market for document image processing systems is being
driven by: (i) improved price/performance characteristics of client/server
distributed computing systems, (ii) the widespread deployment of client/server
computing systems connected to an infrastructure of local and wide area
networks ("LANS" and "WANS") and (iii) increased competitive pressures for
businesses to improve productivity and reduce costs, especially in paper-
intensive industries. The production segment of the document imaging market
includes applications that handle large volumes of paper and perform structured
business functions such as patient records management, insurance claim
processing, loan processing and accounts payable processing. According to a
study by BIS Strategic Decisions, the software component of the production
imaging segment has grown from approximately $264 million in 1993 to
approximately $366 million in 1995 and is projected to grow to approximately
$682 million by 1998.
The Company distributes its products through a two-tiered distribution model
consisting of a worldwide network of over 160 value-added resellers ("VARs"),
distributors and systems integrators referred to as Business Solutions Partners
("BSPs") and three original equipment manufacturers ("OEMs"), Lanier Worldwide,
Inc., Alltel Healthcare Information Services, Inc. and Anacomp, Inc. The
Company's BSPs and
3
<PAGE>
OEMs are responsible for identifying potential end-users, selling the Company's
products to end-users as part of a complete hardware and software solution,
customizing and integrating the Company's products at the end-users' sites and
supporting end-users following the sale. The Company's software products
operate on a variety of open computing platforms, including Windows 3.x,
Windows 95 and Windows NT on the client desktop, Windows NT and Novell Netware
as servers and UNIX for SQL database support. The Company's strategy is to
extend its position as a technology leader in developing and marketing open
architecture, client/server imaging software solutions, strengthen its network
of BSPs and OEMs in targeted domestic and international markets, focus on
scalable solutions, lower the cost of ownership to its customers and capitalize
on opportunities in the healthcare and other vertical markets.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company............................... 2,200,000 shares
The Selling Stockholders.................. 700,000 shares
Common Stock to be outstanding after this
offering................................... 6,547,394 shares(1)
Use of proceeds............................. Repayment of indebtedness,
working capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol...... OPTK
</TABLE>
- --------
(1) Based on the number of shares outstanding as of March 31, 1996. Excludes
1,840,546 shares of Common Stock issuable upon exercise of stock options
and warrants outstanding as of March 31, 1996 at a weighted average
exercise price of $1.78 per share, and 686,355 shares of Common Stock
reserved for grant of future options as of March 31, 1996 under the
Company's 1994 Stock Option/Issuance Plan (the "1994 Stock Plan").
Subsequent to March 31, 1996, the Company issued 100 shares of Common Stock
upon the exercise of outstanding options and granted options to purchase
93,999 shares of Common Stock. In addition, the Board of Directors adopted,
subject to stockholder approval, the Employee Stock Purchase Plan, pursuant
to which 250,000 shares of Common Stock were reserved for issuance. See
"Capitalization," "Management," "Description of Capital Stock" and Notes 7
and 10 of Notes to Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- ----------------
1991 1992 1993 1994 1995(2) 1995 1996
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA(1):
Revenues................ $2,686 $4,771 $9,043 $ 9,252 $10,468 $ 1,959 $ 3,106
Gross profit............ 2,359 3,883 6,499 6,950 8,329 1,498 2,588
Income (loss) from
operations............. 152 118 545 (1,875) (522) (306) 10
Net income (loss)....... 101 (39) 27 (1,732) (962) (326) 2
Pro forma net income
(loss) per common
share(3)............... $ (0.20) $ (0.07) $ 0.00
Pro forma weighted
average number of
common shares
outstanding(3)......... 4,795 4,771 5,586
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Cash.................................................... $ 831 $20,113
Working capital......................................... 1,851 21,245
Total assets............................................ 6,091 25,373
Long-term debt, excluding current portion............... 357 291
Convertible preferred stock............................. 4,804 --
Total common stockholders' equity (deficit)............. (1,959) 22,305
</TABLE>
- --------
(1) All financial information reflects the merger of TEAMWorks Technologies,
Inc. in January 1994, which was accounted for as a pooling of interests.
(2) In December 1995, the Company purchased certain assets and assumed certain
liabilities from IPRS Asia (S) Pte Ltd., a Singapore company, and Intuit
Development Limited, a Hong Kong company. The results of operations for
such companies are included in the Company's consolidated results of
operations since the date of the acquisitions.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the calculation of the pro forma weighted average number of common
shares outstanding.
(4) Pro forma as adjusted to reflect the sale of 2,200,000 shares of Common
Stock by the Company, the application of the estimated net proceeds
therefrom and the automatic conversion of all outstanding shares of the
Series A, B and C Convertible Preferred Stock into 1,500,464 shares of
Common Stock. See "Use of Proceeds" and "Capitalization."
----------------
Except as otherwise indicated, all information contained in this Prospectus (i)
assumes that the Underwriters' over-allotment option is not exercised, (ii)
except in the Consolidated Financial Statements, reflects the conversion of all
outstanding shares of Series A, B and C Convertible Preferred Stock of the
Company (collectively, the "Convertible Preferred Stock") into 1,500,464 shares
of Common Stock upon the closing of this offering and (iii) except in the
Consolidated Financial Statements, assumes the effectiveness of the Company's
reincorporation in the State of Delaware.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
History of Losses; Accumulated Deficit; Future Results of Operations
Uncertain. The Company was founded in January 1988 and did not ship an
integrated version of the FilePower Suite until the third quarter of 1995.
Since its inception, the Company has incurred substantial costs to develop and
improve its software products, establish sales, marketing and distribution
channels and recruit and train its employees. As a consequence, the Company
has incurred net losses in three of its past five fiscal years and incurred an
operating loss for the year ended December 31, 1995. As of March 31, 1996, the
Company had an accumulated deficit of approximately $2.8 million. There can be
no assurance that the Company will continue to achieve revenue growth or will
be profitable on a quarterly or annual basis. See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence on Windows NT. The Company is largely dependent on the
development and growth in the market for Windows NT operating systems and the
migration of imaging and workflow server software to such operating systems.
There can be no assurance that this market will grow or that the Company will
be able to respond effectively to the evolving requirements of this market.
UNIX-based operating systems currently account for most current client/server-
based production imaging operating systems, and the Company's software
interoperates with UNIX-based operating systems to only a very limited extent.
There can be no assurance that UNIX will not continue to be the dominant
operating platform in the future or that the introduction of other operating
systems will not adversely affect the deployment of Windows NT. The failure of
Windows NT operating systems to achieve market acceptance over the next
several years would have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, certain
performance characteristics of the Company's products are currently limited by
the Windows NT architecture, including the ability to be deployed throughout
the largest enterprises.
Significant Fluctuations in Operating Results. The Company's sales and other
operating results have varied significantly in the past and will vary
significantly in the future as a result of factors such as the size and timing
of significant orders and their fulfillment, demand for the Company's
products, changes in pricing policies by the Company or its competitors, the
number, timing and significance of product enhancements and new product
announcements by the Company and its competitors, changes in the level of
operating expenses, customer order deferrals in anticipation of new products
or otherwise, foreign currency exchange rates, warranty and customer support
expenses, changes in its end-users' financial condition and budgetary
processes, changes in the Company's sales, marketing and distribution
channels, delays or deferrals of customer implementation, product life cycles,
software bugs and other product quality problems, discounts, the cancellation
of licenses during the warranty period or nonrenewal of maintenance
agreements, customization and integration problems with the end-user's legacy
system, changes in the Company's strategy, the level of international
expansion and seasonal trends. A significant portion of the Company's revenues
have been, and the Company believes will continue to be, derived from a
limited number of orders, and the timing of such orders and their fulfillment
have caused and are expected to continue to cause material fluctuations in the
Company's operating results. Revenues are also difficult to forecast because
the markets for the Company's products are rapidly evolving, and the sales
cycle of the Company and its BSPs and OEMs, from initial evaluation to
purchase, is lengthy and varies substantially from end-user to end-user. To
achieve its quarterly revenue objectives, the Company depends upon obtaining
orders in any given quarter for shipment in that quarter. Product orders are
typically shipped shortly after receipt, and consequently, order backlog at
the beginning of any quarter has in the past represented only a small portion
of that quarter's revenues. Furthermore, the Company has often recognized most
of its revenues in the last month, or even weeks or days, of a quarter.
Accordingly, a delay in shipment near the end of a particular quarter may
cause revenues in a particular quarter to fall significantly below
6
<PAGE>
the Company's expectations and may materially adversely affect the Company's
operating results for such quarter. Conversely, to the extent that significant
revenues occur earlier than expected, operating results for subsequent
quarters may fail to keep pace with results of previous quarters or even
decline. The Company also has recorded generally lower sales in the first
quarter than in the immediately preceding quarter, as a result of, among other
factors, end-users' purchasing and budgeting practices and the Company's sales
commission practices, and expects this pattern to continue in future years. To
the extent future international operations constitute a higher percentage of
total revenues, the Company anticipates that it may also experience relatively
weaker demand in the third quarter as a result of reduced sales in Europe
during the summer months. A significant portion of the Company's expenses are
relatively fixed in the short term. Accordingly, if revenue levels fall below
expectations, operating results are likely to be disproportionately adversely
affected. As a result of these and other factors, the Company believes that
its quarterly operating results will vary in the future and period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance. Furthermore,
due to all of the foregoing factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risks Associated with the MediPower Suite. The Company's future performance
will depend in significant part upon its ability to complete the development
of and achieve commercial acceptance for the MediPower Suite, its first
software product tailored for an industry-specific application. The MediPower
Suite is being developed in response to a single end-user's order, and only a
limited number of end-users have purchased any of the software modules
contained in this suite. To date, five of the seven software modules in the
MediPower Suite have been developed and the remaining two modules are under
development. Three of the developed modules have been installed at the end-
user's site. If the Company fails to complete the MediPower Suite to the end-
user's satisfaction in a timely manner, the Company's ability to market its
products to other prospective end-users in the healthcare industry would be
materially impaired and the Company's business, results of operations and
financial condition would be materially adversely affected. See "Business."
Reliance on Indirect Distribution Channels; Potential for Channel
Conflict. The Company's future results of operations will depend on the
success of its marketing and distribution strategy which relies, to a
significant degree, upon BSPs and OEMs to sell and install the Company's
software and provide post-sales support. In 1995, the Company's top 34 BSPs
accounted for approximately 80% of its revenues, and substantially all of the
Company's total revenues were derived from sales by BSPs and OEMs. These
relationships are usually established through formal agreements that generally
do not grant exclusivity, do not prevent the distributor from carrying
competing product lines and do not require them to purchase any minimum dollar
amount of the Company's software. There can be no assurance that any BSPs will
continue to represent the Company or sell its products. Furthermore, there can
be no assurance that other BSPs, some of which have significantly greater
financial, marketing and other resources than the Company, will not develop or
market software products which compete with the Company's products or will not
otherwise discontinue their relationships with or support of the Company. Some
of the Company's BSPs are small companies that have limited financial and
other resources which could impair their ability to pay the Company. The
Company's OEMs currently compete with the Company and its BSPs. Selling
through indirect channels may also hinder the Company's ability to forecast
sales accurately, evaluate customer satisfaction, provide quality service and
support or recognize emerging customer requirements. The Company's strategy of
marketing its products indirectly through BSPs and OEMs may result in
distribution channel conflicts. To the extent different BSPs and OEMs target
the same customers, they may come into conflict with each other. Although the
Company has attempted to allocate certain territories for its products among
its distribution channels in a manner to avoid potential conflicts, there can
be no assurance that channel conflict will not materially adversely affect its
relationships with existing BSPs or OEMs or adversely affect its ability to
attract new BSPs and OEMs. The loss by the Company of a number of its more
significant BSPs or OEMs, the inability of the Company to obtain qualified new
BSPs or OEMs or to obtain access to the channels of distribution offering
software products to the Company's targeted markets or the failure of BSPs or
OEMs to pay the Company for its software could have a material adverse effect
on the Company's business, results of operations or financial condition. See
"Business--Sales and Marketing."
7
<PAGE>
Rapid Technological Change; Dependence on New Product Development. The market
for imaging software is characterized by rapid technological change, changes in
customer requirements, frequent new product introductions and enhancements and
emerging industry standards. The Company's future performance will depend in
significant part upon its ability to respond effectively to these developments.
The introduction of products embodying new technologies and the emergence of
new industry standards can render existing products obsolete, unmarketable or
noncompetitive. For example, new technologies based on the Internet could alter
generally accepted conventions for document creation, distribution and
management. Accordingly, the life cycles of the Company's products are
difficult to estimate. The Company's future performance will depend in
significant part upon its ability to enhance current products and to develop
and introduce new products that respond to evolving customer requirements. The
Company has in the recent past experienced delays in the development and
commencement of commercial shipments of new products and enhancements,
resulting in customer frustration and delay or loss of revenues. The inability
of the Company, for technological or other reasons, to develop and introduce
new products or enhancements in a timely manner in response to changing
customer requirements, technological change or emerging industry standards or
maintain compatibility with heterogeneous computing environments would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Product Concentration; Dependence on Emerging Market for Integrated Imaging
Systems. To date, substantially all of the Company's revenues have been
attributable to sales of the FilePower Suite and individual software modules
which comprise the FilePower Suite and the MediPower Suite. The Company
currently expects the FilePower and the MediPower Suite to account for
substantially all of its future revenues. As a result, factors adversely
affecting the pricing of or demand for such products, such as competition or
technological change, could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company's future
financial performance will depend in general on growth in the relatively small
and emerging market for imaging software products, and in particular on the
successful development, introduction and customer acceptance of new and
enhanced versions of its existing software products such as the FilePower
Suite, along with the successful development, marketing and market acceptance
of new industry-specific products such as the MediPower Suite. There can be no
assurance that such market will grow or that the Company will be successful in
developing and marketing these or any other products. If the document imaging
software market fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, results of operations and financial
condition would be materially adversely affected. See "Business."
Lengthy and Complex Sales and Implementation Cycles; Dependence on Capital
Spending. The license of the Company's software products is typically an
executive-level decision by prospective end-users and generally requires the
Company and its BSPs or OEMs to engage in a lengthy and complex sales cycle
(typically between six and twelve months from the initial contact date). In
addition, the implementation by customers of the imaging products offered by
the Company may involve a significant commitment of resources by such customers
over an extended period of time. For these and other reasons, the sales and
customer implementation cycles are subject to a number of significant delays
over which the Company has little or no control. The Company's future
performance also depends upon the capital expenditure budgets of its customers
and the demand by such customers for the Company's products. Certain industries
to which the Company sells its products, such as the financial services
industry, are highly cyclical. The Company's operations may in the future be
subject to substantial period-to-period fluctuations as a consequence of such
industry patterns, domestic and foreign economic conditions and other factors
affecting capital spending. There can be no assurance that such factors will
not have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Sales and
Marketing."
Intense Competition. The market for the Company's products is intensely
competitive and significantly affected by new product introductions and other
market activities of industry participants. The Company's competitors offer a
variety of products and services to address the emerging market for imaging
software
8
<PAGE>
solutions. The Company's principal direct competitors include: BancTec, Inc.
("BancTec"), FileNet Corporation ("FileNet"), International Business Machines
Corporation ("IBM"), Unisys Corporation, ViewStar, Inc. ("ViewStar") and Wang
Laboratories, Inc. ("Wang"). The Company also competes with industry-specific
application vendors such as IMNET Systems, Inc. ("IMNET") and LanVision
Systems, Inc. ("LanVision"). Numerous other software vendors also compete in
each product area. Potential competitors include providers of document
management software, providers of document archiving products and relational
database management systems ("RDBMS") vendors. The Company also faces
competition from VARs, OEMs, distributors and systems integrators, some of
which are BSPs or OEMs for the Company. See "--Reliance on Indirect
Distribution Channels; Potential for Channel Conflict."
Many of the Company's current and potential competitors are substantially
larger than the Company and have significantly greater financial, technical
and marketing resources and have established more extensive channels of
distribution. As a result, such competitors may be able to respond more
rapidly to new or emerging technologies and changes in customer requirements,
or to devote greater resources to the development, promotion and sale of their
products than the Company. Because the Company's products are designed to
operate in non-proprietary computing environments and because of low barriers
to entry in the imaging software market, the Company expects additional
competition from established and emerging companies as the market for
integrated imaging products continues to evolve. The Company expects its
competitors to continue to improve the performance of their current products
and to introduce new products or new technologies that provide added
functionality and other features. Successful new product introductions or
enhancements by the Company's competitors could cause a significant decline in
sales or loss of market acceptance of the Company's products and services,
result in continued intense price competition or make the Company's products
and services or technologies obsolete or noncompetitive. To be competitive,
the Company will be required to continue to invest significant resources in
research and development and sales and marketing. There can be no assurance
that the Company will have sufficient resources to make such investments or
that the Company will be able to make the technological advances necessary to
be competitive. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or
with third parties to increase the ability of their products to address the
needs of the Company's prospective customers. In addition, several competitors
have recently made or attempted to make acquisitions to enter the market or
increase their market presence. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which would
have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Competition."
Risks Associated with Acquisitions. Optika has consummated several recent
acquisitions, including the acquisitions of TEAMWorks Technologies, Inc.
("TEAMWorks") in 1994 (the "TEAMWorks Acquisition"), and IPRS Asia (S) Pte
Ltd., a Singapore company ("IPRS"), and Intuit Development Limited, a Hong
Kong company ("Intuit"), in 1995 (the "IPRS/Intuit Acquisition")
(collectively, the "Acquisitions"), and continues to evaluate potential
acquisitions of businesses, products and technologies. In 1995, the Company
terminated all of operations of TEAMWorks due to the failure of the TEAMWorks
products to achieve market acceptance and the Company's lack of experience in
selling such products. The Company is in the process of integrating the
operations acquired in the IPRS/Intuit Acquisition with its own. There can be
no assurance that the anticipated benefits of the IPRS/Intuit Acquisition will
be realized. Acquisitions involve numerous risks, including difficulties in
the assimilation of the operations, technologies and products of the acquired
companies, potentially dilutive issuances of equity securities, operating
companies in different geographic locations with different cultures, the
potential loss of key employees of the acquired company, the diversion of
management's attention from other business concerns and the risks of entering
markets in which the Company has no or limited direct prior experience. There
can be no assurance that suitable acquisition candidates will be identified,
that any acquisitions can be consummated or that any acquired businesses or
products can be successfully integrated into the Company's operations. In
addition, there can be no assurance that the Acquisitions or any future
acquisitions
9
<PAGE>
will not have a material adverse effect upon the Company, particularly in the
quarters immediately following the consummation of such transactions due to
operational disruptions, severance expenses, unexpected expenses and
accounting charges which may be associated with the integration of such
acquisitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Management Changes; No Assurance of Successful Expansion of Operations. Most
of the Company's senior management team have joined the Company within the
last two years. There can be no assurance that these individuals will be able
to achieve and manage growth, if any, or build an infrastructure necessary to
operate the Company. The Company's ability to compete effectively and to
manage any future growth, will require the Company to continue to assimilate
new personnel and to expand, train and manage its work force. The Company
intends to continue to increase the scale of its operations significantly to
support anticipated increases in revenues and to address critical
infrastructure and other requirements. These increases have included and will
include the leasing of new space, the opening of additional field offices, the
Acquisitions and potential acquisitions, significant increases in research and
development to support product development and the hiring of additional
personnel in sales and marketing. The increased scale of operations has
resulted in significantly higher operating expenses which are expected to
continue to increase significantly in the future. If the Company's revenues do
not correspondingly increase, the Company's results of operations would be
materially adversely affected. Expansion of the Company's operations has
caused and is continuing to impose a significant strain on the Company's
management, financial and other resources. The Company's ability to manage its
recent and any future growth, should it occur, will depend upon a significant
expansion of its internal management systems and the implementation and
subsequent improvement of a variety of systems, procedures and controls. Any
failure to expand these areas and implement and improve such systems,
procedures and controls in an efficient manner at a pace consistent with the
Company's business could have a material adverse effect on the Company's
business, financial condition and results of operations. In this regard, any
significant revenue growth will be dependent in significant part upon the
Company's expansion of its marketing, sales and BSP support capabilities. This
expansion will continue to require significant expenditures to build the
necessary infrastructure. There can be no assurance that the Company's efforts
to expand its marketing, sales and customer support efforts will be successful
or will result in additional revenues or profitability in any future period.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Management."
Dependence on Key Personnel. The Company's future performance depends to a
significant degree upon the continuing contributions of its key management,
sales, marketing, customer support and product development personnel. The
Company has at times experienced and continues to experience difficulty in
recruiting qualified personnel, particularly in software development and
customer support. The Company believes that there may be only a limited number
of persons with the requisite skills to serve in those positions and it may
become increasingly difficult to hire such persons. Competitors and others
have in the past and may in the future attempt to recruit the Company's
employees. The loss of key management or technical personnel or the failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business--Research and Development," "--Employees" and "Management."
Dependence on Proprietary Technologies; Risk of Infringement. The Company's
performance depends in part on its ability to protect its proprietary rights
to the technologies used in its principal products. The Company relies on a
combination of copyright and trademark laws, trade secrets, confidentiality
provisions and other contractual provisions to protect its proprietary rights,
which measures afford only limited protection. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights as fully as do the
laws of the United States. There can be no assurance that the Company's means
of protecting its proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar
technologies. The Company is not aware that it is infringing any proprietary
rights of third parties. In August 1994, a third party notified the Company
that it believes that one of the Company's products is infringing a patent
held by such third party. The Company subsequently notified such third party
that it does not believe that its products
10
<PAGE>
infringed such patent. Neither party has communicated with the other since
January 1995. If the third party should file suit against the Company, and
should it be determined that its patent is valid and infringed by the
Company's product, the Company may redesign the allegedly infringing product
or seek to obtain a license from such third party. Any redesign may be costly
and time consuming, may not avoid litigation and would materially adversely
affect the Company's business, results of operations and financial condition.
If it becomes necessary to seek a license from such third party, there can be
no assurance that the Company will be able to obtain such a license on
acceptable terms. Moreover, there can be no assurance that additional third
parties will not claim infringement by the Company's products of their
intellectual property rights. The Company expects that software product
developers will increasingly be subject to infringement claims if the number
of products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any such
claims, with or without merit, and regardless of the outcome of any
litigation, will be time consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, if at all. In the event of a successful claim of
infringement against the Company's products and the failure or inability of
the Company to license the infringed or similar technology, the Company's
business, results of operations and financial condition would be materially
adversely affected. The Company also licenses software from third parties
which is incorporated into its products. These licenses expire from time to
time. There can be no assurance that these third-party software licenses will
continue to be available to the Company on commercially reasonable terms. The
loss of, or inability to maintain, any such software licenses could result in
shipment delays or reductions until equivalent software could be developed,
identified, licensed and integrated, which in turn could materially adversely
affect the Company's business, results of operations and financial condition.
In addition, the Company generally does not have access to source code for the
software supplied by these third parties. Certain of these third parties are
small companies that do not have extensive financial and technical resources.
If any of these relationships were terminated or if any of these third parties
were to cease doing business, the Company may be forced to expend significant
time and development resources to replace the licensed software. Such an event
would have a material adverse effect upon the Company's business, results of
operations and financial condition. The Company has entered into source code
escrow agreements with a limited number of its customers and resellers
requiring release of source code in certain circumstances. Such agreements
generally provide that such parties will have a limited, non-exclusive right
to use such code in the event that there is a bankruptcy proceeding by or
against the Company, if the Company ceases to do business or if the Company
fails to meet its support obligations. See "Business--Proprietary Rights" and
"--Sales and Marketing."
International Operations. Sales outside North America accounted for
approximately 7%, 13%, 15% and 18% of the Company's revenues in 1993, 1994,
1995 and for the three months ended March 31, 1996, respectively. An important
element of the Company's strategy is to expand its international operations,
including the development of certain third-party distributor relationships and
the hiring of additional sales representatives, each of which involves a
significant investment of resources. There can be no assurance that the
Company will be successful in expanding its international operations. In
addition, the Company has only limited experience in developing localized
versions of its products and marketing and distributing its products
internationally. There can be no assurance that the Company will be able to
successfully localize, market, sell and deliver its products internationally.
The inability of the Company to successfully expand its international
operations in a timely manner could materially adversely affect the Company's
business, results of operations and financial condition. The Company's
international revenues may be denominated in foreign or United States
currency. The Company does not currently engage in foreign currency hedging
transactions. As a result, a decrease in the value of foreign currencies
relative to the United States dollar could result in losses from transactions
denominated in foreign currencies, make the Company's software less price-
competitive and could have a material adverse effect upon the Company's
business, results of operations and financial condition. In addition, the
Company's international business is and will continue to be subject to a
variety of risks, including delays in establishing international distribution
channels, difficulties in collecting international accounts receivable,
increased costs associated with maintaining international marketing and sales
efforts, unexpected changes in regulatory requirements, tariffs and other
trade barriers, political and economic instability, limited protection for
intellectual property rights in certain
11
<PAGE>
countries, lack of acceptance of localized products in foreign countries,
difficulties in managing international operations, potentially adverse tax
consequences including restrictions on the repatriation of earnings, and the
burdens of complying with a wide variety of foreign laws. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international revenues and, consequently, the Company's
results of operations. Although the Company's products are subject to export
controls under United States laws, the Company believes it has obtained all
necessary export approvals. However, the inability of the Company to obtain
required approvals under any applicable regulations could adversely affect the
ability of the Company to make international sales. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Sales and Marketing."
Product Liability; Risk of Product Defects. The Company's license agreements
with its customers typically contain provisions designed to limit the
Company's exposure to potential product liability claims. However, it is
possible that the limitation of liability provisions contained in the
Company's license agreements may not be effective under the laws of certain
jurisdictions. Although the Company has not experienced any product liability
claims to date, the sale and support of products by the Company may entail the
risk of such claims, and there can be no assurance that the Company will not
be subject to such claims in the future. A successful product liability claim
brought against the Company could have a material adverse effect upon the
Company's business, results of operations and financial condition. Software
products such as those offered by the Company frequently contain errors or
failures, especially when first introduced or when new versions are released.
Although the Company conducts extensive product testing, the Company has in
the past released products that contained defects, and has discovered software
errors in certain of its new products and enhancements after introduction. The
Company could in the future lose or delay recognition of revenues as a result
of software errors or defects or the failure of its products to meet customer
specifications. The Company's products are typically intended for use in
applications that may be critical to a customer's business. As a result, the
Company expects that its customers and potential customers have a greater
sensitivity to product defects than the market for software products
generally. Although the Company's business has not been materially adversely
affected by any such errors, defects or failure to meet specifications, to
date, there can be no assurance that, despite testing by the Company and by
current and potential customers, errors or defects will not be found in new
products or releases after commencement of commercial shipments or that such
products will meet customer specifications, resulting in loss or deferral of
revenues, diversion of resources, damage to the Company's reputation, or
increased service and warranty and other costs, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. See "Business--Research and Development."
Uncertainty in Healthcare Industry; Government Regulation. The healthcare
industry is undergoing significant and rapid changes, including consolidation
of hospitals and other healthcare providers to form larger integrated
healthcare networks as well as market-driven or government initiatives to
reform healthcare, which the Company anticipates will affect the operations
and procurement processes of healthcare providers, and which could force the
Company to reduce prices for its software. As the number of hospitals and
other healthcare providers decreases due to further industry consolidation,
each potential sale of the Company's software will become more significant and
competition for each sale will be greater. Further, healthcare providers may
react to proposed reform measures and cost containment pressures by curtailing
or delaying investments, including purchases of the Company's software and
related services. In addition, numerous proposals relating to healthcare
reform have been, and additional proposals are expected to be, introduced in
the United States Congress and state legislatures. Although the effects of
federal and state initiatives for healthcare reform are unknown, the Company
believes that competitive factors in the healthcare industry will continue to
drive reform of healthcare delivery. The Company cannot predict with any
certainty what impact, if any, such market or government initiatives might
have on its business, financial condition and results of operations. The
United States Food and Drug Administration ("FDA") has issued a draft guidance
document addressing the regulation of certain computer products as medical
devices under the Federal Food, Drug and Cosmetic Act. To the extent that
computer software is a medical device under the policy, the manufacturers of
such products could be required, depending on the product, to: (i) register
and list their products with the FDA, (ii) notify the FDA and demonstrate
substantial equivalence to other products on the market before marketing such
products or
12
<PAGE>
(iii) obtain FDA approval by filing a premarket application that establishes
the safety and effectiveness of the product. The Company expects that the FDA
is likely to become increasingly active in regulating computer software that
is intended for use in healthcare settings, although the FDA does not
currently regulate computer software products for medical records. The FDA, if
it chooses to regulate such software, can impose extensive requirements
governing pre- and post-market conditions such as device investigation,
approval, labeling and manufacturing. In addition, any substantial reduction
in price, failure of the Company to sell its software to hospitals and other
healthcare providers or increased government regulation could have a material
adverse effect on the Company's business, results of operations and financial
condition. Such products would be subject to the Federal Food, Drug and
Cosmetic Act's general provisions, including those relating to good
manufacturing practices and adverse experience reporting. The Company is also
subject to the risks inherent in selling its products to end-users in other
heavily regulated industries, such as insurance, banking and financial
services. See "Business--Industry Background."
No Prior Public Market; Potential Volatility of Stock Price; Dilution. Prior
to this offering there has been no public market for the Company's Common
Stock, and there can be no assurance that an active public market for the
Company's Common Stock will develop or be sustained after the offering. See
"Underwriting" for a discussion of the factors to be considered by the Company
and the Underwriters in determining the initial public offering price. The
market price of the shares of Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, developments with respect to proprietary rights, conditions and
trends in the software and other technology industries, adoption of new
accounting standards affecting the software industry, changes in financial
estimates by securities analysts and others, general market conditions and
other factors that may be unrelated to the Company or its performance. In
addition, the stock market has from time to time experienced significant price
and volume fluctuations that have particularly affected the market prices for
the common stock of technology companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
such company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation, regardless of its
outcome, could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, results of operations and financial condition. In
addition, investors participating in this offering will incur immediate,
substantial dilution. To the extent outstanding options and warrants to
purchase the Company's Common Stock are exercised, there will be further
dilution. See "Dilution" and "Underwriting."
Shares Eligible for Future Sale; Registration Rights. Sales of a substantial
number of shares of Common Stock in the public market following this offering
could materially adversely affect the market price for the Company's Common
Stock. The number of shares of Common Stock available for sale in the public
market is limited by restrictions under the Securities Act, and lock-up
agreements under which the holders of such shares have agreed not to sell or
otherwise dispose of any of their shares for a period of 180 days after the
date of this Prospectus without the prior written consent of Volpe, Welty &
Company. However, Volpe, Welty & Company may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. As a result of these restrictions, based on shares
outstanding and options granted as of March 31, 1996, assuming no options are
exercised between March 31, 1996 and the date of this Prospectus, the
following shares of Common Stock will be eligible for future sale. On the date
of this Prospectus, approximately 118,000 shares in addition to the 2,900,000
shares offered hereby will be eligible for sale. Approximately 2,578,000
additional shares will be eligible for sale 90 days after the date of this
Prospectus and approximately 1,680,000 additional shares will be eligible for
sale 180 days after the date of this Prospectus. In addition, the Company
intends to register on a registration statement on Form S-8, on the effective
date of this offering, a total of 2,675,000 shares of Common Stock subject to
outstanding options or reserved for issuance under the 1994 Stock Plan and
under the Employee Stock Purchase Plan. Upon expiration of the lock-up
agreements referred to above, holders of approximately 3,555,000 shares of
Common Stock will be entitled to certain
13
<PAGE>
registration rights with respect to such shares. If such holders, by
exercising their registration rights, cause a large number of shares to be
registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock. See "Shares
Eligible for Future Sale."
Control by Existing Stockholders; Effects of Certain Anti-Takeover
Provisions. Following the completion of this offering, members of the Board of
Directors and the executive officers of the Company, together with members of
their families and entities that may be deemed affiliates of or related to
such persons or entities, will beneficially own approximately 59.9% of the
outstanding shares of Common Stock of the Company. Accordingly, these
stockholders will be able to elect all members of the Company's Board of
Directors and determine the outcome of corporate actions requiring stockholder
approval, such as mergers and acquisitions. Certain provisions of the
Company's Certificate of Incorporation, equity incentive plans, Bylaws and
Delaware law may also discourage certain transitions involving a change in
control of the Company. This level of ownership by such persons and entities,
when combined with the Company's classified Board of Directors and the ability
of the Board of Directors to issue "blank check" preferred stock without
further stockholder approval, may have the effect of delaying, deferring or
preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. See "Management--
Directors and Executive Officers," "Certain Transactions," "Principal and
Selling Stockholders" and "Description of Capital Stock."
Management's Discretion Over Proceeds of the Offering. The primary purposes
of this offering are to create a public market for the Common Stock, to
facilitate future access to public markets and to obtain additional equity
capital. As of the date of this Prospectus, the Company has no specific plans
as to the use of the net proceeds from this offering, other than to repay
approximately $178,000 of outstanding debt; accordingly, the Company's
management will have broad discretion as to the application of such net
proceeds. Pending any such uses, the Company plans to invest the net proceeds
in short-term, investment grade, interest-bearing securities. See "Use of
Proceeds."
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<PAGE>
THE COMPANY
Optika Imaging Systems, Inc. was incorporated in January 1988 in the State
of California. In June 1996, the Company will be reincorporated in the State
of Delaware. References in this Prospectus to "Optika" and the "Company"
include the Delaware corporation, its predecessors and its subsidiaries,
unless otherwise stated or indicated by the context. The Company's principal
executive offices are located at 5755 Mark Dabling Boulevard, Suite 100,
Colorado Springs, Colorado 80919. Its telephone number is (719) 548-9800. The
Company's home page is located at http://www.optika.com on the World Wide Web.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares of
Common Stock offered hereby, after deducting estimated underwriting discounts
and commissions and estimated expenses payable in connection with this
offering, are estimated to be approximately $19,460,000 ($23,505,500 if the
Underwriters' over-allotment option is exercised in full) based on an assumed
public offering price of $10.00 per share. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders. The
principal purposes of this offering are to create a public market for the
Company's Common Stock, to facilitate future access by the Company to public
equity markets and to increase the Company's equity capital. The Company will
use a portion of the proceeds to repay $178,000 in outstanding indebtedness
under a non-interest bearing promissory note in the original aggregate
principal amount of $225,000 issued in settlement of litigation which is due
and payable upon consummation of this offering or in December 1997. The
Company expects to use the balance of the net proceeds for working capital and
other general corporate purposes. A portion of the net proceeds may also be
used for the acquisition of businesses, products and technologies that are
complementary to those of the Company. No transactions of this nature are
planned or being negotiated as of the date of this Prospectus. Pending such
uses, the Company intends to invest the net proceeds from this offering in
short-term investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock and does
not expect to pay cash dividends in the foreseeable future. In addition, the
Company's bank credit agreement currently prohibits the Company from paying
cash dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March 31,
1996: (i) on an actual basis, (ii) on a pro forma basis after giving effect to
the automatic conversion of all outstanding shares of the Convertible Preferred
Stock upon closing of this offering and the assumed effectiveness of the
Company's reincorporation in the State of Delaware and (iii) on a pro forma as
adjusted basis, to reflect the sale by the Company of 2,200,000 shares of
Common Stock offered by the Company hereby at an assumed initial public
offering price of $10.00 and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt(3).......... $ 337 $ 337 $ 225
======= ======= =======
Long-term debt, excluding current portion(3).. $ 357 $ 357 $ 291
------- ------- -------
Mandatorily Redeemable Series A, B and C
Convertible Preferred Stock; no par value,
1,493,024 shares authorized, 1,492,201 shares
issued and outstanding actual; $.001 par
value, no shares authorized, issued or
outstanding, pro forma and pro forma
as adjusted.................................. 4,804 -- --
Common Stockholders' equity (deficit):
Preferred Stock; $.001 par value, 2,000,000
shares authorized, none issued or
outstanding, pro forma and pro forma
as adjusted................................ -- -- --
Common Stock; no par value, 6,320,000 shares
authorized, 2,846,930 shares issued and
outstanding, actual; $.001 par value,
6,320,000 shares authorized, 4,347,394
shares issued and outstanding, pro forma;
$.001 par value, 25,000,000 shares
authorized, 6,547,394 shares issued and
outstanding, pro forma as adjusted(4)...... 805 4 7
Additional paid-in capital.................... -- 5,605 25,062
Accumulated deficit........................... (2,764) (2,764) (2,764)
------- ------- -------
Total common stockholders' equity
(deficit)................................ (1,959) 2,845 22,305
------- ------- -------
Total capitalization.................... $ 3,202 $ 3,202 $22,596
======= ======= =======
</TABLE>
- --------
(1) Gives effect to the conversion of all outstanding shares of the Convertible
Preferred Stock and the assumed effectiveness of the Company's
reincorporation in Delaware. See "Description of Capital Stock."
(2) Pro forma, as provided in footnote (1) above, and as adjusted to reflect
the sale of 2,200,000 shares of Common Stock by the Company at the assumed
initial public offering price of $10.00 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."
(3) See Note 5 of Notes to Consolidated Financial Statements for information
concerning the Company's indebtedness.
(4) Excludes 1,840,546 shares of Common Stock issuable upon exercise of stock
options and warrants outstanding as of March 31, 1996 at a weighted average
exercise price of $1.78 per share, and 686,355 shares of Common Stock
reserved for grant of future options as of March 31, 1996 under the 1994
Stock Plan. Subsequent to March 31, 1996, the Company issued 100 shares of
Common Stock upon the exercise of outstanding options and granted options
to purchase 93,999 shares of Common Stock. In addition, the Board of
Directors adopted, subject to stockholder approval, the Employee Stock
Purchase Plan pursuant to which 250,000 shares of Common Stock were
reserved for issuance. See "Management," "Description of Capital Stock" and
Notes 7 and 10 of Notes to Consolidated Financial Statements.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at March 31, 1996 was
approximately $2,517,000, or $.58 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of the Company's net
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding after giving effect to the conversion of all
outstanding shares of Convertible Preferred Stock into 1,500,464 shares of
Common Stock. After giving effect to the sale of 2,200,000 shares of Common
Stock offered hereby by the Company at the assumed initial public offering
price of $10.00 per share, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the Company's pro forma net tangible book value at March 31, 1996,
would have been $21,977,000, or $3.36 per share. This represents an immediate
increase in net tangible book value of $2.78 per share to the Company's
existing stockholders and an immediate dilution of $6.64 per share to new
investors purchasing shares of Common Stock in this offering. The following
table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of March 31,
1996....................................................... $ .58
Increase per share attributable to the offering............. 2.78
-----
Pro forma net tangible book value per share after the offer-
ing.......................................................... 3.36
------
Net tangible book value dilution per share to new investors... $ 6.64
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the differences in the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by existing stockholders and by new investors at the assumed
initial public offering price of $10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 4,347,394 66.4% $ 5,755,000 20.7% $ 1.32
New investors(1)........... 2,200,000 33.6 22,000,000 79.3 $10.00
--------- ----- ----------- -----
Total.................... 6,547,394 100.0% $27,755,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by existing stockholders to 3,647,394 or approximately
55.7% and will increase the number of shares held by new investors to
2,900,000 or approximately 44.3% of the total number of shares of Common
Stock outstanding after the offering. See "Principal and Selling
Stockholders." In addition, the net effect of the exercise of the
Underwriters' over-allotment option will further reduce the percentage
held by existing stockholders to 52.2% and increase the percentage held by
new investors to 47.8%.
The foregoing tables assume no exercise of outstanding options or warrants.
As of March 31, 1996, there were outstanding stock options to purchase an
aggregate of 1,745,546 shares of Common Stock at a weighted average exercise
price of $1.77 per share, of which 638,704 options were then exercisable. In
addition, there were outstanding warrants to acquire an aggregate of 95,000
shares of Common Stock at a weighted average exercise price of $1.875 per
share, all of which were then exercisable. To the extent that these options or
warrants are exercised, there will be further dilution to new investors. See
"Management--1994 Stock Option/Stock Issuance Plan," "Description of Capital
Stock--Warrants" and Note 7 of Notes to Consolidated Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by
reference to and should be read in conjunction with the Company's 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 selected consolidated financial data set
forth below for the years ended December 31, 1993, 1994, and 1995 and as of
December 31, 1994 and 1995 have been derived from the Company's consolidated
financial statements, which have been audited by Price Waterhouse LLP,
independent accountants, and which are included elsewhere in this Prospectus.
The selected consolidated financial data set forth below for the year ended
December 31, 1992 and as of December 31, 1992 and 1993 have been derived from
audited financial statements not included in this Prospectus. The selected
consolidated financial data for the year ended December 31, 1991 and for the
three-month periods ended March 31, 1995 and 1996 and as of December 31, 1991
and March 31, 1996 have been derived from the unaudited consolidated financial
statements of the Company. The unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the information set forth therein. Operating results for the
three months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the entire year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------
1991 1992 1993 1994 1995(2) 1995 1996
------ ------ ------ ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA(1):
Revenues:
Licenses............... $2,483 $3,531 $6,924 $ 7,562 $ 8,333 $1,567 $2,506
Maintenance and other.. 203 1,240 2,119 1,690 2,135 392 600
------ ------ ------ ------- ------- ------ ------
Total revenues......... 2,686 4,771 9,043 9,252 10,468 1,959 3,106
Cost of revenues:
Licenses............... 196 275 471 413 316 51 131
Maintenance and other.. 131 613 2,073 1,889 1,823 410 387
------ ------ ------ ------- ------- ------ ------
Total cost of
revenues.............. 327 888 2,544 2,302 2,139 461 518
------ ------ ------ ------- ------- ------ ------
Gross profit............ 2,359 3,883 6,499 6,950 8,329 1,498 2,588
Operating expenses:
Sales and marketing.... 634 1,466 2,585 4,200 3,732 671 1,238
Research and
development........... 1,186 1,454 2,332 3,112 3,658 860 1,052
General and
administrative........ 387 845 1,037 1,513 1,461 273 288
------ ------ ------ ------- ------- ------ ------
Total operating
expenses.............. 2,207 3,765 5,954 8,825 8,851 1,804 2,578
------ ------ ------ ------- ------- ------ ------
Income (loss) from
operations............. 152 118 545 (1,875) (522) (306) 10
Other expenses.......... 28 53 476(3) 25 411(3) 15 8
------ ------ ------ ------- ------- ------ ------
Income (loss) before
provision (benefit) for
income taxes........... 124 65 69 (1,900) (933) (321) 2
Provision (benefit) for
income taxes........... 23 104 42 (168) 29 5 --
------ ------ ------ ------- ------- ------ ------
Net income (loss)....... $ 101 $ (39) $ 27 $(1,732) $ (962) $ (326) $ 2
====== ====== ====== ======= ======= ====== ======
Pro forma net income
(loss) per common
share.................. $ (0.20) $(0.07) $ 0.00
======= ====== ======
Pro forma weighted
average number of
common shares
outstanding(4)......... 4,795 4,771 5,586
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------ MARCH 31,
1991 1992 1993 1994 1995(2) 1996
---- ------ ------ ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA(1):
Cash.......................... $163 $ 110 $1,741 $ 771 $ 1,415 $ 831
Working capital............... 362 632 2,151 1,338 1,841 1,851
Total assets.................. 928 2,223 5,102 4,450 6,182 6,091
Long-term debt, excluding
current portion.............. 607 546 353 353 266 357
Convertible preferred stock... -- 411 2,346 3,343 4,804 4,804
Total common stockholders'
equity (deficit)............. (54) 159 213 (1,497) (1,967) (1,959)
</TABLE>
- -------
(1) All financial information reflects the merger of TEAMWorks in January 1994
which was accounted for as a pooling of interests. See Note 2 of Notes to
Consolidated Financial Statements.
(2) In December 1995, the Company purchased certain assets and assumed certain
liabilities from IPRS and Intuit. The results of operations for such
companies are included in the Company's results of operations since the
date of the IPRS/Intuit Acquisition. See Note 2 of Notes to Consolidated
Financial Statements.
(3) During 1993 and 1995, the Company settled certain litigation as discussed
in Note 5 of Notes to Consolidated Financial Statements.
(4) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the calculation of the pro forma weighted average number of
common shares outstanding.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Optika is a leading provider of high-performance, client/server, integrated
imaging software designed to meet the needs of paper intensive industries such
as healthcare, financial services, insurance and large retail organizations.
As a result of growth in its core imaging business, the Company generated
revenues of approximately $4.8 million and $9.0 million during 1992 and 1993,
respectively, and operating income of approximately $118,000 and $545,000.
During 1994, under the direction of its former senior management team, the
Company sought to diversify beyond its core business by entering the market
for lower-end imaging systems by acquiring TEAMWorks. Concurrently, the
Company attempted to enter the market for large customized imaging solutions
by forming a complex imaging group. The Company believed that it could market
the TEAMWorks products to end-users through direct mail and that the complex
imaging group could market large customized imaging solutions to end-users
through a direct sales force. In order to execute this new strategy, the
Company created a direct sales and marketing infrastructure and implementation
team to support the complex imaging group, while maintaining corporate
facilities in both Massachusetts and Colorado to support the TEAMWorks
products. Neither strategy proved to be successful because the TEAMWorks
products did not achieve market acceptance and the Company lacked experience
in selling such products, and the complex imaging group's direct sales force
created conflict in the Company's distribution channels. In addition, issues
associated with the integration of TEAMWorks and other problems led to
significant senior management distraction and delayed the release of new
versions of the Company's core products. As a result of the foregoing factors,
the Company's 1994 revenues increased only 2% to $9.3 million from $9.0
million in the prior year, and the Company incurred an operating loss of $1.9
million. At the end of 1994, under the direction of an interim CEO, the
Company eliminated its direct sales and support infrastructure and dissolved
the complex imaging group.
Commencing in February 1995, under the direction of Mark K. Ruport, its new
President and CEO, the Company replaced a majority of its senior management
team and refocused its sales, marketing and research and development efforts
on its core imaging products. During the first six months of 1995, the Company
also began to develop a decentralized sales staff to support its indirect
distribution channels, eliminated the TEAMWorks infrastructure and focused on
the development of its integrated product suite.
During the second half of 1995 and continuing into 1996, the Company began
to implement a strategy based on extending its technology leadership in open
component-based imaging solutions, integrating its core imaging software
products into the FilePower Suite, strengthening its leveraged distribution
channels, focusing on imaging solutions which scale from workgroups to
enterprises, lowering the total cost of ownership to its customers and
developing the MediPower Suite for the healthcare market. In August 1995, the
Company released the FilePower Suite, its first integrated imaging product
suite. The Company also began to commit substantial resources to strengthen
its leveraged distribution channel of OEMs and BSPs. Sales and marketing
expenses increased from $1.6 million in the first six months of 1995 to $2.1
million during the last six months of 1995, and from $0.7 million in the first
quarter of 1995 to $1.2 million in the first quarter of 1996, an increase of
34% and 85%, respectively. The Company believes that these efforts were
significant factors in its recent revenue growth, including a 59% growth in
total revenues during the first quarter of 1996 from the corresponding prior
period. On an overall basis, revenue increased from $9.3 million in 1994 to
$10.5 million in 1995, an increase of 13%. After experiencing operating losses
in 1994 and the first two quarters of 1995, the Company returned to operating
profitability in the third quarter of 1995 and has achieved an operating
profit in each of the two subsequent quarters. There can be no assurance,
however, that such profitability will be maintained in the future. See "Risk
Factors--History of Losses; Accumulated Deficit; Future Results of Operations
Uncertain," "--Significant Fluctuations in Operating Results" and "--
Management Changes; No Assurance of Succesful Expansion of Operations."
19
<PAGE>
The license of the Company's software products is typically an executive-
level decision by prospective end-users and generally requires the Company and
its BSPs or OEMs to engage in a lengthy and complex sales cycle (typically
between six and twelve months from the initial contact date). The Company
distributes its products through a worldwide network of over 160 BSPs and
three OEMs. For 1995 and the quarter ended March 31, 1996, approximately 89%
and 84%, respectively, of the Company's total revenues were derived from its
BSPs and approximately 11% and 16%, respectively, of its total revenues were
derived from sales by OEMs. In 1995, the Company's top 34 BSPs accounted for
approximately 80% of its total revenues. For the year ended December 31, 1995
and the quarter ended March 31, 1996, the Company generated approximately 15%
and 18%, respectively, of its total revenues from international sales.
The Company's revenues consist primarily of license revenues, which are
comprised of one-time fees for the license of the Company's products, and
maintenance revenues, which are comprised of fees for upgrades and technical
support. The BSPs and OEMs, which are responsible for the installation and
integration of the software, enter into sales agreements with the end-user and
purchase software directly from the Company. The software is licensed directly
to the end-user by the Company through a standard shrink-wrapped license
agreement. Annual maintenance agreements are also entered into between the
BSPs and OEMs and the end-user, and the BSPs and OEMs then purchase
maintenance services directly from the Company. For 1995 and the three months
ended March 31, 1996, approximately 80% and 81%, respectively, of the
Company's total revenues were derived from software licenses and approximately
11% and 15%, respectively, of the Company's total revenues were derived from
maintenance agreements. Other revenues, which are comprised of training,
consulting and implementation services and third-party hardware and software
products, accounted for 9% and 4%, respectively, of the Company's total
revenues.
License revenues are generally recognized upon shipment. License revenues
related to contracts with significant post-delivery performance obligations
are recognized when the Company's obligations are no longer significant or
when the customer accepts the product, as applicable. Maintenance revenues are
deferred and recognized ratably over the maintenance period, which is
generally one year. Other revenues are recognized as services are performed.
Based on the Company's research and development process, costs incurred
between the establishment of technological feasibility and general release of
the software products have not been material and therefore have not been
capitalized in accordance with Statement of Financial Accounting Standards No.
86. All research and development costs have been expensed as incurred. See
Note 1 of Notes to Consolidated Financial Statements.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data of the
Company expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ---------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses...................... 76.6% 81.7% 79.6% 80.0% 80.7%
Maintenance and other......... 23.4 18.3 20.4 20.0 19.3
------- ------- ------- ------ ------
Total revenues.............. 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses...................... 5.2 4.5 3.0 2.6 4.2
Maintenance and other......... 22.9 20.4 17.4 20.9 12.5
------- ------- ------- ------ ------
Total cost of revenues...... 28.1 24.9 20.4 23.5 16.7
------- ------- ------- ------ ------
Gross margin.................... 71.9 75.1 79.6 76.5 83.3
Operating expenses:
Sales and marketing........... 28.6 45.4 35.7 34.3 39.9
Research and development...... 25.8 33.6 34.9 43.9 33.8
General and administrative.... 11.5 16.3 14.0 13.9 9.3
------- ------- ------- ------ ------
Total operating expenses.... 65.9 95.3 84.6 92.1 83.0
------- ------- ------- ------ ------
Income (loss) from operations... 6.0 (20.2) (5.0) (15.6) 0.3
Other expenses.................. 5.3 0.3 3.9 0.8 0.3
------- ------- ------- ------ ------
Income (loss) before provision
(credit) for income taxes...... 0.7 (20.5) (8.9) (16.4) 0.0
Provision (credit) for income
taxes.......................... 0.5 (1.8) 0.3 0.3 0.0
------- ------- ------- ------ ------
Net income (loss)............... 0.2% (18.7)% (9.2)% (16.7)% 0.0%
======= ======= ======= ====== ======
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 TO MARCH 31, 1995
Revenues
Total revenues increased 59% from $2.0 million for the three months ended
March 31, 1995 to $3.1 million for the three months ended March 31, 1996.
Licenses. License revenues increased 60% from $1.6 million for the three
months ended March 31, 1995 to $2.5 million for the three months ended March
31, 1996, representing approximately 80% and 81% of total revenues in their
respective periods. This increase was primarily the result of increased unit
sales of the FilePower Suite, increased international revenues as a result of
the IPRS/Intuit Acquisition and increased revenues from software sales to the
healthcare industry.
Maintenance and Other. Maintenance revenues increased 121% from $208,000
during the three months ended March 31, 1995 to $459,000 for the three months
ended March 31, 1996, representing approximately 11% and 15% of total revenues
in the respective periods. This increase was primarily a result of an increase
in the number of installed systems and the Company's improved tracking and
monitoring of expiring maintenance contracts.
Cost of Revenues
Licenses. Cost of licenses consists of royalty payments to third-party
software vendors, product author commissions, whereby certain of the Company's
software developers are entitled to receive a specified percentage of product
sales, and costs of product media, duplication, packaging and fulfillment. Cost
of licenses
21
<PAGE>
increased from $51,000, or 3% of license revenues, for the three months ended
March 31, 1995 to $131,000, or 5% of license revenues, for the three months
ended March 31, 1996, primarily as a result of increased commissions paid
under the Company's product author program.
Maintenance and Other. Cost of maintenance and other consists of the direct
and indirect costs of providing software maintenance and support, training and
consulting services to the Company's BSPs, OEMs and end-users, and the cost of
third-party software products. Cost of maintenance and other decreased from
$410,000, or 105% of maintenance and other revenues, for the three months
ended March 31, 1995 to $387,000, or 65% of maintenance and other revenues,
for the three months ended March 31, 1996. This decrease was primarily due to
a decreased third-party software component, which has a lower gross profit
margin, in the three months ended March 31, 1996.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and other related expenses for sales and marketing
personnel, marketing, advertising and promotional expenses. Sales and
marketing expenses increased from $0.7 million, or 34% of total revenues, for
the three months ended March 31, 1995 to $1.2 million, or 40% of total
revenues, for the three months ended March 31, 1996. This increase is
primarily attributable to increased staffing for sales and marketing
activities and the opening of six regional sales offices during mid-1995. The
Company anticipates that sales and marketing expenses will continue to
increase in absolute dollars in 1996 as the Company continues to build and
expand its network of BSPs and OEMs.
Research and Development. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, as well as the cost of facilities and equipment. Research and
development expenses increased from $0.9 million, or 44% of total revenues,
for the three months ended March 31, 1995 to $1.1 million, or 34% of total
revenues, for the three months ended March 31, 1996. The increase was
primarily due to increased staffing in order to develop enhancements to the
FilePower Suite and to continue the development of the MediPower Suite. The
Company expects research and development expenses to continue to increase in
absolute dollars in 1996 to fund the development of new products and product
enhancements.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related expenses of administrative, executive
and financial personnel and outside professional fees. General and
administrative expenses increased from $273,000 or 14% of total revenues, for
the three months ended March 31, 1995 to $288,000, or 9% of total revenues for
the three months ended March 31, 1996. The increase was primarily due to
increased staffing and related expenditures. General and administrative
expenses are expected to continue to increase in absolute dollars in 1996 as
the Company expands its staffing to support expanded operations and to comply
with the responsibilities of a public company.
Provision (benefit) for Income Taxes. Income taxes are accounted for in
accordance with Statement of Financial Accounting Standards No. 109. Due to
the Company's history of pre-tax losses and uncertainty surrounding the timing
of realizing the benefits of its favorable tax attributes, the Company has
recorded a valuation allowance against all of its net deferred tax assets as
of March 31, 1996.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994
Revenues
Total revenues increased 13% from $9.3 million in 1994 to $10.5 million in
1995. Revenue growth accelerated from 2% during the first six months of 1995,
compared to the first six months of 1994, to 24% during the last six months of
1995, compared to the last six months of 1994, as the Company began to
implement its new strategy under its new management team.
Licenses. License revenues increased 10% from $7.6 million in 1994 to $8.3
million in 1995, representing 82% and 80% of total revenues in their
respective periods. The increase in license revenues was primarily due to
sales associated with the release of the FilePower Suite in August 1995,
increased sales through indirect distribution channels and increased
international sales in Asia and South America.
22
<PAGE>
Maintenance and Other. Maintenance and other revenues increased 26% from
$1.7 million in 1994 to $2.1 million in 1995, representing 18% and 20% of
total revenues in their respective periods, primarily as a result of an
increase in the number of installed systems and the Company's improved
tracking and monitoring of expiring maintenance contracts.
Cost of Revenues
Licenses. Cost of licenses decreased from $413,000, or 5% of license
revenues, in 1994 to $316,000, or 4% of license revenues, in 1995, primarily
as a result of lower royalty costs on third-party developed software.
Maintenance and Other. Cost of maintenance and other decreased from $1.9
million, or 112% of maintenance and other revenues, in 1994 to $1.8 million,
or 85% of maintenance and other revenues, in 1995, primarily as a result of
the Company's reduction in implementation services associated with the complex
imaging group.
Sales and Marketing. Sales and marketing expenses decreased from $4.2
million, or 45% of total revenues, in 1994 to $3.7 million, or 36% of total
revenues, in 1995, primarily due to the elimination of the complex imaging
group and the sales and marketing infrastructure the Company had built to
market the TEAMWorks products. Sales and marketing expenses increased from
$1.6 million in the first six months of 1995 to $2.1 million during the last
six months of 1995, an increase of 34%, as the Company began to build and
expand its network of BSPs and OEMs.
Research and Development. Research and development expenses increased from
$3.1 million, or 34% of total revenues, in 1994 to $3.7 million, or 35% of
total revenues, in 1995, primarily as a result of additional staff hired in
1995 to develop enhancements to the FilePower Suite and continue the
development of the MediPower Suite.
General and Administrative. General and administrative expenses remained
constant at $1.5 million in 1994 and 1995, representing 16% and 14% of total
revenues, respectively, primarily as a result of the Company discontinuing the
general and administrative functions that were acquired in connection with the
TEAMWorks Acquisition, offset by the costs of restructuring the Company's
senior management team.
Other Expenses. In 1995, other expenses included $373,000 related to the
settlement of outstanding litigation. The expense included settlement costs
and legal fees.
Provision (benefit) for Income Taxes. The Company recognized a tax benefit
of $168,000 in 1994 principally as a result of net operating loss carrybacks.
The Company recognized minimal income tax expense in 1995 resulting from
taxable income in the Company's UK subsidiary. As of December 31, 1995, the
Company's net operating loss carryforwards were approximately $2.3 million and
expire in varying amounts from 2009 through 2010. Additionally, the Company
has various tax credit carryforwards aggregating approximately $341,000, which
expire between 2005 and 2009. The Company's ability to use the net operating
loss carryforwards against taxable income are subject to restrictions and
limitations under the Internal Revenue Code of 1986 (the "Code"), as amended,
in the event of a change of ownership within the meaning of the Code. Due to
the Company's history of pre-tax losses and the uncertainty surrounding the
timing of realizing the benefits of the Company's favorable tax attributes,
the Company has placed a valuation allowance against its net deferred tax
assets. See Note 6 of Notes to Consolidated Financial Statements.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 TO DECEMBER 31, 1993
Revenues
Total revenues increased 2% from $9.0 million in 1993 to $9.3 million in
1994. The significant decrease in the Company's historical revenue growth rate
was primarily due to the effects of the Company's unsuccessful efforts to
diversify outside of its core imaging business.
23
<PAGE>
Licenses. License revenues increased 9% from $6.9 million in 1993 to $7.6
million in 1994, representing 77% and 82% of total revenues in their
respective periods. The increase in license revenues was primarily due to
increased sales volume of the Company's software products.
Maintenance and Other. Revenues from the sale of maintenance contracts and
third-party products decreased 20% from $2.1 million in 1993 to $1.7 million
in 1994, representing 23% and 18% of total revenues in their respective
periods. The decrease was primarily a result of the absence of third-party
hardware products in 1994 which accounted for approximately $600,000 of 1993
revenues.
Cost of Revenues
Licenses. Cost of licenses decreased from $471,000, or 7% of license
revenues, in 1993 to $413,000, or 6% of license revenues, in 1994, primarily
as a result of lower royalty costs on third-party software.
Maintenance and Other. Cost of maintenance and other decreased from $2.1
million, or 98% of maintenance and other revenues, in 1993 to $1.9 million, or
112% of maintenance and other revenues, in 1994, primarily as a result of the
absence of sales of third-party hardware products in 1994, offset by increased
support requirements for the TEAMWorks products and additional staffing in
connection with the formation of the complex imaging group.
Sales and Marketing. Sales and marketing expenses increased from $2.6
million, or 29% of total revenues, in 1993 to $4.2 million, or 45% of total
revenues, in 1994, primarily due to increased expenses associated with the
TEAMWorks products and the buildup of the direct sales and marketing
infrastructure to support the complex imaging group.
Research and Development. Research and development expenses increased from
$2.3 million, or 26% of total revenues, in 1993 to $3.1 million, or 34% of
total revenues, in 1994, primarily as a result of additional development
efforts required to integrate the products acquired in the TEAMWorks
Acquisition with the Company's core products.
General and Administrative. General and administrative expenses increased
from $1.0 million in 1993, or 12% of total revenues, to $1.5 million, or 16%
of total revenues, in 1994, primarily as a result of the increased general and
administrative expenses incurred in connection with the TEAMWorks Acquisition,
including the cost of maintaining duplicative corporate and administrative
functions for a period of six months after the closing of the TEAMWorks
Acquisition.
Other Expenses. In 1993, other expenses included $458,000 related to the
settlement of outstanding litigation. The expense included settlement costs
and legal fees.
Provision (benefit) for Income Taxes. The Company's provision (benefit) for
income taxes was $42,000 in 1993 and $(168,000) in 1994. The provision in 1993
was primarily for foreign taxes, and Company's income tax benefit for 1994
reflects the utilization of operating loss carrybacks and a valuation
allowance recorded against the net operating loss carryforwards generated
during 1994.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain quarterly consolidated results of
operations data for each of the seven quarters ended March 31, 1996, including
such amounts expressed as a percentage of total revenues. This quarterly
information is unaudited, has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
all normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Operating results for any quarter are
not necessarily indicative of results for any future period.
24
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<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH
30, 31, 31, 30, 30, 31, 31,
1994 1994 1995 1995 1995 1995 1996
------ ------ ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Licenses................. $1,592 $2,511 $1,567 $1,877 $2,132 $2,757 $2,506
Maintenance and other.... 359 423 392 597 549 597 600
------ ------ ------ ------ ------ ------ ------
Total revenues........... 1,951 2,934 1,959 2,474 2,681 3,354 3,106
Cost of revenues:
Licenses................. 74 141 51 53 63 149 131
Maintenance and other.... 406 450 410 432 480 501 387
------ ------ ------ ------ ------ ------ ------
Total cost of revenues... 480 591 461 485 543 650 518
------ ------ ------ ------ ------ ------ ------
Gross profit.............. 1,471 2,343 1,498 1,989 2,138 2,704 2,588
Operating expenses:
Sales and marketing...... 1,062 1,011 671 924 893 1,244 1,238
Research and
development............. 718 801 860 921 841 1,036 1,052
General and
administrative.......... 322 392 273 558 297 333 288
------ ------ ------ ------ ------ ------ ------
Total operating
expenses................ 2,102 2,204 1,804 2,403 2,031 2,613 2,578
------ ------ ------ ------ ------ ------ ------
Income (loss) from
operations............... (631) 139 (306) (414) 107 91 10
Other expenses............ 11 14 15 8 6 382 8
------ ------ ------ ------ ------ ------ ------
Income (loss) before
provision (benefit) for
income taxes............. (642) 125 (321) (422) 101 (291) 2
Provision (benefit) for
income taxes............. (52) 28 5 8 6 10 --
------ ------ ------ ------ ------ ------ ------
Net income (loss)......... $ (590) $ 97 $ (326) $ (430) $ 95 $ (301) $ 2
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH
30, 31, 31, 30, 30, 31, 31,
1994 1994 1995 1995 1995 1995 1996
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Licenses................. 81.6% 85.6% 80.0% 75.9% 79.5% 82.2% 80.7%
Maintenance and other.... 18.4 14.4 20.0 24.1 20.5 17.8 19.3
----- ----- ----- ----- ----- ----- -----
Total revenues........... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Licenses................. 3.8 4.8 2.6 2.1 2.3 4.4 4.2
Maintenance and other.... 20.8 15.3 20.9 17.5 18.0 15.0 12.5
----- ----- ----- ----- ----- ----- -----
Total cost of revenues... 24.6 20.1 23.5 19.6 20.3 19.4 16.7
----- ----- ----- ----- ----- ----- -----
Gross margin.............. 75.4 79.9 76.5 80.4 79.7 80.6 83.3
Operating expenses:
Sales and marketing...... 54.4 34.5 34.3 37.3 33.3 37.1 39.9
Research and
development............. 36.8 27.3 43.9 37.2 31.4 30.9 33.8
General and
administrative.......... 16.5 13.3 13.9 22.6 11.0 9.9 9.3
----- ----- ----- ----- ----- ----- -----
Total operating
expenses................ 107.7 75.1 92.1 97.1 75.7 77.9 83.0
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............... (32.3) 4.8 (15.6) (16.7) 4.0 2.7 0.3
Other expenses............ 0.6 0.5 0.8 0.3 0.2 11.4 0.3
----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision (benefit) for
income taxes............. (32.9) 4.3 (16.4) (17.0) 3.8 (8.7) 0.0
Provision (benefit) for
income taxes............. (2.7) 1.0 0.3 0.3 0.2 0.3 0.0
----- ----- ----- ----- ----- ----- -----
Net income (loss)......... (30.2)% 3.3% (16.7)% (17.3)% 3.6% (9.0)% 0.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
To achieve its quarterly revenue objectives, the Company depends upon
obtaining orders in any given quarter for shipment in that quarter. Product
orders are typically shipped shortly after receipt, and consequently, order
backlog at the beginning of any quarter has in the past represented only a
small portion of that quarter's revenues. Furthermore, the Company has often
recognized most of its revenues in the last month, or even weeks or days, of a
quarter. Accordingly, a delay in shipment near the end of a particular quarter
may cause revenues in a particular quarter to fall significantly below the
Company's expectations and may materially adversely affect the Company's
operating results for such quarter. Conversely, to the extent that significant
revenues occur earlier than expected, operating results for subsequent
quarters may fail to keep pace with results of previous quarters or even
decline. The Company also has recorded generally lower sales in the first
quarter than in the immediately
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<PAGE>
preceding quarter, as a result of, among other factors, end-users' purchasing
and budgeting practices and the Company's sales commission practices, and
expects this pattern to continue in future years. To the extent future
international operations constitute a higher percentage of total revenues, the
Company anticipates that it may also experience relatively weaker demand in
the third quarter as a result of reduced sales in Europe during the summer
months. A significant portion of the Company's expenses are relatively fixed
in the short term. Accordingly, if revenue levels fall below expectations,
operating results are likely to be disproportionately adversely affected
because a proportionately small amount of the Company's expenses varies with
its revenues. As a result of these and other factors, the Company believes
that its quarterly operating results will vary in the future and period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance.
Furthermore, due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through cash
generated from operations, private sales of preferred stock totaling $4.8
million, equipment lease financings and periodic borrowings under its credit
facilities. At March 31, 1996, the Company had approximately $831,000 in cash.
Cash used in operating activities was $1.3 million and $127,000 in 1994 and
1995, respectively, and $662,000 for the three months ended March 31, 1996.
The Company generated cash from operations of $9,000 in 1993.
Cash used in investing activities was $72,000, $158,000 and $208,000 in
1993, 1994 and 1995, respectively. During the three months ended March 31,
1996 the Company used cash of $179,000 in investing activities. Uses of cash
consisted solely of purchases of property and equipment, partially offset by
cash acquired in the IPRS/Intuit Acquisition.
Cash provided from financing activities was $1.7 million, $0.5 million and
$1.0 million in 1993, 1994 and 1995, respectively. Cash provided from
financing activities was $257,000 for the first three months of 1996. Cash
from financing activities resulted primarily from private sales of preferred
stock, and proceeds from and repayments of bank borrowings and capital leases.
At March 31, 1996, the Company's principal sources of liquidity included
cash of $831,000 and a secured bank credit facility of $1.5 million. This bank
credit facility consists of a working capital line of credit pursuant to which
the Company can draw up to the lesser of $1.2 million or a borrowing base
determined by eligible accounts receivable which bears interest at the bank's
prime rate plus 1.5%, and a term facility of $0.3 million to finance capital
expenditures, which bears interest at the bank's prime rate plus 2.0%. At
March 31, 1996, there were no amounts outstanding under the working capital
line and $1.2 million was available for borrowing thereunder. Pursuant to the
term facility, $171,000 was outstanding. The bank credit facility is secured
by all of the Company's assets including its intellectual property. The term
facility is repayable in 30 equal installments of principal and accrued
interest commencing July 1996. In addition, the Company has outstanding a two-
year secured note with a principal balance of $293,000 at March 31, 1996,
bearing interest at 10.75%. The Company is in the process of renegotiating the
terms of the working capital line, which currently expires in June 1996. See
Note 4 of Notes to the Consolidated Financial Statements.
As of March 31, 1996, the Company also had outstanding approximately
$178,000 in indebtedness under a non-interest bearing promissory note in the
original aggregate principal amount of $225,000 which was issued in settlement
of litigation. A portion of the net proceeds of this offering will be used to
repay this note in full. See "Use of Proceeds."
The Company's principal commitments consist of leases on its office
facilities and obligations under its bank credit facility. The Company
currently has no material commitments for capital expenditures. The Company
believes that the net proceeds from this offering, together with anticipated
cash flow from operations and its bank credit facility, will be sufficient to
meet its working capital and capital expenditure requirements for at least the
next 12 months. Depending on the Company's future growth and acquisitions, if
any, it may become necessary to secure additional sources of financing before
or after such time period.
26
<PAGE>
BUSINESS
Optika is a leading provider of high-performance, client/server, integrated
imaging software designed to meet the needs of paper intensive industries such
as healthcare, financial services, insurance and retail. The Company's
FilePower Suite is comprised of server software, which provides core imaging
functions, application software for document image management, COLD and
automated workflow transaction processing and associated development tools.
The FilePower Suite is easy to install, use and integrate with end-users'
existing information systems, and is designed to be deployed at the
departmental or workgroup level and then scale throughout the enterprise. The
Company believes that the FilePower Suite enables end-users to reduce costs,
improve operational productivity and enhance customer service. According to
industry sources, the Company is one of the leading providers of imaging
solutions to the healthcare industry, based on over 65 installations of the
FilePower Suite. The Company is seeking to capitalize on the success of the
FilePower Suite in the healthcare industry through the development of the
MediPower Suite which is designed to enable hospitals and other healthcare
organizations to manage large amounts of patient related documents. The
MediPower Suite incorporates document image management, COLD and automated
workflow transaction processing technologies and is designed to provide fast
and efficient access to patient information from workstations located
throughout the enterprise, including the point of patient care.
INDUSTRY BACKGROUND
The Document Image Processing Industry
Document image processing systems allow documents to be electronically
stored, retrieved and routed and generally include the following five basic
functions: (i) document capture, (ii) optical storage, (iii) retrieval and
display, (iv) document management and (v) workflow. Document capture is the
conversion of paper documents into images and generally includes batch
preparation, scanning, image enhancement, quality assurance and indexing of
images to long-term storage, including optical disks, CD-ROM and magnetic
media. Optical storage is the storage of images on optical drives and
jukeboxes and includes platter management, volume management and hierarchical
storage management. Retrieval and display is the retrieval of document images
via either standard searches (using the indices stored during capture) or
full-text indexing for display, annotation and routing. Document management is
the centralized management and administration of large volumes of documents
and typically provides a file cabinet and file folder metaphor for retrieving
documents. Workflow is the automation of routine work processes, usually by
automatic routing of images as a replacement for manual routing of paper.
For paper intensive industries, such as healthcare, financial services,
insurance and retail, electronic document image processing offers several
advantages over paper or microfilm, including: (i) faster and easier file
access, because document images are located and retrieved by entering a few
key-words into a computer database rather than by searching through file
cabinets for paper folders or microfilm, (ii) fewer misfiled documents,
because database software is used to track the location of document images,
(iii) concurrent file access, since multiple users have the ability to access
a document simultaneously, (iv) remote distribution and access, because
document images are easily transmitted to standard facsimile equipment or
remote computer terminals over commercial telephone lines, and (v) less
expensive storage, because electronic storage generally requires less floor
space and clerical overhead than paper-based storage, thereby reducing overall
document storage costs. Once documents have been converted to an electronic
format, they can be automatically routed from one workgroup or task to
another. By implementing the automated workflow approach, companies can
improve operating efficiencies compared to traditional paper-based document
processing tasks. Several typical uses of document imaging systems include:
Patient Records Management. The effectiveness of many existing healthcare
information systems is limited because many aspects of a patient's medical
record are on paper and may be located in several different departments or at
off-site storage facilities. Hospitals and other healthcare providers can use
imaging solutions to
27
<PAGE>
create a respository for a patient's complete medical record, including paper-
based documents, such as doctors' orders and notes, consent forms and progress
notes, and computer generated information, such as lab reports, transcriptions
and patient demographics. In addition, medical images, such as X-rays and CAT
scans, may be stored on the system. The availability of timely and complete
patient information can enable healthcare providers to control costs while
improving the quality of patient care.
Insurance Claim Processing. Insurance companies use document imaging systems
to speed claim processing. Documents associated with the claim are imaged and
indexed, so that a service representative can retrieve the documents quickly
when a customer calls, rather than having the documents delivered and calling
the customer back. This can resolve claims more quickly and improve customer
service.
Loan Processing. Loan processing at financial institutions usually involves
a large folder of documents that must be approved by many departments, a
process that can take several weeks when done manually. By implementing
document imaging, loan documents can be routed electronically to multiple
departments, including remote offices, and approvals can be collected more
quickly, increasing the institution's operating efficiencies.
Accounts Payable Processing. Accounts payable processing for retailers and
distributors with multiple geographic locations and high transaction volumes
usually involves a large number of paper-based steps and significant costs for
document storage. Imaging solutions permit accounts payable personnel to
access invoices, purchase orders and related documents from their desktop
computers and can significantly reduce the number of costly paper-based steps.
The growth of the market for document image processing systems is being
driven by: (i) improved price/performance characteristics of client/server
distributed computing systems which have provided increased computing power at
the desktop and higher bandwidth LANs and WANs, (ii) the widespread deployment
of client/server computing systems connected to an infrastructure of LANs and
WANs and (iii) increased competitive pressures for businesses to improve
productivity and reduce costs, especially in paper-intensive industries. The
production segment of the document imaging market includes applications that
handle large volumes of paper and perform structured business functions such
as patient records management, insurance claim processing, loan processing and
accounts payable processing. According to a study by BIS Strategic Decisions,
the software component of the production imaging segment has grown from
approximately $264 million in 1993 to approximately $366 million in 1995 and
is projected to grow to approximately $682 million by 1998.
The Evolution of Document Imaging Technology and Systems
In the mid-1980s, the first generation of document image processing systems
was introduced. The hardware components of these systems included optical
scanners, optical disks and digital compression technologies which provided
the technological foundation for processing and managing paper documents in
image form. These early systems employed proprietary minicomputer
architectures and closed, proprietary software and were sold by direct sales
organizations to address high-end production applications. These systems
generally required a significant amount of custom integration before they
could interface with the customer's existing legacy systems. The first
generation systems were typically priced in excess of $1 million.
Commencing in the early 1990s, the market for enterprise-wide computing
systems used by large commercial organizations has undergone a significant
transformation as advances in hardware, software and networking technologies
have led to a shift from mainframe and other "host-based" computer
architectures to networked, client/server architectures in which computing
tasks are distributed among numerous computers throughout the network. The
flexibility, computing power and cost-effectiveness of distributed processing
in an open systems environment has encouraged numerous large organizations to
move many mission-critical computer applications to client/server systems from
mainframes. In particular, the widespread adoption of client/server computing
systems has significantly reduced the investment required to install,
implement and operate mission-critical imaging and workflow applications. Most
client/server production imaging systems are currently based on UNIX operating
systems. However, a 1996 IDC study predicts that while shipments of UNIX
servers will grow from 462,000 in 1994 to 766,000 in 1998, a 13% annual growth
rate, shipments of Windows NT servers will grow from 115,000 in 1994 to
1,170,000 in 1998, a 79% annual growth rate, challenging UNIX
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<PAGE>
as the leading server software. Windows NT operating systems are expected to
experience significant growth due to the large installed base of Windows NT-
ready personal computers, its user friendliness and its relatively low user
cost compared to the cost of UNIX systems. With the emergence of Windows NT-
based operating systems, an alternative technological infrastructure to UNIX
is now in place to offer high performance imaging systems using standard
desktop hardware and software which can be installed and integrated in weeks
or months.
Certain challenges facing the healthcare industry illustrate the market
potential for client/server based imaging solutions. Competition and cost-
containment measures imposed by governmental and private payors have created
substantial pressures on healthcare providers to control healthcare costs
while providing quality patient care. At the same time, the healthcare
delivery system is experiencing a shift from a highly fragmented group of non-
allied healthcare providers to integrated delivery networks which combine
payors, hospitals, and out-patient facilities, products and equipment
necessary to address the needs of healthcare customers. Traditional healthcare
information systems have proven to be inadequate because (i) they do not
capture large amounts of paper-based records which are stored in various sites
throughout the enterprise, (ii) they have difficulty sharing computerized
patient data which have been generated using disparate systems and (iii) they
cannot access medical images such as X-rays and CAT scans at the point of
care. In order to address these concerns, hospitals and other healthcare
providers are demanding comprehensive, cost-effective information systems that
deliver rapid access to a fully updated and complete computer-based patient
record ("CPR"). While healthcare information system ("HCIS") vendors have made
progress integrating many of the components necessary to construct a CPR, a
complete CPR must also contain all current and historical patient information
and information generated and stored outside of the local computer network.
Document imaging and COLD technologies are essential elements of a CPR because
they allow paper-based documents, computer generated information and medical
images to be stored, accessed and delivered to the provider at the point of
patient care. Hospitals and other healthcare providers are increasingly
seeking integrated imaging systems with a standards-based architecture and
custom interfaces designed to accept current medical interface formats to
increase productivity, reduce costs of administration and increase cash flow.
Other paper intensive industries face cost containment and productivity
challenges similar to those confronting the healthcare industry. An increasing
number of companies in these industries are seeking cost-effective image
processing solutions that leverage their existing technological investments.
THE OPTIKA SOLUTION
Optika has developed the FilePower Suite of integrated client/server imaging
software comprised of server software, which provides core imaging functions,
application software for document image management, COLD and automated
workflow transaction processing and associated development tools. The Company
believes that the FilePower Suite enables end-users to reduce costs, improve
operational productivity and enhance customer service. The Company's
integrated imaging software combines image management, advanced workflow
processing and COLD into a single component-based application. The FilePower
Suite is designed to provide the following key benefits:
Rapid Installation and Ease of Use. The FilePower Suite is contained on a
single compact disk ("CD") which includes on-line documentation and on-line
help, and is designed for push-button installation and rapid integration into
the end-user's existing information system. The Company's products offer a
convenient user interface so that users can move easily between imaging,
workflow and COLD applications as well as other graphical applications. The
FilePower Suite uses common viewing technology for the integrated products
that allows end-users to work with a common environment to manage all of the
folder-based data in the imaging and COLD systems. Standard programming
languages can be used to integrate existing information systems and other
management information technologies with the FilePower Suite.
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<PAGE>
Enterprise-Wide Scalability. The Company's products can be deployed via LANs
and WANs, and are designed for enterprise-wide scalability throughout large
organizations. Thus, organizations can deploy solutions that meet the needs of
workgroups and departments and can later scale across an entire enterprise.
Small workgroups can take advantage of enterprise functionality such as volume
input and storage, disaster recovery and security while large enterprises can
implement systems based on departmental return on investment calculations.
Compatibility with Heterogeneous Computing Environments. Since inception,
the Company's products have been designed to operate on Windows-based
platforms. The Company's software products currently operate on a variety of
open computing platforms, including Windows 3.x, Windows 95 and Windows NT on
the client desktop, Windows NT and Novell Netware as servers and UNIX for SQL
database support. The Company's products also operate on many common hardware,
software and database platforms, including SQL databases from Oracle, Sybase
and Microsoft. Because different types of data can be accessed from a variety
of platforms without the need for reformatting, the Company's products can be
deployed in an enterprise which has heterogeneous platforms without
necessitating a restructuring of the organization's existing computing
environment.
Ease of Customization and Extension. The open client/server architecture of
the Company's products enables end-users to customize the software for
industry-specific vertical applications which can then be integrated into
existing computing environments through a custom user interface. The Company's
network of BSPs and OEMs are able to build industry-specific customized
applications which interoperate with the Company's open, component-based
software using Microsoft's Object Linking and Embedding ("OLE") and Open
Database Connectivity standards. The MediPower Suite is an example of a
customized application being developed by the Company based on the FilePower
Suite.
According to industry sources, the Company is one of the leading providers
of imaging solutions to the healthcare industry, based on over 65
installations of the FilePower Suite. The Company is seeking to capitalize on
the installed base of the FilePower Suite in the healthcare industry through
the development of the MediPower Suite. The MediPower Suite is designed to (i)
capture and store electronic data from disparate hospital information systems
through real-time, computerized interfaces, (ii) provide applications for
efficiently scanning and automatically indexing paper-based records, (iii)
facilitate the storage of digitized medical images such as X-rays and CAT
scans, (iv) allow storage of a patient's lifetime medical record on low cost
optical disks, (v) enable workflow re-engineering of business processes and
(vi) incorporate user-oriented interfaces that allow the provider to easily
locate and retrieve patient information in the hospital or clinical setting.
The following are examples of end-user applications of the Company's
products. The benefits achieved by the following end-users will not
necessarily be achieved by every end-user.
Healthcare: A 500-bed hospital with two facilities in Kentucky was
experiencing significant growth in out-patient volumes and associated billing
and cash collection processing, and wanted an imaging solution that would
streamline the patient intake function and ultimately create a complete CPR
for its physicians. In conjunction with one of its BSPs, the Company installed
the FilePower Suite and is currently in the process of installing the
MediPower Suite at the end-user's site to provide medical records and patient
billing document storage, workflow processes for patient billing and chart
completion, auto-indexing of documents, bursting and filing of reports from
existing healthcare information systems and automated bulk remittance
processing. Three of the seven software modules included in the MediPower
Suite have been installed and are currently operational at the end-user's
facilities.
Financial Services: A leading financial services firm needed to automate its
post-loan closing process at one of its three U.S. service centers. Prior to
the installation of the FilePower Suite, this process consisted of 155 total
steps, 22 of which were manual decisions and 109 of which were paper-based,
including mail, setup, audit, assignment, copying and filing. In conjunction
with one of its BSPs, Optika installed and integrated the FilePower Suite with
the end-user's existing legacy system in under 90 days. Following the
installation of the
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<PAGE>
FilePower Suite, the number of paper-based steps and the total number of steps
were each reduced by over 50%, providing significant productivity
improvements. The Company is currently in the process of installing the
FilePower Suite at the end-user's second U.S. service center and two
international service centers.
Banking: A leading U.S. financial institution sought to improve the quality
of customer service provided by its Sioux Falls, South Dakota operations
center which managed the customer service operations of 40 banks and to reduce
the space required to store paper-based files such as account applications,
powers-of-attorney, signature cards and correspondence. In conjunction with a
local BSP, the Company installed the FilePower Suite to enable customer
service employees at the operations center to store and retrieve customer
information formerly contained in paper-based files from their desktop
computers. Following the installation of the Company's software, the average
time that a bank has had to wait for information from the operations center
has been reduced from an average of 3.5 minutes to under one minute, hundreds
of square feet of storage space has been reduced to 40 square feet, and the
end-user has been able to reduce the number of customer service employees at
the operations center by approximately 30%.
Retail: A leading membership warehouse with over 240 membership warehouses
in the United States, Canada, Mexico and the United Kingdom needed to reduce
the paperwork associated with its accounts payable processing system. The end-
user expected that, by 1996, in the absence of an imaging solution, accounting
documents would exceed 9 million pages per year. In conjunction with one of
its BSPs, the Company installed FPmulti and FPreport to provide the end-user
with the ability to assemble and access proof of shipment, purchase orders and
invoices on-line, resulting in cost savings in excess of $7 million over a
five-year period as well as improved customer service through faster and more
reliable access to documents.
STRATEGY
Optika's objective is to be the leading worldwide supplier of high-
performance client/server, integrated imaging software designed to meet the
needs of paper-intensive industries. The Company's strategy includes the
following key elements:
Extend Technology Leadership. The Company intends to extend its position as
a technology leader in developing and marketing open architecture,
client/server, integrated imaging, COLD and workflow software products. The
Company believes that Windows NT will challenge UNIX as a leading imaging and
workflow server operating system over the next several years and intends to
maintain and extend its leadership position in developing imaging software to
support Windows NT operating environments. The Company plans to introduce
enhancements to its FilePower Suite and vertical market applications which are
complementary to the FilePower Suite, such as the MediPower Suite. The Company
also may seek to acquire complementary technologies and products both to
enhance the features and functionality of its existing products and to add new
products. The Company is developing intranet and Internet applications for its
imaging, COLD and workflow technologies.
Continue to Develop Leveraged Distribution Model. The Company intends to
continue to strengthen its network of BSPs and OEMs in targeted domestic and
international markets. BSPs are an integral part of the Company's distribution
strategy because they are responsible for identifying potential end-users,
selling the Company's products to end-users as part of a complete hardware and
software solution, customizing and integrating the Company's products at the
end-user's site and supporting the end-user following the sale. The Company's
strategy is to target its marketing activities toward its most productive BSPs
and recruit additional BSPs in key geographical and vertical markets. OEMs
also are an integral part of the Company's distribution strategy because they
generally have a higher sales volume and require considerably less post-sales
support than the Company's BSPs. The Company currently has OEM relationships
with Lanier Worldwide, Inc. ("Lanier"), Alltel Healthcare Information
Services, Inc. ("Alltel") and Anacomp, Inc. ("Anacomp") and is actively
seeking to develop additional OEM relationships.
Focus on Scalable Solutions. The Company has designed its products to scale
from workgroups and departments to large enterprises. The Company believes
that initial end-user success with its software is an
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<PAGE>
essential factor in the end-user's decision to deploy the software throughout
the enterprise. The Company believes that migrating end-users from initial
departmental usage to enterprise-wide deployment provides additional sales
opportunities within its existing end-user installed base. Optika also intends
to integrate its software with Lotus Notes and its workflow application
software with Microsoft Exchange client software.
Lower Cost of Ownership. The Company's intends to continue to enable end-
users to leverage their investment in their existing infrastructure of
heterogeneous hardware, software and database systems through the open
architecture of it software products. The Company believes that end-users,
BSPs and OEMs can reduce programming costs by using Optika's application
programming interface ("API") or by employing the integration methods in OLE.
Because the Company's products can be initially deployed at the workgroup
level, end-users can deploy a limited number of copies of Optika's software as
required to meet their immediate needs, and then receive preferential pricing
as they scale to a larger number of users.
Capitalize on Healthcare Opportunity. Due to the size of the FilePower
Suite's installed base in the healthcare industry, the Company has formed a
dedicated Healthcare Division to develop and market the MediPower Suite as a
comprehensive software solution tailored to this industry. Key elements of the
Company's healthcare strategy include completing the development of the
MediPower Suite, recruiting additional BSPs, OEMs and sales and marketing
personnel focused on healthcare, and expanding sales of its imaging products
to other healthcare organizations, including health maintenance organizations
and home healthcare providers. The Company intends to develop additional
applications for other vertical markets, such as financial services, in the
future.
PRODUCTS
The Company's core products are the FilePower Suite, a suite of high-
performance, client/server, integrated imaging software products which perform
all five basic imaging functions, and the MediPower Suite, a suite of
integrated document imaging and computer report processing applications for
managing medical records and business office applications. The Company's
products run on a variety of open computing platforms, support standard
graphical operating systems and can be deployed across enterprises through
LANs and WANs.
FILEPOWER SUITE
In August 1995, the Company released the FilePower Suite on a single, easy-
to-use CD which simplifies system installation and configuration. The
FilePower Suite consists of a client domain, development tools and a server
domain. The client domain includes document image management, COLD and
workflow software applications while the server domain provides an extensive
set of core imaging services. API development tools included on the CD enable
third-party developers to build a variety of applications tailored to specific
industries. Electronic business documents and COLD pages can be stored in
folders along with document images, which are managed by the FilePower server
software. The FilePower Suite allows users to view and manipulate many
disparate document types without launching separate applications.
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<PAGE>
[GRAPHICAL REPRESENTATION OF COMPONENTS OF
FILEPOWER ARCHITECTURE APPEARS HERE]
Client Domain
FPmulti. FPmulti, the Company's image management product, provides a
comprehensive solution for managing scanned images of paper documents,
facsimiles and computer-generated reports, as well as data files created by
common Windows-based application software. FPmulti accesses the tools
necessary to capture, view, file, store, retrieve, share, print and fax
documents. FPmulti utilizes industry-standard SQL databases to manage the
index information for scanned documents, computer reports and electronic files
created by other office applications.
FPreport. FPreport, the Company's COLD product, is a near-line information
solution for the capture, optical storage, management and retrieval of
mainframe and minicomputer generated reports as an alternative to paper or COM
(computer output to microfilm/fiche). FPreport captures computer data from
mainframes, minicomputers and personal workstations to be formatted, indexed,
compressed and stored on optical disk. It also provides users with an
interface for designing and selecting the fields that will be indexed for
future retrieval needs. FPreport is able to store hundreds of thousands or
millions of computer report pages on an optical disk using compression
techniques.
PowerFlow. PowerFlow is a client/server work management system that provides
independent workflow services, process-based and ad hoc routing, and a
platform for integrating third-party applications and data into the workflow
process. All management and administration for the system (for example,
designing workflow process maps and, producing management reports) is
accomplished graphically and without programming or scripting. The resulting
process definitions are used as an electronic "road map" for automatically
routing documents, initiating task assignments and triggering automated
processes such as printing, faxing or updating. In addition, an administration
tool allows supervisory personnel to monitor and manage work processes and
resources on a continuous basis.
WorkBooks and WebBooks. Optika WorkBooks enables copies of documents stored
in a FilePower application to be placed in a "container" that can be e-mailed
via Lotus Notes, Microsoft Exchange, corporate
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<PAGE>
e-mail systems and similar systems throughout the enterprise. WebBooks, the
Company's first product being developed for intranets and the Internet, will
use WorkBook technology to allow users to collect information from an Optika
system, encrypt it, and transmit it over intranets and the Internet with a
high level of security.
Development Tools and Connectivity
FilePower integration and development tools include a set of APIs and an OLE
automation and control layer (collectively, "FPengine"). FPengine consists of
a powerful collection of advanced functions designed to simplify the
complexity of image-enabling, including optical disk management, OCR, full
text indexing, high-speed image printing and faxing and image display and
manipulation. FPengine provides a comprehensive solution for integrating
imaging, COLD and workflow functionality with most existing applications.
FPengine can be used by third-party developers with standard development tools
including Visual Basic, C/C++ and PowerBuilder and other programming
environments to image-enable legacy applications and to invent custom document
imaging solutions or create value added enhancements to the core FilePower
family of products by integrating other information management technologies.
Server Software Domain
The server software included in the FilePower Suite provides a number of
core image management functions. FPdisc facilitates the retrieval and storage
of documents and images. The FPdisc Server acts as the system's near-line,
storage for data files, documents, computer reports and images. FPdisc Server
is the foundation of the Optika image and work management systems and support
numerous high-capacity storage subsystems such as optical media and CD-ROM.
FPprint and FPfax provide hard-copy replication, electronic transmission and
reception of documents and images. FPenhance improves the quality of scanned
images by applying complex mathematical algorithms to the image. These
enhancement functions serve to improve the shape and readability of the
characters on the scanned image, resulting in higher accuracy for the optical
character recognition process performed by the FilePower Optical Character
Recognition Server ("FPocr"). The FilePower Transaction Processing Systems
("FPtransact") are companion servers that perform batch processing of work
generated by external systems. The FPtransact product line includes batch
processing capabilities for FPmulti and PowerFlow, and the SQL database
structures for FPmulti and PowerFlow.
MEDIPOWER SUITE
The Company is currently developing the MediPower Suite, an integrated
patient accounting and medical records software suite designed to enable
hospitals and other healthcare organizations to manage large amounts of
patient related documents. The MediPower Suite, which utilizes the FilePower
server software and associated development tools, is designed to provide fast
and efficient access to patient information from workstations located
throughout the enterprise, including the point of patient care. The MediPower
Suite integrates and improves on the traditional paper-handling associated
with patient care and is designed to address initial patient scheduling, in-
patient, out-patient or emergency department treatment, medical chart
completion, billing, follow-up and remittance posting. The MediPower Suite
will integrate with HCIS systems to automatically establish computer-based
patient records. Additionally, the MediPower Suite will provide a customized
medical viewer and configurable workflow processes. To date, five of the seven
software modules in the MediPower Suite have been developed and the remaining
two modules are under development. See "Risk Factors--Risks Associated with
the MediPower Suite."
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<PAGE>
[GRAPHICAL REPRESENTATION OF COMPONENTS OF
MEDIPOWER SUITE APPEARS HERE]
The following are key aspects of the MediPower Suite:
MPregister. MPregister uses pen-pads and low-cost desktop scanners at the
registration desks to reduce or eliminate the creation of paper at the time of
patient registration. Patients review, complete and electronically sign
various forms which are then automatically placed in the patient's electronic
folder.
MPviewer. MPviewer is the fundamental interactive viewing tool for medical
charts and folders as well as records in the business office. It is used
throughout the MediPower Suite and displays scanned documents, medical images,
formatted pages from downloaded computer reports, as well as most word
processing, spreadsheet and other personal computer-type files. MPviewer
features folder-style tabs to access documents within sections of a chart or
billing folder, and can be personalized for individual users.
MPchart. MPchart combines sophisticated rule-based workflow with a simple
graphical interface for chart completion and enables doctors or other
authorized personnel to electronically sign individual documents. MPchart
supports assignment and re-analysis of deficiencies and interfaces with the
hospital's existing third-party deficiency tracking software to form a secure,
comprehensive and versatile completion system.
MPbridge. MPbridge uses the healthcare industry's "HL-7" communication
standard to interface with the hospital's admission, discharge and transfer
system for automatic folder creation/maintenance, as well as automatic
retrieval of documents from prior visits into high speed magnetic disk cache.
MPindex. MPindex is a configurable, extensible workflow system for scanning,
auto-indexing and filing all types of medical records, financial documents,
and correspondence. It combines technologies such as image enhancement, bar-
code recognition, OCR and mark sense with a streamlined user interface for
document quality control, exception handling, and re-scanning.
MPacquire. MPacquire, which is currently under development, is a family of
servers which capture, process and import documents created by other data
processing systems within the hospital. Transcriptions, lab reports, bills and
other documents can be filed electronically without the need for scanning
paper.
MPremit. MPremit, which is currently under development, is an automated
system for the scanning and processing of bulk remittances. MPremit applies
business rules based on the hospital and the specific payor to calculate
payment and adjustment amounts, and posts these transactions to the hospital's
financial system.
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<PAGE>
SALES AND MARKETING
Sales
Optika employs a two-tiered leveraged sales model consisting of a worldwide
network of 160 BSPs and three OEMs. Optika also has a Major Accounts team
which supports its BSPs. Sales from BSPs and OEMs accounted for 89% and 11%,
respectively, of the Company's revenues for the year ended December 31, 1995,
and 84% and 16%, respectively, for the three months ended March 31, 1996. See
"Risk Factors--Reliance on Indirect Distribution Channels; Potential for
Channel Conflict."
Business Solutions Partners. Business Solutions Partners or BSPs are VARs
which are responsible for identifying potential end-users, selling the
Company's products to the end-users as part of a complete hardware and
software solution, customizing and integrating the Company's products at end-
users sites and providing support and maintenance to the end-users following
the sale. The Company's BSPs currently include large organizations selling a
wide variety of products, smaller organizations focused on imaging,
application-oriented organizations and geographically-focused organizations.
The Company establishes relationships with BSPs through written agreements
which establish a price at which the BSP is eligible to purchase the Company's
software for resale to end-users, the maintenance fee revenues which must be
remitted back to the Company and other material terms and conditions. Such
agreements generally do not grant exclusivity to the BSPs, do not prevent the
BSPs from carrying competing product lines and do not require the BSPs to sell
any particular dollar amount of the Company's software, although the contracts
may be terminated at the election of the Company if specified sales targets
and end-user satisfaction goals are not attained. Actual sales contracts are
between the BSPs and the end-users, although the end-user directly licenses
the software from the Company through acceptance of a standard shrink-wrapped
license agreement. The BSPs remit the proceeds of software sales and
maintenance fees directly to the Company following the sale to the end-user.
The Company supports its BSPs through dedicated personnel at its headquarters
in Colorado Springs and a network of seven field offices. Services range from
joint marketing efforts and assistance with pricing and proposals to technical
product support.
The Company's strategy is to target its marketing activities toward its most
productive BSPs and recruit additional BSPs in key geographic and vertical
markets. The Company's "Eye on Partnership" and "Affiliate Company" programs
are crucial elements of this strategy. The Eye on Partnership program is
designed to promote long-term relationships between the Company and its BSPs
by awarding silver, gold and platinum status to BSPs based on their sales,
training and customer service achievements. This program includes extended
support and free training, as well as marketing assistance with seminars,
programs and co-op marketing funds. The Affiliate Company program is designed
to create a partnership between the Company and its most productive BSPs and
provide additional incentives to encourage them to promote the Company's
products. Affiliate Companies agree not to carry competing products and
receive territorial rights (although not exclusivity), concentrated marketing
efforts from the Company and additional support from the Company's Major
Accounts team.
OEMs. The Company has also established relationships with three OEMs who
resell the Company's software under their names to their end-user customers as
part of their own imaging software solution. Unlike the Company's BSP
relationships, the OEMs actively compete with the Company and its BSPs. The
Company's current OEM relationships include Lanier (imaging and COLD), Alltel
(healthcare) and Anacomp (COLD). Optika's OEM agreements establish a price at
which the OEM is eligible to purchase the Company's software for resale to its
customers, and the maintenance fees received by the OEM to be remitted back to
Optika. OEMs generally have a higher sales volume and require considerably
less post-sale support than the Company's BSPs. The Company's strategy is to
continue to recruit OEMs in key vertical markets such as healthcare and
financial services.
Major Accounts. The Company's Major Accounts team focuses on developing
relationships with large corporate end-users with multiple geographic
locations. The Major Accounts team initiates contact directly with
36
<PAGE>
the end-user, but relies heavily on the Company's BSPs to provide installation
and integration services at the end-user's site and provide end-user support
and maintenance following sales. For sales originated by the Major Accounts
team, the end-user enters into a contract directly with the Company, and the
Company sub-contracts and coordinates installation and support activities with
the BSPs.
International Sales
The Company believes that a significant opportunity exists to increase
international sales of its integrated imaging software products. For the year
ended December 31, 1995 and the quarter ended March 31, 1996, Optika generated
approximately 15% and 18%, respectively, of its total revenues from
international sales, and sales outside of North America and the United Kingdom
represented only 7% and 12% of the Company's total revenues in those periods.
The Company currently maintains an office in London to support its 20 European
BSPs and an office in Singapore to support its 11 Asian BSPs. The Company is
actively seeking to expand and strengthen its network of foreign BSPs,
particularly in Japan and throughout the Pacific Rim, which was a significant
factor behind the IPRS/Intuit Acquisition. The Company is also recruiting BSPs
in Canada, continental Europe and Latin America. See "Risk Factors--
International Operations."
Marketing
In support of its sales efforts, the Company conducts sales training
courses, targeted marketing programs, including direct mail, channel
marketing, promotions, seminars, trade shows, telemarketing and ongoing
customer and third-party communication programs. The Company also seeks to
stimulate interest in its products through its public relations program,
speaking engagements, white papers, technical notes and programs targeted at
educating consultants on the Company's capabilities. As part of its public
relations program, Optika is deploying a multimedia CD-ROM. This CD contains
product demonstrations, Company highlights, marketing material and video clips
of customer testimonials. Optika's marketing CD is used as a fulfillment piece
for direct mail and seminars, as well as an educational tool for industry
analysts. Optika is also entering into, or expanding corporate relationships
with major technology, database, application and hardware companies such as
Microsoft, Cornerstone Imaging, Inc., Kofax Image Products, Inc. and PC DOCS
Group International, Inc. to improve the Company's position in the market.
CUSTOMERS
The Company's direct customers are its BSPs and OEMs, which purchase and
resell its products to its indirect customers, the end-users. As of March 31,
1996, the Company had licensed over 25,000 seats to its end-users worldwide.
No BSP, OEM or end-user accounted for more than 10% of the Company's total
revenues for the year ended December 31, 1995 or the quarter ended March 31,
1996. Set forth below is a partial list of end-users who have generated
revenues for the Company since January 1, 1995 and have acquired licenses for
a minimum of five users. The Company believes that all of these end-users are
currently using the Company's products and are representative of the Company's
overall end-user base.
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
HEALTHCARE EDUCATION
Parkview Hospital Mercer County Community College
Pascack Valley Hospital Pace University
Rush Presbyterian St. Luke's
Medical Center GOVERNMENT
St. Elizabeth Medical Center El Paso County, Colorado
Washington Dental Services Jefferson County, Alabama
Massachusetts Court of Appeals
Minnesota Department of Health
FINANCIAL & BANKING San Francisco Department of Building
Bank One Denver N.A. Inspection
Equifax, Inc.
Federal Home Loan Bank MANUFACTURING
General American Credits, Inc. Better Bilt Aluminum Products Company
Merrill Lynch, Pierce, Fenner & Smith, Inc. Chaparral Steel Company, Inc.
Mitsubishi Finance International Plc Dow Corning Corporation
UNIPAC Service Corporation Mazda Motor Corporation
Travelers Express Company, Inc. Michelin Tire Corporation
RETAIL
INSURANCE Best Buy Co., Inc.
Blue Cross and Blue Shield of Florida, Inc. Carr Gottstein Foods Co.
Colorado Farm Bureau Payless Cashways, Inc.
Fireman's Insurance Price Costco Wholesale Corporation
John Hancock Mutual Life Insurance Company Royal Cup Coffee, Inc.
COMMUNICATIONS TRANSPORTATION
AT&T Wireless Services European Transport Company
Bell Atlantic Mobile Myers Industries, Inc.
Continental Cablevision Inc.
Kansas Cellular UTILITIES
Homer Electric Association Inc.
Louisville Gas & Electric Company
SERVICE AND SUPPORT
The Company believes that a high level of service and support is critical to
the Company's performance. The Company provides technical support,
maintenance, training and consulting to its BSPs, which are in turn primarily
responsible for providing technical support services directly to the end-
users. The Company also provides such support directly to its end-users on an
as-needed basis. These services are designed to increase end-user
satisfaction, provide feedback to the Company as to end-users' demands and
requirements and generate recurring revenue. The Company plans to continue to
expand its services and support programs as the depth and breadth of the
products offered by the Company increases.
BSP Support
The Company maintains pre-sales technical support personnel that work
directly with the BSPs to provide technical responses to sales inquiries. The
Company offers educational and training programs, as well as customized
consulting services to its BSPs. Fees for training and consulting services are
generally charged on a per diem basis. The Company also provides product
information bulletins on an ongoing basis, including bulletins posted through
its Internet web site, Lotus Notes database and periodic informational updates
about the products installed. These bulletins generally answer commonly asked
questions and provide information about new product features.
Technical Support and Software Maintenance
The Company, in conjunction with its BSPs, offers end-users a software
maintenance program. The maintenance program includes software updates
provided by the Company to the end-user and technical support
</TABLE>
38
<PAGE>
provided by the BSP. Telephone consultation is provided by the Company to the
BSP to respond to end-user technical questions that the BSP is unable to
answer. A BSP typically charges the end-user a fee for maintenance and support
of the entire imaging system, including software and hardware. In turn, the
Company, on an annual basis, charges the BSP a fee of between 8% and 12% of
the then-current list prices of the licensed software.
Warranty
The Company generally includes a 90-day limited warranty with the software
license. During the warranty period, the end-user is entitled to free product
upgrades and corrections for documented program errors and the BSP is entitled
to free telephone consultation. The services and updates provided during the
warranty period may be extended by the end-user if they enter into the
software maintenance program.
RESEARCH AND DEVELOPMENT
The Company has committed and expects to continue to commit substantial
resources to research and development. Optika's research and development
organization is organized along the product team concept. Each product team
has an engineering team leader, a product manager, development engineers and
quality assurance engineers. The team is entirely responsible for the design
implementation and quality of their products. Additionally, Optika has
employed a "product author" concept under which individual contributors, or
small teams, develop products from conception to market introduction with
limited corporate interference. Product authors are responsible for end-user
satisfaction with the products and are compensated based on a declining
percentage of the revenues generated by the product over a three year period.
Product authorship encourages innovation, faster time to market, higher
quality and long-term employment relationships between the Company and its
most valued engineers. Product development efforts are directed at increasing
product functionality, improving product performance and expanding the
capabilities of the products to interoperate with third-party software and
hardware. In particular, the Company is devoting substantial development
resources to develop additional functionality for its products and the
capability to support additional platforms, databases, graphical user
interfaces, toolsets and emerging technologies. The Company believes that the
modular architecture of its software products will provide the foundation for
future enhancements to the Company's integrated imaging solution.
Areas of future development currently being pursued by the Company include
completing the development of two software modules of the MediPower Suite,
further enhancing the FilePower Suite and completing the development of
WebBooks, the Company's first product for intranets and the Internet. The
Company continues to identify and prioritize various technologies for
potential future product offerings. The Company may develop these products
internally or enter into arrangements to license or acquire products or
technologies from third parties. As of March 31, 1996, the Company's research
and development organization consisted of 40 full-time employees in Colorado
Springs, Colorado, and eight employees in Marlboro, Massachusetts. During
1995, research and development expenses were $3.7 million. As of March 31,
1996, the Company had expensed all of its software development costs as
incurred. See "Risk Factors--Rapid Technological Change; Dependence on New
Product Development," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 1 of Notes to Consolidated
Financial Statements.
COMPETITION
The market for the Company's products is intensely competitive and
significantly affected by new product introductions and other market
activities of industry participants. The Company believes that the principal
competitive factors affecting its market include product features such as
adaptability, scalability, ability to integrate with third-party products,
functionality, ease of use, product reputation, quality, performance, price,
customer service and support, effectiveness of sales and marketing efforts and
company reputation. Although the Company believes that it currently competes
favorably with respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and potential
competitors. The Company's principal direct competitors for its various
product lines include the following companies: BancTec,
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<PAGE>
FileNet, IBM, Unisys Corporation, ViewStar and Wang. The Company also competes
with industry-specific application vendors such as IMNET and LanVision.
Numerous other software vendors also compete in each product area. Potential
competitors include, without limitation, providers of document management
software products, providers of document archiving products and RDBMS vendors.
Many of the Company's current and potential competitors have longer operating
histories, significantly greater resources and name recognition and a larger
installed base of customers than the Company. As a result, these competitors
may be able to respond more quickly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products, than can the Company. The
Company also faces indirect competition from VARs, OEMs, distributors and
systems integrators. The Company relies on a number of these resellers for
implementation and other customer support services, as well as recommendations
of its products during the evaluation stage of the purchase process. Although
the Company seeks to maintain close relationships with these resellers, many
of these third parties have similar, and often more established, relationships
with the Company's principal competitors. If the Company is unable to develop
and retain effective, long-term relationships with these resellers, the
Company's competitive position would be materially adversely affected.
Further, there can be no assurance that these third parties, many of which
have significantly greater resources than the Company, will not market
software products in competition with the Company in the future or will not
otherwise reduce or discontinue their relationships with or support of the
Company and its products. See "Risk Factors--Intense Competition."
PROPRIETARY RIGHTS
The Company relies on a combination of trade secret, copyright and trademark
laws, software licenses and nondisclosure agreements to establish and protect
its proprietary rights in its products. The Company enters into
confidentiality and/or license agreements with all of its employees and
distributors, as well as with its customers and potential customers seeking
proprietary information, and limits access to and distribution of its
software, documentation and other proprietary information. Despite these
precautions, it may be possible for unauthorized third parties to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. The Company has certain registered and other
trademarks. The Company believes that its products, trademarks and other
proprietary rights do not infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims in the future. See "Risk Factors--Dependence on
Proprietary Technology; Risk of Infringement."
EMPLOYEES
At March 31, 1996, the Company had 119 full-time employees in ten cities. Of
these employees, 48 were involved in research and development, 35 in sales and
marketing, 24 in technical support and training and 12 in administration and
finance. No employees are covered by any collective bargaining agreements. The
Company believes that its relationships with its employees are good.
FACILITIES
The Company's principal administrative, sales and marketing, research and
development and support facilities consist of approximately 21,500 square feet
of office space in Colorado Springs, Colorado. The Company occupies these
premises under a lease expiring July 1997. As of March 31, 1996, the annual
base rent for this facility was approximately $26,000. In support of its field
sales and support organization, the Company also leases facilities and offices
in seven other locations in the United States, one location in the United
Kingdom and one location in Singapore. The Company believes that it will
require additional space upon the expiration of its lease in July 1997. No
assurance can be given that such space can be obtained on terms acceptable to
the Company or that business interruptions will not result due to any such
relocation.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers and their ages as of the date
of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark K. Ruport.............. 43 President, Chief Executive Officer and
Chairman of the Board of Directors
Steven M. Johnson........... 34 Vice President--Finance and Administration,
Chief Financial Officer and Secretary
Marc R. Fey................. 40 Senior Vice President--Engineering and
Customer Support Services
Donald R. Graham............ 48 Vice President--United States Operations
David J. Mansen............. 41 Vice President--Marketing
Mark A. Schenecker.......... 36 Vice President--Research and Development
Paul Carter................. 41 Co-Founder and Director
Malcolm D. Thomson.......... 34 Co-Founder and Director
Richard A. Bass(1).......... 54 Director
James E. Crawford III(2).... 50 Director
Harry S. Gruner(1)(2)....... 36 Director
Graham O. King(1)(2)........ 56 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Mark K. Ruport has been President and Chief Executive Officer and a Director
of the Company since February 1995. He has served as Chairman of the Board of
Directors since May 1996. From June 1990 to July 1994, Mr. Ruport was President
and Chief Operating Officer, and most recently Chief Executive Officer, of
Interleaf, Inc., a publicly-held software and services company that develops
and markets document management, distribution and related software. From 1989
to 1990, Mr. Ruport was Senior Vice President of Worldwide Sales of Informix
Software, where he had direct responsibility for direct and indirect sales and
OEMs. From 1985 to 1989, Mr. Ruport was Vice President of North American
Operations for Cullinet Software, where he oversaw North American sales,
customer support and systems integration.
Steven M. Johnson has served as Vice President--Finance and Administration
and Chief Financial Officer of the Company since September 1992 and as its
Secretary since May 1996. He also served as interim Chief Executive Officer of
the Company from October 1994 to February 1995. Prior to joining the Company,
from February 1988 to September 1992, Mr. Johnson was Vice President, Finance
and Chief Financial Officer of Insurance Auto Auctions, Inc., a publicly held
company. From June 1987 to February 1988, Mr. Johnson served as Controller and
Director of Finance for HOH Water Technology Corporation and prior to 1987, was
a senior accountant with KPMG Peat Marwick.
Marc R. Fey has served as the Company's Senior Vice President--Engineering
and Customer Support Services since February 1996. Mr. Fey previously held the
position of Vice President--Development from July 1994 to February 1996. Prior
to joining the Company, from September 1991 to June 1994, Mr. Fey was President
of the Fey Company, a consulting services company for software companies and
venture investors on technology, product acquisitions, strategic planning and
general operations. He also founded XA Systems Corporation, a software company
that develops and markets software engineering tools for MIS organizations,
where he served as chairman and chief technology officer.
Donald R. Graham has served as the Company's Vice President--United States
Operations since January 1, 1996. From June 1995 to December 1995, Mr. Graham
served as the Company's Vice President--Eastern
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<PAGE>
Region, and from January 1994 to June 1995, he was self-employed as a private
fund raiser. From April 1992 through December 1993, Mr. Graham served as
director of sales for Relay Technology, and from September 1991 through March
1992, he was Director of the Eastern Region at Uniface Corporation.
David J. Mansen has served as Vice President--Marketing since October 1995.
From July 1991 to October 1995, Mr. Mansen was employed by Recognition
International, Inc., a provider of image processing systems as Vice President
of Marketing. From 1986 to 1991, Mr. Mansen was a principal in a technology
investment management firm, and from 1978 to 1985, he held marketing positions
at Datapoint, Inc.
Mark A. Schenecker has served as the Company's Vice President--Research and
Development since February 1996. Mr. Schenecker held the position of Director
of Product Management from August 1995 to January 1996 and Product Manager
from March 1994 to July 1995. Prior to joining the Company, Mr. Schenecker was
employed by Lanier Worldwide, Inc., where he held positions in systems
analysis and was responsible for advanced digital imaging and copier
technology.
Paul Carter is a co-founder of the Company and has served as a Director
since its inception. Since July 1994, he has served as Chief Product
Architect, and he served as the Company's Secretary from 1988 to May 1996.
From July 1990 to June 1994, Mr. Carter was Director of Research and
Development of the Company, and from January 1988 to June 1990 he was its Vice
President--Research and Development. Prior to co-founding the Company, Mr.
Carter was a design specialist for Ashton-Tate in California.
Malcolm D. Thomson is a co-founder of the Company and has served as a
Director since its inception. Since January 1996, he has served as Vice
President--Internet and Interconnectivity of the Company. From July 1994
through December 1995, he served as Vice President--New Business Development;
from February 1993 through June 1994, he served as Vice President--
Development; from August 1992 through January 1993, he served as Vice
President--Sales; from July 1990 through July 1992, he served as Director of
Systems Integration; and from the inception of the Company through June 1990,
he served as President. Prior to co-founding the Company, Mr. Thomson was an
engineer with Ashton-Tate in the United Kingdom and in California.
Richard A. Bass has served as a Director of the Company since May 1993, and
he served as Chairman of the Board from September 1994 to May 1996. Since
February 1991, Mr. Bass has been President and Chief Executive Officer of
Point of View, Inc., a multimedia publishing company.
James E. Crawford III has served as a Director of the Company since December
1993. He is a general partner of Frontenac Company, a venture capital firm
that he joined in August 1992. From February 1984 to August 1992, Mr. Crawford
was a general partner of William Blair Venture Management Co., the general
partner of William Blair Venture Partners III, a venture capital fund. He was
also a general partner of William Blair & Company, an investment bank and
brokerage affiliated with William Blair Venture Management Co., from January
1987 to August 1992. Mr. Crawford is also a Director of Cornerstone Imaging,
Inc., a provider of document imaging subsystems, and he is a director of
several private companies.
Harry S. Gruner has served as a Director of the Company since May 1996. He
has been a general partner of JMI Equity Fund, a private equity investment
partnership, since November 1992. From August 1986 to October 1992, Mr. Gruner
was a principal with Alex. Brown & Sons Incorporated. Mr. Gruner is also a
director of Brock International, Inc., a developer, marketer and supporter of
software systems, Jackson Hewitt, Inc., an income tax processing company, The
META Group, Inc., a syndicated information technology research company,
Hyperion Software, Inc., a financial software company and numerous privately
held companies.
Graham O. King has served as a Director in April 1996. Mr. King is currently
the chairman, chief executive officer and a director of US Servis, Inc., a
healthcare management services company. From 1986 to 1993, Mr. King was with
Shared Medical Services, a company specializing in hospital information
systems, most recently serving as its president from 1988 to 1993. From 1983
to 1986, Mr. King was president of Daseke and Company and from 1979 to 1982,
was president and chief executive officer of Auto-Trol Technology, a computer-
aided
42
<PAGE>
design software company, from 1979 to 1982. Mr. King is also a director of
ADAC Laboratories, a provider of nuclear medicine diagnostic imaging equipment
and a supplier of radiology and laboratory information systems.
The Company's executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company. All Directors hold office until the next annual
meeting of stockholders or until their successors are duly elected and
qualified. The Board of Directors is divided into three classes, each of whose
members serve for a staggered three-year term. The Board is composed of two
Class I Directors (Messrs. Carter and Bass), two Class II Directors (Messrs.
King and Gruner) and three Class III Directors (Messrs. Ruport, Thomson and
Crawford). At each annual meeting of stockholders after the 1997 annual
meeting of stockholders, the appropriate number of directors will be elected
for a three-year term to succeed the directors of the same class whose terms
are then expiring. The terms of the Class I Directors, Class II Directors and
Class III Directors will expire upon the election and qualification of
successor directors at the annual meetings of stockholders held in calendar
years 1998, 1999 and 2000, respectively. There are no family relationships
between any Director or executive officer of the Company. Messrs. Crawford,
Gruner, Ruport, Carter, Thomson and Bass were appointed to the Board of
Directors of the Company pursuant to an Amended and Restated Shareholders'
Agreement between the Company and certain stockholders named therein dated as
of November 22, 1995, which Agreement will expire on consummation of this
offering.
BOARD COMMITTEES
In May 1994, the Board of Directors established the Audit Committee, which
reviews the Company's annual audit and meets with the Company's independent
accountants to review the Company's internal controls and financial management
practices. The Audit Committee consists of Messrs. Bass, Gruner and King. In
January 1994, the Board of Directors also established the Compensation
Committee, which will recommend to the Board of Directors compensation for
certain of the Company's personnel and administers the 1994 Stock Plan. The
Compensation Committee consists of Messrs. Crawford, Gruner and King.
DIRECTOR COMPENSATION
Except for grants of stock options and reimbursement of expenses, directors
of the Company do not receive compensation for services rendered as a
director. However, Mr. King will receive a fee of $10,000 for each year of
service as a director. The Company does not pay compensation for committee
participation or special assignments of the Board of Directors. Messrs. Carter
and Thomson each received options in 1990 to purchase 120,000 shares of Common
Stock at an exercise price of $0.75 per share, which options are currently
exercisable for fully vested shares of Common Stock. Mr. Ruport has been
granted options under the 1994 Stock Plan to purchase an aggregate of 510,000
shares of Common Stock.
On April 1, 1996, in connection with his appointment to the Board of
Directors, Mr. King received an option under the 1994 Stock Plan to purchase
25,000 shares of Common Stock at an exercise price of $5.00 per share. The
option has a maximum term of ten years measured from the grant date, subject
to earlier termination upon Mr. King's cessation of service with the Company.
The option is immediately exercisable in full. Twenty-five percent of the
option shares were fully vested as of the grant date. The remaining option
shares are subject to repurchase by the Company at the exercise price paid per
share should Mr. King leave the Company prior to vesting in the shares. Mr.
King will vest in an additional 25% of the option shares upon his completion
of each of the three years of service with the Company measured from the grant
date. The option shares will fully vest in the event the Company is acquired
by merger or asset sale, unless the option is assumed by the acquiring
company. See "--Executive Compensation--Option Grants During 1995." Non-
employee Board members will receive option grants at periodic intervals under
the Automatic Option Grant Program of the 1994 Stock Plan. See "--1994 Stock
Option/Stock Issuance Plan."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Amended and Restated Certificate of
Incorporation which provide that directors of the Company shall not
43
<PAGE>
be personally liable for monetary damages to the Company or its stockholders
for a breach of fiduciary duty as a director, except for liability as a result
of: (i) a breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) an act related to
the unlawful stock repurchase or payment of a dividend under Section 174 of
Delaware General Corporation Law and (iv) transactions from which the director
derived an improper personal benefit. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Amended and Restated Certificate of Incorporation also
authorizes the Company to indemnify its officers, directors and other agents by
bylaws, agreements or otherwise, to the full extent permitted under Delaware
law. The Company has entered into separate indemnification agreements with its
executive officers and directors which may, in some cases, be broader than the
specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements will require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as officers or
directors (other than liabilities arising from willful misconduct of a culpable
nature), and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned during 1995 for
services rendered in all capacities to the Company and its subsidiaries during
such year by Mr. Ruport, who was appointed Chief Executive Officer of the
Company effective February 28, 1995, and Messrs. Johnson and Fey, whose total
compensation for 1995 was each in excess of $100,000 (collectively, the "Named
Officers"). The Company did not grant any restricted stock awards or stock
appreciation rights in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
AWARDS
------------
SECURITIES
NAME AND PRESENT PRINCIPAL OTHER ANNUAL UNDERLYING
POSITION SALARY($) BONUS($)(1) COMPENSATION ($) OPTIONS(#)
- -------------------------- --------- ----------- ---------------- ------------
<S> <C> <C> <C> <C>
Mark K. Ruport............. 152,208 41,000 100,000(2) 400,000(3)
President and Chief
Executive Officer
Steven M. Johnson.......... 105,578 9,000 -- --
Vice President--Finance
and Administration, Chief
Financial Officer and
Secretary
Marc R. Fey................ 118,300 5,000 -- --
Senior Vice President--
Engineering and Customer
Support Services
</TABLE>
- --------
(1) The bonuses listed in the table were earned during 1995 and paid in 1996.
(2) Represents an allowance for moving expenses incurred by Mr. Ruport in
connection with his appointment as President and Chief Executive Officer of
the Company.
(3) The option was granted under the 1994 Stock Plan. See "--Option Grants
During 1995."
44
<PAGE>
OPTION GRANTS DURING 1995
The following table sets forth information concerning the stock option
grants made to each of the Named Officers during 1995. No stock appreciation
rights or restricted stock awards were granted to those individuals during
such year.
OPTION GRANTS DURING 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Ruport.......... 400,000(2) 51% $1.875(3) 03/27/05 $ 471,671 $ 1,195,307
Steven M. Johnson....... -- -- -- -- -- --
Marc R. Fey............. -- -- -- -- -- --
</TABLE>
- --------
(1) The five percent and ten percent assumed annual rates of compounded stock
price appreciation are mandated by the rules of the Securities and
Exchange Commission. No assurance can be provided to the option holder or
any other holder of the Company's securities that the actual stock price
appreciation over the ten-year option term will be at the assumed five
percent and ten percent levels or at any other defined level.
(2) The option was granted to Mr. Ruport on March 28, 1995 pursuant to the
1994 Stock Plan. The option has a maximum term of ten years measured from
the grant date, subject to earlier termination upon Mr. Ruport's cessation
of service with the Company. The option is immediately exercisable for all
of the option shares. However, any shares purchased under the option are
subject to repurchase by the Company at the option exercise price paid per
share, should the optionee leave the Company prior to vesting in the
shares. Mr. Ruport will vest in the option shares in a series of four
equal successive annual installments over his period of service with the
Company measured from February 28, 1995. The option shares will fully vest
in the event the Company is acquired by merger or asset sale, unless the
option is assumed by the acquiring company. In addition, in the event the
option is assumed by the acquiring company, the option shares will fully
vest upon the termination of Mr. Ruport's service, whether involuntarily
or through a resignation for good reason, within eighteen months following
the acquisition.
(3) The exercise price may be paid in cash, in shares of the Company's Common
Stock valued at fair market value on the exercise date or through a
cashless exercise procedure involving a same-day sale of the purchased
shares. The Company may also finance the option exercise by loaning the
optionee sufficient funds to pay the exercise price for the purchased
shares, together with any federal and state income tax liability incurred
by the optionee in connection with such exercise. The Compensation
Committee of the Board of Directors, as the Plan Administrator of the 1994
Stock Plan, has the discretionary authority to reprice the option through
the cancellation of such option and the grant of a replacement option with
an exercise price based on the fair market value of the option shares on
the grant date.
In addition to the options listed in the foregoing table, on January 9,
1996, Messrs. Ruport and Johnson received options to purchase 110,000 and
35,000 shares of Common Stock, respectively, under the Company's 1994 Stock
Plan at an exercise price of $3.40 per share. The options have a maximum term
of ten years measured from the grant date, subject to earlier termination upon
the optionee's cessation of service with the Company. Mr. Ruport's option is
exercisable as to 25% of the option shares as of the grant date and becomes
exercisable for an additional 25% of the option shares on January 1 of each of
1997, 1998 and 1999. Mr. Johnson's option is exercisable for 29,000 of the
option shares as of the grant date and becomes exercisable for the remaining
6,000 option shares on January 1, 1997. However, any shares purchased upon
exercise of the option are subject to repurchase by the Company at the option
exercise price paid per share should the optionee leave the Company prior to
vesting in the shares. Each optionee will vest in 25% of his option shares
upon his completion of one year of service with the Company after the grant
date and the balance in a series of equal monthly installments
45
<PAGE>
over the 36 months of service completed thereafter. The options will fully
vest in the event the Company is acquired by merger or asset sale, unless the
option is assumed by the acquiring company. In addition, if the option is
assumed by the acquiring company, such option will vest in full upon the
termination of the optionee's service, whether involuntarily or through a
resignation for good reason, within eighteen months following the acquisition.
AGGREGATE OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES
The following table sets forth information concerning option holdings as of
December 31, 1995 with respect to each of the Named Officers. No stock options
were exercised by the Named Officers during 1995. No stock appreciation rights
were granted during such year or outstanding at the end of such year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 1995 YEAR-END 1995 YEAR-END($)(1)
---------------------------- -------------------------
NAME EXERCISABLE(2) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark K. Ruport........... 400,000 -- $ 0 --
Steven M. Johnson........ 120,000 -- 32,500 --
Marc R. Fey.............. 60,000 -- 0 --
</TABLE>
- --------
(1) Based on the deemed fair value of the Company's Common Stock at fiscal
year-end, $1.875 per share (as determined by the Board of Directors), less
the exercise price payable per share.
(2) The options are immediately exercisable for all the option shares, but any
shares purchased under the options will be subject to repurchase by the
Company at the original exercise price per share upon the optionee's
cessation of service prior to vesting in such shares. As of December 31,
1995, the Company's repurchase right had lapsed as to none of Mr. Ruport's
option shares, 52,000 of Mr. Johnson's option shares and 15,000 of Mr.
Fey's option shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in January
1994. Messrs. Crawford, Gruner and Lawrence W. Lepard, a General Partner of
LMC Purchase Limited Partnership, served on the Compensation Committee during
the year ended December 31, 1995. The current members of the Compensation
Committee are Messrs. Crawford, Gruner and King. None of the individuals who
served on the Compensation Committee during the year ended December 31, 1995
was at any time during such year, or at any other time, an officer or employee
of the Company, and no executive officer of the Company served as a member of
the Board of Directors or Compensation Committee of any entity which has one
or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
1994 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1994 Stock Plan became effective upon its adoption by the
Board of Directors on August 12, 1994 and was approved by the Company's
stockholders on October 10, 1994. The 1994 Stock Plan was implemented to serve
as the successor equity incentive program to the Company's 1992 Stock Plan
(the "1992 Plan"). Outstanding options under the 1992 Plan were incorporated
into the 1994 Stock Plan upon its adoption by the Board of Directors on August
12, 1994, and no further option grants were made under the 1992 Plan after
such date. The incorporated options continue to be governed by their original
terms, unless the Plan Administrator elects to extend one or more features of
the 1994 Stock Plan to those options. However, the outstanding options under
the 1992 Plan contain substantially the same terms and conditions summarized
below for the Discretionary Option Grant Program in effect under the 1994
Stock Plan.
In February 1996, the Board of Directors amended the 1994 Stock Plan,
subject to approval by the Company's stockholders, to (i) increase the total
number of shares of Common Stock authorized for issuance
46
<PAGE>
thereunder from 2,040,000 to 2,790,000 shares and (ii) increase the maximum
aggregate number of shares of Common Stock for which any one participant in
such plan may receive option grants, separately exercisable stock appreciation
rights and direct stock issuances from 500,000 shares over the term of the
1994 Stock Plan to 500,000 shares per calendar year. In May 1996, the Board of
Directors restated the 1994 Stock Plan, subject to approval by the Company's
stockholders, to implement the Salary Investment and Automatic Option Grant
Programs and (ii) provide that the share reserve for such plan will
automatically be increased on the first trading day of January 1998 and
January 1999 by a number of shares equal to three percent of the number of
shares of Common Stock outstanding on the last trading day of the immediately
preceding calendar year. As of March 31, 1996, 1,745,546 shares of Common
Stock were issuable upon exercise of options outstanding under the 1994 Stock
Plan and 686,355 shares remained available for grant of future options.
The 1994 Stock Plan, as amended and restated by the Board of Directors in
February 1996, is divided into four separate components: (i) the Discretionary
Option Grant Program under which eligible individuals in the Company's employ
or service (including officers, non-employee Board members and consultants)
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock at an exercise price not less than 85% of
their fair market value on the grant date, (ii) the Stock Issuance Program
under which such individuals may, in the Plan Administrator's discretion, be
issued shares of Common Stock directly, through the purchase of such shares at
a price not less than 85% of their fair market value at the time of issuance
or as a bonus tied to the performance of services, (iii) the Salary Investment
Option Grant Program under which executive officers and other highly
compensated employees may elect to apply a portion of their base salary to the
acquisition of special below-market stock option grants, and (iv) the
Automatic Option Grant Program under which option grants will automatically be
made at periodic intervals to eligible non-employee Board members to purchase
shares of Common Stock at an exercise price equal to 100% of their fair market
value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program are
administered by the Compensation Committee. The Compensation Committee as Plan
Administrator has complete discretion to determine which eligible individuals
are to receive option grants or stock issuances, the time or times when such
option grants or stock issuances are to be made, the number of shares subject
to each such grant or issuance, the status of any granted option as either an
incentive stock option or a non-statutory stock option under the Federal tax
laws, the vesting schedule to be in effect for the option grant or stock
issuance and the maximum term for which any granted option is to remain
outstanding. The administration of the Salary Investment Option Grant and
Automatic Option Grant Programs will be self-executing in accordance with the
express provisions of each such program.
The exercise price for the shares of Common Stock subject to option grants
made under the 1994 Stock Plan may be paid in cash or in shares of Common
Stock valued at fair market value on the exercise date. The option may also be
exercised through a same-day sale program without any cash outlay by the
optionee. In addition, the Plan Administrator may provide financial assistance
to one or more optionees in the exercise of their outstanding options by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the exercise price and any associated
withholding taxes incurred in connection with such exercise.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed by the successor corporation will automatically accelerate in
full, and all unvested shares under the Stock Issuance Program will
immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are to be assigned to the successor corporation. Any
options that are assumed in an acquisition will automatically accelerate, and
any repurchase rights which are assigned will terminate, in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason, within eighteen months following the acquisition.
In addition, the Plan Administrator has the discretion to provide for the
automatic acceleration of options and the lapse of any repurchase rights upon
(i) a hostile change in control of the Company effected by a successful tender
offer for more than 50% of the Company's outstanding voting stock or by proxy
contest for the election of Board members or (ii) the termination of the
individual's service, whether involuntarily or through a resignation for good
reason, within a specified period following such a hostile change in control.
47
<PAGE>
Stock appreciation rights are authorized for issuance under the
Discretionary Option Grant Program which provide the holders with the election
to surrender their outstanding options for an appreciation distribution from
the Company equal to the excess of (i) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (ii) the
aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program (including
options incorporated from the 1992 Plan) in return for the grant of new
options for the same or different number of option shares with an exercise
price per share based upon the fair market value of the Common Stock on the
new grant date.
In the event the Plan Administrator elects to activate the Salary Investment
Option Grant Program for one or more calendar years, each executive officer
and other highly compensated employee of the Company selected for
participation may elect, prior to the start of the calendar year, to reduce
his or her base salary for that calendar year by a specified dollar amount not
less than $10,000 nor more than $50,000. In return, the officer will
automatically be granted, on the first trading day in the calendar year for
which the salary reduction is to be in effect, a non-statutory option to
purchase that number of shares of Common Stock determined by dividing the
salary reduction amount by two-thirds of the fair market value per share of
Common Stock on the grant date. The option will be exercisable at a price per
share equal to one-third of the fair market value of the option shares on the
grant date. As a result, the total spread on the option shares at the time of
grant will be equal to the salary reduction amount. The option will vest in a
series of twelve equal monthly installments over the calendar year for which
the salary reduction is in effect and will be subject to full and immediate
vesting upon certain changes in the ownership or control of the Company.
Under the Automatic Option Grant Program, each individual who is serving as
a non-employee Board member on the effective date of this offering (other than
Mr. King who received an option grant in connection with his appointment to
the Board of Directors on April 1, 1996 and any other Director appointed after
Mr. King but prior to the effective date of the offering) will receive an
option grant for 10,000 shares of Common Stock on such date. Each individual
who first joins the Board after the effective date of this offering as a non-
employee Board member will receive an option grant for 10,000 shares of Common
Stock at the time of his or her commencement of Board service, provided such
individual has not otherwise been in the prior employ of the Company. In
addition, at each Annual Stockholders Meeting, beginning with the 1997 Annual
Meeting, each individual who is to continue to serve as a non-employee Board
member will receive an option grant to purchase 2,500 shares of Common Stock,
whether or not such individual has been in the prior employ of the Company.
Each automatic grant will have an exercise price equal to the fair market
value per share of Common Stock on the grant date and will have a maximum term
of ten years, subject to earlier termination following the optionee's
cessation of Board service. Each automatic option will be immediately
exercisable; however, any shares purchased upon exercise of the option will be
subject to repurchase, at the option exercise price paid per share, should the
optionee's service as a non-employee Board member cease prior to vesting in
the shares. The 10,000-share grant will vest in four equal and successive
annual installments over the optionee's period of Board service measured from
the grant date. Each additional 2,500-share grant will vest upon the
optionee's completion of one year of Board service measured from the grant
date. However, each outstanding option will immediately vest upon (i) an
acquisition of the Company by merger, asset sale or a hostile takeover of the
Company or (ii) the death or disability of the optionee while serving as a
Board member.
The Board may amend or modify the 1994 Stock Plan at any time. The 1994
Stock Plan will terminate on August 11, 2004, unless sooner terminated by the
Board of Directors. However, certain material changes will require the
approval of the Company's stockholders.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors in May 1996, subject to approval by the Company's
stockholders. The Purchase Plan is designed to allow eligible employees of the
Company and participating subsidiaries to purchase shares of Common Stock, at
semi-annual intervals, through their periodic payroll deductions under the
Purchase Plan, and a reserve of 250,000 shares of Common Stock has been
established for this purpose.
48
<PAGE>
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period will begin on the day the Underwriting Agreement is executed
in connection with this offering and will end on the last business day in July
1998.
Individuals who are eligible employees on the start date of any offering
period may enter the Purchase Plan on that start date or on any subsequent
quarterly entry date (February 1, May 1, August 1 or November 1 each year).
Individuals who become eligible employees after the start date of the offering
period may join the Purchase Plan on any subsequent quarterly entry date
within that period.
Payroll deductions may not exceed ten percent of the participant's total
cash earnings for each semi-annual period of participation, and the
accumulated payroll deductions will be applied to the purchase of shares on
the participant's behalf on each semi-annual purchase date (January 31 and
July 31 each year, with the first such purchase date to occur on January 31,
1997) at a purchase price per share not less than 85% of the lower of (i) the
fair market value of the Common Stock on the participant's entry date into the
offering period or (ii) the fair market value on the semi-annual purchase
date. In no event, however, may any participant purchase more than 750 shares
of Common Stock on any one semi-annual purchase date. Should the fair market
value of the Common Stock on any semi-annual purchase date be less than the
fair market value of the Common Stock on the first day of the offering period,
then the current offering period will automatically end and a new twenty-four
month offering period will begin, based on the lower fair market value.
EMPLOYMENT AGREEMENTS, COMPENSATION AND CHANGE OF CONTROL ARRANGEMENTS
Employment Agreements
The Company has an agreement with Mark K. Ruport that provides for his
employment as President and Chief Executive Officer of the Company at the
discretion of the Board of Directors. Mr. Ruport's base salary is $180,000,
subject to annual review by the Company's Compensation Committee, and he is
eligible to receive performance bonuses which may be awarded by the Company's
Compensation Committee. Mr. Ruport is eligible to receive severance equal to
one year's base salary in the event he is terminated by the Company without
cause.
The Company has an agreement with Marc R. Fey that provides for his
employment as Senior Vice President--Engineering and Customer Support
Services, at the discretion of the Board of Directors. Mr. Fey's base salary
is $120,000, subject to annual review by the Company's Compensation Committee,
and he is eligible to receive performance bonuses which may be awarded by the
Company's Compensation Committee. Mr. Fey is eligible to receive severance
equal to six months' salary in the event he is terminated by the Company
without cause.
The Company has an agreement with Steven M. Johnson that provides for his
employment as Chief Financial Officer of the Company. Mr. Johnson's base
salary is $131,156, and he is eligible to receive performance bonuses which
may be awarded by the Company's Compensation Committee. Mr. Johnson is
eligible to receive severance equal to six months' salary in the event he is
terminated by the Company without cause.
In connection with an acquisition of the Company by merger or asset sale,
each outstanding option held by the Chief Executive Officer and the other
executive officers under the 1994 Stock Plan will automatically accelerate in
full and all unvested shares of Common Stock issued to such individuals
pursuant to the exercise of options granted or direct stock issuances made
under such plan will immediately vest in full, except to the extent such
options are to be assumed by, and the Company's repurchase rights with respect
to those shares are to be assigned to, the successor corporation. Any options
that are assumed in an acquisition will automatically accelerate, and any
repurchase rights which are assigned will terminate, in the event the
executive's service is terminated, whether involuntarily or through a
resignation for good reason, within eighteen months following the acquisition.
In addition, the Compensation Committee as Plan Administrator of the 1994
Stock Plan has the authority to provide for the accelerated vesting of the
shares of Common Stock subject to outstanding options held by the Chief
Executive Officer or any other executive officer or the shares of Common Stock
purchased pursuant to the exercise of options or subject to direct issuances
held by such individual, in connection with the termination of the officer's
employment following certain hostile changes in control of the Company.
49
<PAGE>
Management Incentive Compensation Plan
The Company's Management Incentive Compensation Plan (the "Management Plan")
was adopted by the Compensation Committee of the Board of Directors in May
1996. The Management Plan is intended to promote the interests of the Company
by providing for bonus payments to a select group of executive officers and
key employees on the attainment of certain performance goals established for
the Company and for each individual.
At the beginning of each fiscal year, Mr. Ruport and the Compensation
Committee will establish certain financial, strategic and individual
performance objectives which may be based on measures of profitability, cash
flow and other measures for the Company. The maximum aggregate bonus payable
to each participant in the Management Plan will be limited to a pre-determined
percentage of the participant's base salary. A minimum performance level must
be achieved by the Company before payment of bonuses may be made under the
Management Plan. A designated percentage of the participant's maximum
aggregate bonus will become payable automatically upon achievement of such
minimum performance level. The remainder of such bonus will be payable at the
discretion of the Compensation Committee, after consideration of individual
performance factors.
50
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1993, the Company has issued, in private placement
transactions, shares of Convertible Preferred Stock, as follows: an aggregate
of 752,160 shares of Series B Participating Convertible Preferred Stock at
$3.99 per share in December 1993 and March 1994 and 441,177 shares of Series C
Participating Convertible Preferred Stock at $3.40 per share in November 1995.
All of such Preferred Stock will convert into an aggregate of 1,201,600 shares
of Common Stock upon the closing of the sale of the shares offered hereby. The
following table summarizes the shares of Preferred Stock purchased by entities
that may be deemed affiliated with directors and five percent or greater
stockholders of the Company and persons associated with them as of March 31,
1996.
<TABLE>
<CAPTION>
SERIES B SERIES C TOTAL SHARES
PREFERRED PREFERRED AS IF
INVESTOR STOCK STOCK CONVERTED
-------- --------- --------- ------------
<S> <C> <C> <C>
Frontenac VI Limited Partnership(1)............ 501,440 294,118 801,067
JMI Equity Fund, L.P(2)........................ 250,720 147,059 400,533
</TABLE>
- --------
(1) James E. Crawford III, a director of the Company, is a general partner of
Frontenac Company, the general partner of Frontenac VI Limited
Partnership, the holder of approximately 20% of the Company's Common
Stock. See "Principal and Selling Stockholders."
(2) Harry S. Gruner, a director of the Company, is a general partner of JMI
Equity Partners, L.P, the general partner of JMI Equity Fund, L.P., the
holder of approximately 9% of the Company's Common Stock. See "Principal
and Selling Stockholders."
Holders of shares of Convertible Preferred Stock are entitled to certain
registration rights in respect of the Common Stock issuable upon conversion
thereof. See "Description of Capital Stock--Registration Rights."
In April 1996, Frontenac VI Limited Partnership ("Frontenac"), which
beneficially owns approximately 20% of the Company's Common Stock prior to the
offering, granted Mr. King an option to purchase 25,000 shares of Common Stock
currently owned by Frontenac at an exercise price of $5.00 per share
concurrently with his appointment to the Board of Directors of the Company.
The option is immediately exercisable for all of the option shares. However,
any shares purchased under the option are subject to repurchase by Frontenac
at the option exercise price per share, should Mr. King leave the Board of
Directors prior to vesting in the shares. Mr. King vested as to 25% of such
option shares on the grant date, and will vest as to the balance of such
option shares in equal annual installments over the next three years of
service.
In November 1995, Messrs. Thomson and Carter and the Company entered into a
Settlement Agreement and Mutual Release (the "Settlement Agreement") dated
November 1, 1995 with two claimants (the "Claimants"), to resolve litigation
initiated by the Claimants against each of Messrs. Thomson and Carter and the
Company. Under the Settlement Agreement, the Claimants received: (i) options
to purchase an aggregate of 95,000 shares of Common Stock held by Messrs.
Thomson and Carter at an exercise price of $1.875 per share, (ii) warrants for
the purchase of 95,000 shares of Common Stock from the Company at a price of
$1.875 per share (the "Warrants"), expiring five years from the date of
issuance, and (iii) a non-interest bearing promissory note in the amount of
$225,000, which the Company expects to retire with a portion of the proceeds
from the offering.
The Company is currently indebted to Messrs. Thomson and Carter in the
aggregate amount of $21,500 each, under subordinated promissory notes
(collectively, the "Founders' Notes") each in the original aggregate principal
amount $297,500, which notes are due and payable in February 2002. The Company
executed the Founders' Notes in satisfaction of certain indebtedness
previously incurred by the Company in consideration for the conveyance by
Messrs. Thomson and Carter of all of their right, title and interest in and to
the FilePower technology to the Company. Aggregate payments to Messrs. Thomson
and Carter under the Founders' Notes were $60,000 and $60,000, $156,000 and
$114,327 and $30,000 and $71,673 in 1993, 1994 and 1995, respectively.
The Company has entered into an Indemnification Agreement with each of its
executive officers and directors.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been otherwise
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors of the Board
of Directors and will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 16, 1996, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby by: (i) each
person who is known by the Company to beneficially own more than five percent
of the Company's Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Officers, (iv) all current executive officers and directors
as a group and (v) all other Selling Stockholders.
<TABLE>
<CAPTION>
SHARES NUMBER OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING (1)(2) SHARES AFTER OFFERING (1)(2)
DIRECTORS, OFFICERS AND --------------------------- BEING -------------------------
5% STOCKHOLDERS NUMBER PERCENT OFFERED NUMBER PERCENT
----------------------- -------------- ------------ ------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Mark K. Ruport(3)....... 442,500 9.3% -- 442,500 6.3%
Steven M. Johnson(4).... 150,000 3.3 -- 150,000 2.2
Marc R. Fey(5).......... 161,500 3.7 -- 161,500 2.4
Paul Carter(6).......... 992,500 22.2 150,826 841,674 12.6
Malcolm D. Thomson(7)... 974,500 22.2 150,826 835,674 12.5
Richard A. Bass(8)...... 10,000 * -- 10,000 *
James E. Crawford
III(9)................. 903,067 20.7 -- 903,067 13.8
Harry S. Gruner(10)..... 410,533 9.4 -- 410,533 6.3
Graham O. King(11)...... 50,000 1.1 -- 50,000 *
Frontenac VI Limited 893,067 20.5 -- 893,067 13.6
Partnership(12)........
208 S. LaSalle Street,
Suite 1900
Chicago, IL 60604
JMI Equity Fund, L.P. .. 400,533 9.2 -- 400,533 6.1
1119 St. Paul St.
Baltimore, MD 21202
LMC Purchase Limited 298,864 6.9 -- 298,864 4.6
Partnership............
339 Carlton Terrace
Ridgewood, NJ 07450
All directors and
executive officers as a
group
(12 persons)(13)....... 4,291,267 96.3 301,652 3,989,615 59.9
<CAPTION>
OTHER SELLING
STOCKHOLDERS
-------------
<S> <C> <C> <C> <C> <C>
Harvey L. Jeane(14)..... 388,976 8.7 268,976 120,000 1.8
Other Selling
Stockholders each
owning less than 1% of
the outstanding Common
Stock after the
offering............... 207,668 4.8 129,372 78,296 1.2
</TABLE>
- --------
* Represents beneficial ownership of less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock. Amounts shown for each stockholder include all shares issuable
upon conversion of the Company's Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock. The address for Messrs. Ruport, Carter and Thomson is c/o Optika
Imaging Systems, Inc., 5755 Mark Dabling Blvd., Colorado Springs,
Colorado 80919.
(2) Based on 4,347,494 shares of Common Stock outstanding as of May 16, 1996.
The number of shares of Common Stock deemed outstanding prior to this
offering includes shares of Common Stock issuable pursuant to stock
options that may be exercised within 60 days after May 16, 1996, which is
the assumed effective date of the offering. Shares issuable pursuant to
such options are deemed outstanding for computing the percentage of the
person holding such options, but are not deemed outstanding for computing
the percentage of any other person.
(3) Includes 427,500 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of May 16, 1996, 327,500 of which shares are subject to a repurchase
right of the Company.
52
<PAGE>
(4) Includes 149,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of May 16, 1996, 69,000 of which shares are subject to a repurchase right
of the Company.
(5) Includes 60,000 shares of Common Stock issuable upon exercise of options
that are currently exercisable or will become exercisable within 60 days
of May 16, 1996, 30,000 of which shares are subject to a repurchase right
of the Company.
(6) Includes (i) 128,418 shares of Common Stock held of record by the Paul
Carter Irrevocable Trust, of which Mr. Carter may be deemed to be
beneficial owner and (ii) 120,000 vested shares of Common Stock issuable
upon exercise of options that are currently exercisable or will become
exercisable within 60 days of May 16, 1996. Also includes an aggregate of
57,500 shares of Common Stock which are subject to currently exercisable
options held by third parties. See "Certain Transactions."
(7) Includes an aggregate of 57,500 shares of Common Stock which are subject
to currently exercisable options held by third parties. See "Certain
Transactions." Also includes 120,000 vested shares of Common Stock
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days of May 16, 1996.
(8) Consists of 10,000 shares of Common Stock issuable upon exercise of
options that are currently exercisable or will become exercisable within
60 days of May 16, 1996, all of which shares are subject to a repurchase
right of the Company.
(9) Includes 893,067 shares of Common Stock owned beneficially by Frontenac.
The general partner of Frontenac is the Frontenac Company, of which Mr.
Crawford is a general partner. In such capacity, Mr. Crawford may be
deemed to be a beneficial owner of such shares, although he disclaims
such beneficial ownership except to the extent of his pecuniary interest
therein, if any. Also includes (i) 10,000 shares of Common Stock issuable
upon exercise of options that are currently exercisable or will become
exercisable within 60 days of May 16, 1996, all of which shares are
subject to a repurchase right of the Company, and (ii) 25,000 shares of
Common Stock which are subject to currently exercisable options granted
by Frontenac to Mr. King. See "Certain Transactions." The address of Mr.
Crawford is c/o Frontenac Company, 208 South LaSalle Street, Chicago
Illinois 60604.
(10) Includes 400,533 shares of Common Stock owned beneficially by JMI Equity
Fund, L.P. The general partner of JMI Equity Fund, L.P. is JMI Partners,
L.P., of which Mr. Gruner is a general partner. In such capacity, Mr.
Gruner may be deemed to be a beneficial owner of such shares, although he
disclaims such beneficial ownership except to the extent of his pecuniary
interest therein, if any. Also includes 10,000 shares of Common Stock
issuable upon exercise of options that are currently exercisable or will
become exercisable within 60 days of May 16, 1996, all of which shares
are subject to a repurchase right of the Company. The address of Mr.
Gruner is c/o JMI Partners, L.P., 1119 St. Paul Street, Baltimore,
Maryland 21202.
(11) Includes (i) 25,000 shares of Common Stock issuable upon exercise of
options granted by the Company that are currently exercisable or will
become exercisable within 60 days of May 16, 1996, all of which shares
are subject to a repurchase right of the Company and (ii) 25,000 shares
of Common Stock issuable upon exercise of options granted by Frontenac to
Mr. King, which options are currently exercisable or will become
exercisable within 60 days of May 16, 1996, 18,750 of which shares are
subject to a repurchase right of Frontenac. See "Certain Transactions."
(12) Includes 25,000 shares of Common Stock which are subject to a currently
exercisable option granted to Mr. King by Frontenac. See "Certain
Transactions."
(13) Includes (i) 10,667 shares of Common Stock beneficially held by an
executive officer not named in the foregoing table and (ii) a total of
156,000 shares of Common Stock issuable upon exercise of options held by
executive officers not named in such table which are currently
exercisable or will become exercisable within 60 days of May 16, 1996,
143,750 of which shares are subject to a repurchase right of the Company.
(14) Includes 120,000 vested shares of Common Stock issuable upon exercise of
options that are currently exercisable or will become exercisable within
60 days of this Prospectus. The address of Mr. Jeane is 1450 Royal Crest
Court, Monument, Colorado 80132. Mr. Jeane previously served as President
and a Director of the Company.
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, the authorized capital stock of the Company
will consist of 25,000,000 shares of Common Stock, par value $.001 per share,
and 2,000,000 shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock"), after giving effect to the amendment of the Company's
Restated Certificate of Incorporation to delete references to the Convertible
Preferred Stock following conversion of such stock. The following description
of capital stock reflects the Restated Certificate of Incorporation as it will
be amended upon closing of this offering. Immediately following the completion
of this offering, an aggregate of 6,547,494 shares of Common Stock will be
issued and outstanding, and no shares of Convertible Preferred Stock will be
issued and outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company does not anticipate paying cash dividends in
the foreseeable future. In the event of the liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities. See "Dividend
Policy."
Holders of Common Stock have no preemptive, conversion or redemption rights
and are not subject to further calls or assessments by the Company. All of the
outstanding shares of Common Stock are, and the shares offered by the Company
hereby will be, if issued, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors is authorized to issue from time to time,
without stockholder authorization, in one or more designated series, any or
all of the authorized but unissued shares of Preferred Stock of the Company
with such dividend, redemption, conversion and exchange provisions as may be
provided in the particular series. Any series of Preferred Stock may possess
voting, dividend, liquidation and redemption rights superior to that of the
Common Stock. The rights of the holders of Common Stock will be subject to,
and may be materially adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. Issuance of a new series of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisition and other corporate purposes, could have the effect of
entrenching the Company's Board of Directors and making it more difficult for
a third-party to acquire, or discourage a third-party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any series of Preferred Stock.
WARRANTS
In November 1995, the Company issued the Warrants to purchase an aggregate
of 95,000 shares of Common Stock pursuant to the Settlement Agreement. Each
Warrant currently entitles the holder to purchase one share of Common Stock at
an exercise price of $1.875 during the period commencing on the date of
issuance and ending November 1, 2000. The Warrants are not transferable. The
exercise price and the number of shares purchasable pursuant to the Warrants
are subject to adjustment for any reclassification, split, subdivision or
combination of the Company's shares. The Warrants do not confer upon the
Claimants any voting or other rights of a stockholder of the Company.
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Registration Agreement dated as of
November 22, 1995, as amended, among the Company and most holders of its
securities (the "Rights Agreement"), the holders of
54
<PAGE>
approximately 3,556,000 shares of Common Stock (the "Registrable Securities")
will be entitled to certain rights with respect to the registration of the
Registrable Securities under the Securities Act. Under the Rights Agreement,
if the Company proposes to register any of its securities under the Securities
Act, either for its own account or the account of other stockholders, the
holders of Registrable Securities are entitled to notice of such registration
and are entitled to include their Registrable Securities therein. In addition,
if at any time beginning six months following the date of this Prospectus, the
Company receives a request from certain initiating holders of Registrable
Securities, the Company is obligated to cause such shares to be registered
under the Securities Act. Holders of Registrable Securities have the right to
cause two such demand registrations. Further, holders of Registrable
Securities may require the Company to register all or a portion of their
Registrable Securities on Form S-2 or Form S-3 under the Securities Act
(provided that the offering size would exceed $250,000), when such forms
become available for use by the Company, and subject to certain other
conditions and limitations. The holders' rights with respect to all such
registrations are subject to certain conditions, including the right of the
underwriters to limit the number of shares included in any such registration.
The Company has agreed to pay all expenses related thereto, except for
underwriting discounts and commissions to effect the sale of the Registrable
Securities.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Certificate of Incorporation and Bylaws
The Restated Certificate of Incorporation provides that, effective upon the
closing of this offering, all stockholder actions must be effected at a duly
called meeting and not by a consent in writing. The Bylaws provide that the
Company's stockholders may call a special meeting of stockholders only upon a
request of stockholders owning at least 50% of the Company's capital stock. In
addition, the Company's Restated Certificate of Incorporation provides that
the directors of the Company shall be classified into three classes as nearly
equal in size as possible, with staggered three-year terms. The Restated
Certificate of Incorporation further provides that the vacancies on the Board
of Directors may only be filled by a majority of the Board of Directors then
in office. Furthermore, any director elected by the stockholders, or by the
Board of Directors to fill a vacancy, may be removed only by a vote of 50% of
the combined voting power of the shares of Common Stock entitled to vote for
the election of directors. These provisions of the Restated Certificate of
Incorporation and Bylaws could have the effect of making it more difficult for
a third-party to acquire, or of discouraging a third-party from acquiring or
making a bid to acquire, control of the Company. These provisions are intended
(i) to enhance the likelihood of continuity and stability in the composition
of the Board of Directors and in the policies formulated by the Board of
Directors, (ii) to discourage certain types of transactions that may involve
an actual or threatened change of control of the Company, (iii) to reduce the
vulnerability of the Company to an unsolicited acquisition proposal and (iv)
to discourage certain tactics that may be used in proxy fights. However, such
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result
from actual or rumored takeover attempts. Such provisions also may have the
effect of preventing changes in the management of the Company. See "Risk
Factors--Control by Existing Stockholders; Effects of Certain Anti-Takeover
Provisions."
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three (3) years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction that
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares
55
<PAGE>
owned (x) by persons who are directors and also officers and (y) by employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer or (iii) on or subsequent to such date, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is
not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder, (ii)
any sale, transfer, pledge or other disposition of ten percent or more of the
assets of the corporation involving the interested stockholder, (iii) subject
to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning fifteen percent or
more of the outstanding voting stock of the corporation and any entity or
person affiliated with or controlling or controlled by such entity or person.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe
Limited Partnership.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could materially adversely affect prevailing market prices.
Upon completion of this offering, the Company will have approximately
6,547,000 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' overallotment option or outstanding warrants or outstanding
options under the 1994 Stock Plan). Of these shares, the 2,900,000 shares sold
in this offering will be freely transferable without restriction or
registration under the Securities Act, except for any shares purchased by an
existing "affiliate" of the Company, as that term is defined by the Securities
Act (an "Affiliate"), which shares will be subject to the resale limitations
of Rule 144 adopted under the Securities Act. The remaining approximately
3,647,000 outstanding shares are "restricted shares" (as defined in Rule 144).
Of such shares, and without consideration of the contractual restrictions
described below, 118,000 shares would be available for immediate sale in the
public market without restriction. Beginning 90 days after the date of this
Prospectus, and without consideration of the contractual restrictions
described below, approximately 2,578,000 shares would be eligible for sale in
reliance upon Rule 144 promulgated under the Securities Act and approximately
138,000 shares would be eligible for sale in reliance upon Rule 701
promulgated under the Securities Act. Without consideration of the contractual
restrictions described below, the remaining approximately 814,000 restricted
shares will not be transferable pursuant to Rule 144 until the expiration of
their two-year holding periods.
After the offering pursuant to this Prospectus, the holders of approximately
3,555,000 of Common Stock, or their transferees, will be entitled to certain
rights with respect to the registration of such shares under the Securities
Act. See "Description of Capital Stock--Registration Rights." Registration of
such shares under the Securities Act would result in such shares becoming
freely tradeable without restriction under the Securities Act (except for
shares purchased by Affiliates) immediately upon the effectiveness of such
registration.
All officers and directors and certain security holders of the Company have
agreed not to offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of Common Stock of the Company for certain periods of time
after the effective date of the registration statement filed in connection
with this offering without the prior written consent of Volpe, Welty and
Company. The 2,900,000 shares sold in this offering will be available for
immediate sale in the public market on the date of this Prospectus.
Additionally, as a result of these contractual restrictions, approximately
1,680,000 additional shares will become available for sale 180 days after the
effective date of this offering.
In general, under Rule 144 as currently in effect, beginning 90 days after
the offering, a person (or persons whose shares are aggregated), who owns
shares that were purchased from the Company (or any Affiliate) at least two
years previously including persons who may be deemed Affiliates of the
Company, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of one percent of the then outstanding shares
of the Company's Common Stock (approximately 65,000 shares immediately after
the offering) or the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an Affiliate of the Company at any
time during the 90 days preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 under the Securities Act
that were purchased from the Company (or any Affiliate) at least three years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisers up to the date the
Company becomes subject to the
57
<PAGE>
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), pursuant to written compensatory benefit plans or written
contracts relating to the compensation of such persons. In addition, the
Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired
upon exercise of such options (including exercises after the date of this
Prospectus). Securities issued in reliance on Rule 701 are restricted
securities and, subject to the contractual restrictions described above,
beginning 90 days after the date of this Prospectus, such securities may be
sold (i) by persons other than Affiliates, subject only to the manner of sale
provisions of Rule 144 and (ii) by Affiliates under Rule 144 without
compliance with its two-year minimum holding period requirements.
The Company intends to file a registration statement under the Securities
Act covering approximately 2,675,000 shares of Common Stock issued or reserved
for issuance under the 1994 Stock Plan and the Employee Stock Purchase Plan.
See "Management--1994 Stock Option/Stock Issuance Plan" and "--Employee Stock
Purchase Plan." Such registration statement will to be filed on the date of
this Prospectus and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement pursuant to
the 1994 Stock Plan will, subject to Rule 144 volume limitations applicable to
Affiliates and the lapsing of the Company's repurchase options, be available
for sale in the open market, except to the extent that such shares are subject
to vesting restrictions with the Company or the contractual restrictions
described above. At March 31, 1996, options to purchase 1,745,546 shares were
issued and outstanding under the 1994 Stock Plan.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of such Underwriters
for whom Volpe, Welty & Company, Piper Jaffray Inc. and Needham & Company,
Inc. (together, the "Representatives") are acting as representatives, has
agreed severally to purchase from the Company and the Selling Stockholders,
the respective number of shares of Common Stock set forth opposite its name
below. The Underwriters are committed to purchase and pay for all shares if
any shares are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Volpe, Welty & Company.........................................
Piper Jaffray Inc. ............................................
Needham & Company, Inc. .......................................
---------
Total........................................................ 2,900,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the shares of Common Stock to
the public at the offering price set forth on the cover page of this
Prospectus. The Underwriters may offer a portion of the shares of Common Stock
directly to the public at the public offering price set forth on the cover
page hereof and a portion to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers or dealers. After the public
offering, the public offering price and such concessions may be changed by the
Underwriters.
The Company has granted the Underwriters an option for 30 days after the
date of this Prospectus to purchase, at the public offering price, less the
underwriting discounts and commissions as set forth on the cover page of this
Prospectus, up to 435,000 additional shares of Common Stock, solely to cover
over-allotments, if any. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of
shares of Common Stock to be purchased by each of them, as shown in the
foregoing table, bears to the 2,900,000 shares of Common Stock offered hereby.
The Underwriters may exercise such option only to cover the over-allotment in
connection with the sale of the 2,900,000 shares of Common Stock offered
hereby.
The Company, each of its directors and executive officers and certain
holders of the Company's currently outstanding securities have agreed that,
for a period of 180 days following the date of this Prospectus, they will not,
without the prior written consent Volpe, Welty & Company, offer, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for any shares of Common Stock. The
Company has also agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock for a
period of 180 days following the date of this Prospectus without the prior
written consent of Volpe, Welty & Company, except for the granting of options
or the sale of stock pursuant to the Company's existing stock plans. Volpe,
Welty & Company, in its discretion, may waive the foregoing restrictions in
whole or in part, with or without a public announcement of such action.
The Underwriters will not make sales to accounts over which they exercise
discretionary authority (i) in excess of five percent of the number of shares
of Common Stock offered hereby and (ii) unless they obtain specific written
consent from the customer.
59
<PAGE>
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock will be negotiated
between the Company and the Representatives. The factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, include the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuations of companies in related businesses.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection
with the offering, including liabilities under the Securities Act, or to
contribute payments that the Underwriters may be required to make in respect
thereof.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Brobeck, Phleger & Harrison LLP, in
Denver, Colorado and Palo Alto, California. A member of the firm of Brobeck,
Phleger & Harrison LLP owns 3,452 shares of Common Stock of the Company.
Certain legal matters in connection with the offering will be passed upon for
the Underwriters by Sachnoff & Weaver, Ltd., Chicago, Illinois.
EXPERTS
The consolidated financial statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules to the Registration
Statement. For further information with respect to the Company and such Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Securities and Exchange Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Securities and Exchange
Commission.
60
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheet............................................... F-3
Consolidated Statement of Operations..................................... F-4
Consolidated Statement of Changes in Common Stockholders' Equity
(Deficit)................................................................ F-5
Consolidated Statement of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Pro Forma Combined Condensed Financial Information (Unaudited)........... F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Optika Imaging Systems, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in common stockholders'
equity (deficit) and of cash flows present fairly, in all material respects,
the financial position of Optika Imaging Systems, Inc. and its subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
March 1, 1996
Boulder, Colorado
F-2
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, DECEMBER 31, MARCH 31, EQUITY
1994 1995 1996 MARCH 31, 1996
------------ ------------ ----------- --------------
(NOTE 1)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................... $ 771 $ 1,415 $ 831
Accounts receivable, net
of allowance for
doubtful accounts of
$76, $90 and $90 at
December 31, 1994, 1995
and March 31, 1996,
respectively............ 2,400 3,199 3,233
Other current assets..... 418 306 676
------- ------- -------
Total current assets.. 3,589 4,920 4,740
------- ------- -------
Fixed assets, net of accu-
mulated depreciation of
$517, $820 and $913 at
December 31, 1994, 1995
and March 31, 1996, re-
spectively............... 764 762 848
Other assets, net......... 97 500 503
------- ------- -------
$ 4,450 $ 6,182 $ 6,091
======= ======= =======
LIABILITIES, REDEEMABLE
CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-
term debt................ $ 367 $ 177 $ 337
Accounts payable......... 625 627 644
Accrued vacation......... 131 167 200
Accrued expenses......... 295 563 351
Deferred revenues........ 833 1,545 1,357
------- ------- -------
Total current
liabilities.......... 2,251 3,079 2,889
------- ------- -------
Long-term debt............ 353 266 357
Commitments and contingen-
cies (Note 9)
Preferred stock (1,493,024
shares authorized):
Series A mandatorily re-
deemable convertible
preferred stock; no par
value; 298,864 shares
issued and outstanding
at December 31, 1994,
1995 and March 31,
1996.................... 411 411 411 --
Series B mandatorily re-
deemable convertible
preferred stock; no par
value; 752,160 shares
issued and outstanding
at December 31, 1994,
1995 and March 31,
1996.................... 2,932 2,932 2,932 --
Series C mandatorily re-
deemable convertible
preferred stock; no par
value; 441,177 shares
issued and outstanding
at December 31, 1995 and
March 31, 1996.......... 1,461 1,461 --
Common stockholders' eq-
uity (deficit):
Common stock; no par val-
ue; 6,320,000 shares au-
thorized; 2,595,376,
2,843,930 and 2,846,930
shares
issued and outstanding
at December 31, 1994,
1995
and March 31, 1996, re-
spectively, and
4,347,394 at
March 31, 1996 pro
forma................... 307 799 805 $ 5,609
Accumulated deficit...... (1,804) (2,766) (2,764) (2,764)
------- ------- ------- -------
Total common
stockholders' equity
(deficit)............ (1,497) (1,967) (1,959) 2,845
------- ------- ------- -------
$ 4,450 $ 6,182 $ 6,091 $ 6,091
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1993 1994 1995 1995 1996
------- -------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses................. $ 6,924 $ 7,562 $ 8,333 $1,567 $2,506
Maintenance and other.... 2,119 1,690 2,135 392 600
------- -------- ------- ------ ------
Total revenues......... 9,043 9,252 10,468 1,959 3,106
Cost of revenues:
Licenses................. 471 413 316 51 131
Maintenance and other.... 2,073 1,889 1,823 410 387
------- -------- ------- ------ ------
Total cost of
revenues.............. 2,544 2,302 2,139 461 518
------- -------- ------- ------ ------
Gross profit............... 6,499 6,950 8,329 1,498 2,588
Operating expenses:
Sales and marketing...... 2,585 4,200 3,732 671 1,238
Research and
development............. 2,332 3,112 3,658 860 1,052
General and
administrative.......... 1,037 1,513 1,461 273 288
------- -------- ------- ------ ------
Total operating
expenses.............. 5,954 8,825 8,851 1,804 2,578
------- -------- ------- ------ ------
Income (loss) from opera-
tions..................... 545 (1,875) (522) (306) 10
Other expense:
Litigation settlements... 458 -- 373 -- --
Other expenses, net...... 18 25 38 15 8
------- -------- ------- ------ ------
Total other expense.... 476 25 411 15 8
------- -------- ------- ------ ------
Income (loss) before
provision (benefit) for
income taxes.............. 69 (1,900) (933) (321) 2
Provision (benefit) for in-
come taxes................ 42 (168) 29 5 --
------- -------- ------- ------ ------
Net income (loss).......... $ 27 $ (1,732) $ (962) $ (326) $ 2
======= ======== ======= ====== ======
Pro forma net income (loss)
per common share
(unaudited)............... $ (.20) $ (.07) $ .00
======= ====== ======
Pro forma weighted average
number of common shares
outstanding............... 4,795 4,771 5,586
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON
COMMON STOCK STOCKHOLDERS'
---------------- ACCUMULATED EQUITY
SHARES AMOUNT DEFICIT (DEFICIT)
--------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992........ 2,541,376 $ 258 $ (99) $ 159
Common stock issued upon exercise
of stock options.................. 26,000 27 -- 27
Net income......................... -- -- 27 27
--------- ----- ------- -------
Balance at December 31, 1993........ 2,567,376 285 (72) 213
Common stock issued upon exercise
of stock options.................. 28,000 22 -- 22
Net loss........................... -- -- (1,732) (1,732)
--------- ----- ------- -------
Balance at December 31, 1994........ 2,595,376 307 (1,804) (1,497)
Common stock issued upon exercise
of stock options.................. 32,123 30 -- 30
Warrants issued in settlement of
litigation........................ -- 57 -- 57
Common stock issued for
acquisitions...................... 216,431 405 -- 405
Net loss........................... -- -- (962) (962)
--------- ----- ------- -------
Balance at December 31, 1995........ 2,843,930 799 (2,766) (1,967)
Common stock issued upon exercise
of stock options.................. 3,000 6 -- 6
Net income......................... -- -- 2 2
--------- ----- ------- -------
Balance at March 31, 1996 (unau-
dited)............................. 2,846,930 $ 805 $(2,764) $(1,959)
========= ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1993 1994 1995 1995 1996
-------- -------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)............... $ 27 $ (1,732) $ (962) $ (326) $ 2
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization.. 216 219 338 106 122
Loss on disposal of assets..... 15
Provision for loss on accounts
receivable.................... (76) (14)
Litigation settlement.......... 300 282
Change in assets and
liabilities:
Accounts receivable........... (1,118) 133 (677) 660 (34)
Other assets.................. (43) (132) 64 (236) (402)
Accounts payable.............. 92 230 (66) (115) 17
Accrued expenses.............. 346 (394) 234 (52) (179)
Deferred revenue.............. 189 455 659 139 (188)
-------- -------- ------- ------ -------
Net cash provided (used) by
operations.................. 9 (1,297) (127) 176 (662)
-------- -------- ------- ------ -------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures............ (72) (158) (316) (36) (179)
Cash acquired in acquisition.... 108
-------- -------- ------- ------ -------
Net cash used in investing
activities.................. (72) (158) (208) (36) (179)
-------- -------- ------- ------ -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of
preferred stock, net........... 1,935 997 1,461
Principal payments on long-term
debt........................... (265) (534) (696) (131) (68)
Proceeds from issuance of long-
term debt...................... 184 319
Proceeds from issuances of
common stock................... 27 22 30 6
-------- -------- ------- ------ -------
Net cash provided (used) by
financing activities........ 1,697 485 979 (131) 257
-------- -------- ------- ------ -------
Net increase (decrease) in
cash........................... 1,634 (970) 644 9 (584)
Cash at beginning of period..... 107 1,741 771 771 1,415
-------- -------- ------- ------ -------
Cash at end of period........... $ 1,741 $ 771 $ 1,415 $ 780 $ 831
======== ======== ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF NON-
CASH TRANSACTIONS
Capital lease obligations for
purchase of equipment.......... $ 278 $ 381
Interest paid................... 26 54 $ 54 $ 19 $ 10
Income taxes paid (refund)...... 132 (8) 130
Assets obtained in acquisition.. 498
Liabilities assumed in
acquisition.................... 200
Common stock issued in
acquisition.................... 405
Note issued in litigation
settlement..................... 225
Warrants issued in litigation
settlement..................... 57
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Optika Imaging Systems, Inc., a California corporation, and its subsidiaries
("Optika" or the "Company") was formed in 1988 and currently develops and
markets high-performance, client/server integrated imaging software. The
Company licenses its software under license agreements and provides services
including maintenance, training and implementation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Optika Imaging Systems, Inc. and its wholly owned subsidiaries TEAMWorks
Technologies, Inc., Optika Imaging Systems Europe, Ltd. and Optika Asia, Inc.
All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
License revenues are generally recognized upon shipment. License revenues
related to contracts with significant post-delivery performance obligations
are recognized when the Company's obligations are no longer significant or
when the customer accepts the product, as applicable. Maintenance revenues for
maintaining, supporting and providing upgrades are deferred and recognized
ratably over the maintenance period which is generally one year. Other
revenues consist of training, consulting and implementation services and are
recognized as such services are performed.
Depreciation and Amortization
Office equipment and furniture are recorded at cost and depreciated using
the straight-line method over estimated useful lives ranging from three to
five years. Goodwill represents the excess of the purchase price over the fair
market value of assets acquired and is being amortized over a four- year
period.
Software Development Costs
Research and development costs are expensed as incurred. Statement of
Financial Accounting Standards No. 86 (SFAS No. 86) requires the
capitalization of certain software development costs once technological
feasibility is established. The capitalized cost is then amortized on a
straight-line basis over the estimated product life, or on the ratio of
current revenue to total projected product revenue, whichever is greater. To
date, the period between achieving technological feasibility and the general
availability of such software has been short. Consequently, software
development costs qualifying for capitalization have been insignificant and
therefore, the Company has not capitalized any software development costs.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities as well as the reported amounts of revenue and
expenses. Significant estimates have been made by management in several areas
including the collectibility of accounts receivable and the valuation
allowance recorded against net deferred tax assets. Actual results could
differ from these estimates, making it reasonably possible that a change in
these estimates could occur in the near term.
Interim Financial Data
The interim financial data as of March 31, 1996 and for the three months
ended March 31, 1995 and March 31, 1996 is unaudited; however, in the opinion
of management of the Company, the interim data includes all
F-7
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods presented. All data
presented in these notes at such dates and for such periods are unaudited.
Unaudited Pro Forma Stockholders' Equity
The Board of Directors authorized management of the Company to file a
registration statement with the Securities and Exchange Commission ("SEC")
permitting the Company to sell shares of its common stock to the public. If
the Company's initial public offering is consummated under the terms presently
anticipated, all of the mandatorily redeemable convertible preferred stock
outstanding will automatically convert into 1,500,464 shares of common stock.
Unaudited pro forma stockholders' equity as of March 31, 1996, as set forth on
the accompanying balance sheet, is adjusted for the anticipated conversion of
preferred stock.
Pro Forma Net Income (Loss) Per Common Share
The Company's historical capital structure is not indicative of its
prospective structure due to the automatic conversion of all shares of
mandatorily redeemable convertible preferred stock into common stock
concurrent with the closing of the Company's anticipated initial public
offering. Accordingly, historical net income (loss) per common share is not
considered meaningful and has not been presented herein.
Pro forma net income (loss) per common share is computed based on the
weighted average number of common shares outstanding and gives effect to
certain adjustments described below. Common equivalent shares are not included
in the per share calculation where the effect of their inclusion would be
antidilutive, except that, in conformity with SEC requirements, common and
common equivalent shares issued during the twelve-month period prior to the
filing of the Company's proposed initial public offering have been included in
the calculation as if they were outstanding for all periods, using the
treasury stock method and the assumed initial public offering price of $10 per
share. Additionally, all outstanding shares of mandatorily redeemable
convertible preferred stock are assumed to have been converted to common stock
at the time of their issuance.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash,
short-term trade receivables and payables and long-term debt, approximate
their fair values.
Export Sales
The Company had export sales totaling approximately $600,000, $1,205,000 and
$1,542,500 for the years ended December 31, 1993, 1994 and 1995, respectively,
in Europe, Asia and Latin America.
Adoption of New Accounting Standards
The Company has reviewed Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" and No. 123 "Accounting for Stock-Based Compensation" for
applicability. Based on management's estimates and its intention to continue
to apply its existing accounting for stock options, the adoption of these
standards is not expected to have a material effect on the Company's
consolidated financial statements.
2. BUSINESS COMBINATIONS
On January 28, 1994, the Company issued approximately 272,400 shares of its
common stock for all of the outstanding common stock of TEAMWorks
Technologies, Inc. ("TEAMWorks"). The Company also reserved an additional
15,320 shares for issuance under Optika's stock option plan in connection with
the Company's assumption of TEAMWork's outstanding options. The combination
was accounted for as a pooling of interests and, accordingly, the consolidated
financial statements for all periods presented include the operations of
TEAMWorks. Separate pre-combination revenues and net income (loss) of
TEAMWorks was not significant for the period from January 1, 1994 through
January 28, 1994. Separate pre-combination revenues and net income (loss) of
Optika and TEAMWorks for 1993 were as follows:
F-8
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<S> <C>
Revenues:
Optika......................................................... $8,181,000
TEAMWorks...................................................... 861,850
----------
Total revenues............................................... $9,042,850
==========
Net income (loss):
Optika......................................................... $ 156,000
TEAMWorks...................................................... (129,000)
----------
Net income................................................... $ 27,000
==========
</TABLE>
On December 1, 1995, the Company acquired certain assets and assumed certain
liabilities of two of its resellers, IPRS Asia (S) Pte Ltd. and Intuit
Development Limited (the "acquired companies"). The acquisitions were
accounted for using the purchase method. The results of operations for the
acquired companies for the one-month period ended December 31, 1995 are
included in the Optika Consolidated Statement of Operations for the year ended
December 31, 1995. The purchase price of the acquired companies was 216,431
shares of common stock and resulted in $350,350 of goodwill. Goodwill is being
amortized on a straight-line basis over a four-year period beginning January,
1996.
The following table presents audited pro forma results of operations as if
the acquisitions had occurred as of the beginning of the respective periods
after giving effect to certain adjustments, including amortization of
goodwill. The unaudited pro forma information is provided for comparative
purposes only and does not purport to be indicative of the results which
actually would have been obtained if the acquisition had been effected for the
periods indicated, or of results which may be obtained in the future:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31,
1995 1994
-------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues.................... $ 11,070 $ 9,824
Net loss.................... $ (1,355) $ (1,890)
Pro forma net loss per com-
mon share (see Note 1)..... $ (.28)
</TABLE>
3. NOTES RECEIVABLE--RELATED PARTIES
Notes receivable aggregating $98,820 and $106,800 (included in other assets)
at December 31, 1994 and 1995, respectively, are due from certain
stockholders, officers and employees. The notes bear interest ranging from 5%
to 7.5% and are due through January 1998. Notes receivable were approximately
$95,000 and $102,500 at December 31, 1994 and 1995, respectively.
4. BANK CREDIT FACILITY
During 1995, the Company entered into a $1,500,000 bank credit facility with
a bank. This bank credit facility consists of (i) a working capital line of
credit pursuant to which the Company can draw up to the lesser of $1,200,000
or a borrowing base determined by eligible accounts receivable which bears
interest at the bank's prime rate plus 1.5% (actual rate of 10% at December
31, 1995) and (ii) a term facility of $300,000 to finance capital expenditures
which bears interest at the bank's prime rate plus 2.0% (actual rate of 10.5%
at December 31, 1995). At December 31, 1995 there were no amounts outstanding
under the working capital line and $1,200,000 was available for borrowing
thereunder. The borrowings under the term facility at December 31, 1995 are
due December 1998 and are secured by certain equipment (see Note 5).
Approximately $115,000 was available for borrowing under the term facility at
December 31, 1995. The working capital line of credit expires June 30, 1996.
The bank credit facility contains certain financial covenants which must be
maintained by the Company.
F-9
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt, including capitalized lease obligations consists of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1995
------ ------
<S> <C> <C>
Term loan payable to bank.................................. -- $ 185
Notes payable to stockholders; non-interest bearing;
balance due July 1997; unsecured.......................... $ 145 43
Notes payable for litigation settlement, non-interest bear-
ing; unsecured............................................ -- 206
Other...................................................... -- 9
Note payable; interest at prime rate plus 2% (10.50% at De-
cember 31, 1994); paid during 1995; unsecured............. 75 --
Capitalized lease obligations.............................. 500 --
------ ------
720 443
Less current portion....................................... (367) (177)
------ ------
$ 353 $ 266
====== ======
</TABLE>
Notes Payable for Litigation Settlements
During 1993, the Company settled a lawsuit for $300,000. The Company paid
$100,000 in cash and issued a note payable for $200,000, payable in quarterly
installments of $25,000 beginning November 1993 through August 1995. The
Company also incurred $158,000 of legal expenses related to this litigation.
During 1995, the Company settled a lawsuit for $282,000 by issuing a non-
interest bearing note and warrants to purchase 95,000 shares of common stock.
The warrants have an exercise price of $1.875 per share and expire in 2000. The
note is payable in monthly installments beginning November 1995 through October
1997, or earlier in the event of an initial public offering. The Company also
incurred $91,000 of legal expenses related to this litigation.
Debt Maturities
Scheduled maturities of long-term debt at December 31, 1995 are as follows
(in thousands):
<TABLE>
<CAPTION>
DEBT
MATURITIES
----------
<S> <C>
1996......................................................... $ 193
1997......................................................... 209
1998......................................................... 72
-----
474
Less: amount representing interest........................... (31)
-----
443
Less: current portion........................................ (177)
-----
$ 266
=====
</TABLE>
F-10
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lease Commitments
The Company has non-cancelable operating lease arrangements for office space
and certain office equipment. Future minimum annual operating lease payments
are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASE
OBLIGATIONS
-----------
<S> <C>
1996........................................................ $469
1997........................................................ 233
1998........................................................ 60
1999........................................................ 4
----
$766
====
</TABLE>
Rent expense related to these and other operating leases approximated
$284,000, $467,000 and $488,000 for the years ended December 31, 1993, 1994
and 1995.
6. INCOME TAXES
The Company's provision (benefit) for income taxes is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1993 1994 1995
---- ----- ----
<S> <C> <C> <C>
Current:
Federal.................................................... $12 $(184) --
State...................................................... 5 1 --
Foreign.................................................... 25 15 $29
--- ----- ---
$42 $(168) $29
=== ===== ===
</TABLE>
The Company's net deferred income tax assets are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
GROSS DEFERRED TAX ASSETS
Net operating loss carryforwards.................. $ 543 $ 895
Tax credit carryforwards.......................... 248 341
Deferred revenue.................................. 30 20
Accrued expenses.................................. 130 113
----- -------
951 1,369
Less: deferred tax asset valuation allowance...... (938) (1,359)
----- -------
13 10
----- -------
GROSS DEFERRED TAX LIABILITIES
Accelerated tax depreciation...................... (13) (10)
----- -------
Net deferred tax asset............................ $ -- $ --
===== =======
</TABLE>
F-11
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Due to the Company's history of pre-tax losses and uncertainty surrounding
the timing of realizing the benefits of its net operating loss carryforwards,
tax credit carryforwards, and future net tax deductibles, the Company has
recorded a valuation allowance against its otherwise recognizable net deferred
tax assets.
The provision (benefit) for income taxes differs from the amount computed by
applying the U.S. federal income tax rate of 34% to income (loss) before income
taxes as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
U.S. federal income tax expense (benefit) at statutory
rate................................................... $23 $(646) $(317)
Increases (decreases) resulting from:
Unrecognized benefit of net operating loss
carryforwards and future net deductions.............. -- 411 310
Non-deductible items.................................. 3 17 35
Foreign tax rate differentials........................ -- (13) (1)
Effect of graduated tax rates in the carryback
period............................................... -- 63 --
Other................................................. 16 -- 2
--- ----- -----
Provision (benefit) for income taxes.................... $42 $(168) $ 29
=== ===== =====
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $2,342,000 which expire beginning in 2009 through 2010.
Additionally, the Company has various tax credit carryforwards aggregating
approximately $341,000 which expire beginning in 2005 through 2009; utilization
of these credit carryforwards is limited on an annual basis due to regulations
limiting utilization after a "change in ownership," which occurred in 1994 and
is subject to possible further limitations for future ownership changes,
including the proposed initial public offering described in Note 1.
7. CAPITAL STOCK AND STOCK OPTIONS
Stock Split
In August 1994, the Company effected a four-for-one stock split. All stock
and stock option amounts presented in these consolidated financial statements
reflect this stock split.
Mandatorily Redeemable Convertible Preferred Stock
The Board of Directors has authorized 1,493,024 shares of preferred stock
(298,864, 752,160 and 442,000 designated as Series A, Series B and Series C
mandatorily redeemable convertible preferred stock, respectively). The
following table reflects issuances of Series A, B and C preferred stock for
each of the three years ended December 31, 1995 and for the three months ended
March 31, 1996 (in thousands, except for share amounts):
<TABLE>
<CAPTION>
MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK
-----------------------------
SHARES AMOUNT
--------------- -------------
<S> <C> <C>
Balances at December 31, 1992................. 298,864 $ 411
Series B preferred stock issued for cash,
net.......................................... 501,440 1,935
--------------- ------------
Balance at December 31, 1993.................. 800,304 2,346
Series B preferred stock issued for cash,
net.......................................... 250,720 997
--------------- ------------
Balance at December 31, 1994.................. 1,051,024 3,343
Series C preferred stock issued for cash,
net.......................................... 441,177 1,461
--------------- ------------
Balance at December 31, 1995 and March 31,
1996......................................... 1,492,201 $ 4,804
=============== ============
</TABLE>
F-12
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Each share of outstanding Series A, Series B and Series C preferred stock is
entitled to as many votes as the number of shares of common stock into which
it is convertible.
The conversion ratio for Series A and Series C preferred stock is one share
of common stock for each share of preferred stock, subject to certain
antidilution provisions. The conversion ratio for Series B preferred stock is
approximately 1.011 shares of common stock for each share of preferred stock
subject to certain additional antidilution provisions. At December 31, 1995,
1,500,464 authorized and unissued shares of common stock are reserved for
issuance upon conversion of the Series A, Series B and Series C preferred
stock.
Series A, Series B and Series C preferred stock have dividend rights equal
to dividends payable to common stockholders. Additionally, the holders of
Series A, B and C preferred stock have the option to require redemption
beginning November 1, 1998 or upon the occurrence of certain other events. The
redemption price and liquidation price of the Series A, Series B and Series C
preferred stock is $1.51, $3.99 and $3.40 per share, respectively, plus
dividends in arrears, if any. Additionally, all Series A, B and C preferred
stock automatically convert to shares of common stock at their respective
conversion rates upon closing of a qualified public offering.
Stock Options
The Company has a stock option plan (the "1994 Stock Plan") whereby
2,040,000 aggregate shares of common stock are reserved for issuance pursuant
to incentive and non-qualified stock options. Incentive stock options are
granted at exercise prices not less than the fair market value of the stock on
the date of grant as determined by the Board of Directors. Options generally
vest over four years. Certain options are subject to accelerated vesting
provisions.
The following is a summary of the stock option activity for the years ended
December 31, 1995, 1994 and for the three months ended March 31, 1996 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options outstanding December 31, 1992............ 574 $ .4425--1.0625
Options granted................................. 133 1.0625--1.875
Options exercised............................... (26) 1.0625
----- ---------------
Options outstanding December 31, 1993............ 681 .4425--1.875
Options granted................................. 372 1.875
Options exercised............................... (28) .75
Options forfeited............................... (84) 1.0625--1.875
-----
Options outstanding at December 31, 1994......... 941 .4425--1.875
Options granted................................. 792 1.875
Options exercised............................... (32) .4425--1.875
Options forfeited............................... (152) 1.0625--1.875
-----
Options outstanding at December 31, 1995......... 1,549 .4425--1.875
Options granted................................. 219 3.40
Options exercised............................... (3) 1.875
Options forfeited............................... (20) 1.875
-----
Options outstanding at March 31, 1996 (unau-
dited).......................................... 1,745 $ .4425--3.40
</TABLE>
At December 31, 1995, 529,982 options are exercisable and 135,405 options
are available for grant. The weighted average exercise price per share of
outstanding options and warrants at March 31, 1996 is $1.78 per share.
F-13
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. 401(K) RETIREMENT SAVINGS PLAN
Effective January 1, 1994, the Company adopted a qualified 401(k) retirement
savings plan for all employees. Participants may contribute up to 15% of their
gross pay. The Company contributions are discretionary and vest at 20% per
year over 5 years. The Company did not contribute to this plan in 1994 or
1995.
9. CONTINGENCIES
The Company is, from time to time, subjected to certain claims, assertions
or litigation by outside parties as part of its ongoing business operations.
The outcomes of any such contingencies are not expected to have a material
adverse effect on the financial condition, operations or cash flows of the
Company.
10. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
On May 21, 1996, the Board of Directors adopted an Employee Stock Purchase
Plan authorizing 250,000 shares of common stock pursuant to such plan. This
plan will allow employees of the Company to purchase shares of common stock
through periodic payroll deductions at semi-annual intervals.
Subsequent to December 31, 1995, the Board of Directors increased the number
of authorized shares pursuant to the Company's 1994 Stock Plan from 2,040,000
to 2,790,000.
F-14
<PAGE>
OPTIKA IMAGING SYSTEMS, INC., IPRS ASIA (S) PTE LTD. AND INTUIT DEVELOPMENT
LIMITED
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On December 1, 1995, the Company acquired certain assets and assumed certain
liabilities of two of its resellers, IPRS Asia (S) Pte Ltd. and Intuit
Development Ltd. (the "acquired companies").
The following unaudited pro forma combined condensed financial information
reflects the business combination between the Company and the acquired
companies accounted for using the purchase method of accounting. The pro forma
combined condensed statement of operations combines the Company's historical
statements of operations with the acquired companies' historical statements of
operations for the year ended December 31, 1995. The pro forma combined
condensed statement of operations reflects the combination as if it had
occurred at the beginning of the year presented.
The unaudited pro forma combined condensed statement of operations are not
necessarily indicative of the operating results that would have been achieved
had the transaction been effected as of the beginning of such period and
should not be construed as representative of future operations.
The historical consolidated financial statements of the Company are included
elsewhere in this Prospectus and should be read in conjunction with those
consolidated financial statements and related notes.
F-15
<PAGE>
OPTIKA IMAGING SYSTEMS, INC., IPRS ASIA (S) PTE LTD. AND INTUIT DEVELOPMENT
LIMITED
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
---------------------
COMBINED
ACQUIRED PRO FORMA PRO FORMA
OPTIKA COMPANIES(1) ADJUSTMENTS COMBINED
------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues......................... $10,468 $ 776 $(174)(2) $11,070
Cost of revenues................. 2,139 174 (174)(2) 2,139
------- ------ ----- -------
Gross profit................... 8,329 602 8,931
------- ------ -------
Total operating expenses......... 8,851 903 88 (3) 9,842
------- ------ ----- -------
Loss from operations............. (522) (301) (88) (911)
Litigation settlement............ 373 373
Other expenses (income), net..... 38 (25) 13
------- ------ ----- -------
Loss before provision for income
taxes........................... (933) (276) (88) (1,297)
Provision for income taxes....... 29 29 58
------- ------ -------
Net loss......................... $ (962) $ (305) $ (88) $(1,355)
======= ====== ===== =======
Pro forma net loss per common
share........................... $ (.20) $ (.28)
======= =======
Pro forma weighted average number
of common shares outstanding.... 4,795 4,795
======= =======
</TABLE>
- --------
(1) The amounts included in the combined acquired companies column are the
results of the acquired companies for the eleven months ended November 30,
1995. Their combined results for December 1995 are included in the
Company's historical results.
(2) The pro forma adjustment includes the elimination of sales made by the
Company to the combined acquired companies. Additionally, the shares
issued in the acquisition are not presented as a pro forma adjustment
because the pro forma weighted average number of common shares outstanding
includes such shares as outstanding for the entire year ended December 31,
1995.
(3) The pro forma adjustment includes the amortization of $350,325 goodwill
over a four-year period.
See accompanying notes to pro forma combined condensed financial information.
F-16
<PAGE>
[GRAPHICAL REPRESENTATION OF THREE COMPUTER SCREENS
DISPLAYING MEDIPOWER SUITE APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER, ANY UNDER-
WRITER OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 15
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 41
Certain Transactions..................................................... 51
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 60
Experts.................................................................. 60
Additional Information................................................... 60
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,900,000 SHARES
[LOGO]
COMMON STOCK
-----------
PROSPECTUS
, 1996
-----------
VOLPE, WELTY & COMPANY
PIPER JAFFRAY INC.
NEEDHAM & COMPANY, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 12,650
NASD filing fee.................................................. 4,169
Nasdaq National Market listing fee............................... *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue sky filing fees and expenses................................ 10,000
Registrar and transfer agent fees................................ *
Officers and directors liability insurance premiums.............. *
Miscellaneous fees and expenses.................................. *
----------
Total.......................................................... $1,000,000
==========
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). The Registrant's Bylaws provides for
mandatory indemnification of its directors and officers and permissible
indemnification of employees and other agents to the maximum extent permitted
by the Delaware General Corporation Law. The Registrant's Amended and Restated
Certificate of Incorporation provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as directors to the Registrant and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. The Registrant will
enter into Indemnification Agreements with its officers and directors, a form
of which is attached as Exhibit 10.1 hereto and incorporated herein by
reference. The Indemnification Agreements provide the Registrant's officers
and directors with further indemnification to the maximum extent permitted by
the Delaware General Corporation Law. Reference is also made to Section 7 of
the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities, and
Section 7 of the Amended and Restated Registration Agreement contained in
Exhibit 4.3 hereto, indemnifying certain of the Registrant's stockholders,
including controlling stockholders, and the officers and directors, against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has issued and sold the following securities within the past
three (3) years (which have been adjusted to reflect the Company's four-for-
one forward stock split effected on November 22, 1994):
II-1
<PAGE>
1. From July 1990 through May 15, 1996, the Registrant granted options to
purchase 1,831,595 shares of Common Stock (net of expired, exercised and
cancelled options) to various service providers to the Registrant under its
1994 Stock Option/Stock Issuance Plan and related predecessor plans with
exercise prices ranging from $.75 per share to $5.50, per share, including
outstanding options assumed by the Company in an acquisition, held by three
individuals.
2. On January 31, 1994, the Registrant issued 272,400 shares of its
Common Stock to a group of five individuals in exchange for all of the
outstanding capital stock of TEAMWorks Technologies, Inc., a Massachusetts
corporation.
3. On December 17, 1993, the Registrant issued and sold 501,440 shares of
Series B Preferred Stock to Frontenac VI Limited Partnership for aggregate
consideration of $1,999,993.
4. On March 18, 1994, the Registrant issued and sold 250,720 shares of
Series B Preferred Stock to JMI Equity Fund, L.P., for aggregate
consideration of $999,997.
5. On November 1, 1995, the Registrant issued warrants to purchase 95,000
shares of its Common Stock to two individuals in settlement of litigation.
6. On November 22, 1995, the Registrant issued and sold 294,118 shares of
Series C Preferred Stock to Frontenac VI Limited Partnership and 147,069
shares of Series C Preferred Stock to JMI Equity Fund, L.P. for aggregate
consideration of $1,500,002.
7. On November 30, 1995, the Registrant issued 166,485 shares of its
Common Stock in exchange for substantially all of the assets of IPRS Asia
(S) Pte Ltd., a Singapore corporation, and Intuit Development Ltd., a Hong
Kong corporation.
8. In June 1996, the Registrant's predecessor California corporation will
be reincorporated in Delaware by way of a merger with and into a Delaware
corporation, pursuant to which one share of the Common Stock of the
Delaware corporation will be issued for each share of the Common Stock of
the California corporation, and one share of Preferred Stock of the
Delaware corporation will be issued for each share of Preferred Stock of
the California corporation, each share of the Preferred Stock of the
Delaware corporation being of the same series and having identical rights,
preferences and privileges as the share of Preferred Stock of the
California corporation which it replaces.
The issuances of the above securities were deemed exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. In addition,
certain issuances described in Item 15(1) were deemed to be exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Form of Agreement and Plan of Merger of Optika Imaging Systems, Inc.,
a California corporation, and the Registrant.
2.2 Agreement and Plan of Reorganization, dated January 31, 1994, by and
between the Registrant, TEAMWorks and certain other parties named
therein.
2.3 Asset Purchase Agreement, dated November 13, 1995, by and among the
Registrant, Optika Asia, Inc., IPRS Asia (S) Pte Ltd., and other
entities named therein.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Registrant.
Form of Amended and Restated Certificate of Incorporation of the
3.2 Registrant.
3.3 Bylaws of the Registrant.
4.1 Specimen Common Stock certificate.*
4.2 Amended and Restated Shareholders' Agreement, dated November 22, 1995,
by and among the Registrant and the entities named therein.
4.3 Amended and Restated Registration Agreement, dated November 22, 1995,
by and among the Registrant and the entities named therein, including
the First Amendment thereto.
4.4 Form of Warrant to purchase Common Stock dated November 1, 1995.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.*
Form of Indemnification Agreement between the Registrant and each of
10.1 its directors and officers.
The Registrant's 1994 Stock Option/Stock Incentive Plan, as restated
10.3 and amended.*
10.4 The Registrant's 1996 Management Incentive Compensation Plan.*
10.5 The Registrant's Employee Stock Purchase Plan.*
10.6 Loan and Security Agreement, dated June 16, 1995, by and between the
Registrant and Silicon Valley Bank, including Amendments No. 1 and 2
thereto.
10.7 Office Lease Agreement, dated December 1, 1992, by and between the
Registrant and Lincoln National, regarding the space located at 5755
Mark Dabling Boulevard, Colorado Springs, Colorado, and the First
Amendment thereto, dated February 8, 1994.
10.8 Employment Agreement by and between the Registrant and Mr. Mark K.
Ruport, effective
February 18, 1995.
10.9 Employment Agreement by and between the Registrant and Mr. Steven M.
Johnson, effective
May 15, 1996.
Employment Agreement by and between the Registrant and Mr. Marc Fey,
10.10 effective May 4, 1994.
10.11 Form of Business Solutions Partner (Reseller) Agreement.
10.12 Form of FilePower Suite Software License Agreement.
10.13 Technology Transfer Agreement, dated February 20, 1992, by and between
the Registrant, Mr. Paul Carter and Mr. Malcolm Thomson.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule
</TABLE>
- --------
* To be provided by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, Indemnification Agreements
entered into between the Registrant and its officers and directors, the
Underwriting Agreement, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question 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 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 COLORADO
SPRINGS, STATE OF COLORADO, ON THIS 22 DAY OF MAY, 1996.
Optika Imaging Systems, Inc.
/s/ Mark K. Ruport
By: _________________________________
MARK K. RUPORT PRESIDENT AND CHIEF
EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark K. Ruport and Steven M. Johnson, and each
of them singly, as his true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended and otherwise), 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 the full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the foregoing, as full to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or her substitute, may lawfully do or cause to
be done by virtue hereof.
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 and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Mark K. Ruport President, Chief May 22, 1996
- ------------------------------------- Executive Officer
MARK K. RUPORT and Chairman of the
Board of Directors
(Principal
Executive Officer
/s/ Steven M. Johnson Vice President-- May 22, 1996
- ------------------------------------- Finance, Chief
STEVEN M. JOHNSON Financial Officer
and Secretary
(Principal
Financial and
Accounting Officer)
/s/ Paul Carter Director May 22, 1996
- -------------------------------------
PAUL CARTER
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Malcolm D. Thomson Director May 22, 1996
- -------------------------------------
MALCOLM D. THOMSON
/s/ Richard A. Bass Director May 22, 1996
- -------------------------------------
RICHARD A. BASS
/s/ James E. Crawford III Director May 22, 1996
- -------------------------------------
JAMES E. CRAWFORD III
/s/ Harry S. Gruner Director May 22, 1996
- -------------------------------------
HARRY S. GRUNER
/s/ Graham O. King Director May 22, 1996
- -------------------------------------
GRAHAM O. KING
II-6
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AGREEMENT AND PLAN OF MERGER OF OPTIKA MERGER SUBSIDIARY, INC.,
A DELAWARE CORPORATION
AND
OPTIKA IMAGING SYSTEMS, INC.,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of this day of June,
----
1996 (the "Agreement"), is between Optika Merger Subsidiary, Inc., a Delaware
corporation ("Optika-Delaware") and Optika Imaging Systems, Inc., a California
corporation ("Optika-California"). Optika-Delaware and Optika-California are
sometimes referred to herein as the "Constituent Corporations."
R E C I T A L S
---------------
A. Optika-Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has a total authorized capital stock of
Twenty-Three Million Four Hundred Ninety-Two Thousand Two Hundred One
(23,492,201) shares. The number of shares of Preferred Stock of Optika-Delaware
authorized to be issued is Three Million Four Hundred Ninety-Two Thousand Two
Hundred One (3,492,201), par value $0.001, of which Two Hundred Ninety-Eight
Thousand Eight Hundred Sixty-Four (298,864) shares have been designated Series A
Participating Convertible Preferred Stock (the "Series A Preferred Stock"),
Seven Hundred Fifty-Two Thousand One Hundred Sixty (752,160) shares have been
designated Series B Participating Convertible Preferred Stock (the "Series B
Preferred Stock"), and Four Hundred Forty-One Thousand One Hundred Seventy-Seven
(441,177) shares have been designated Series C Participating Convertible
Preferred Stock (the "Series C Preferred Stock"). No shares of Preferred Stock
were outstanding as of the date hereof and prior to giving effect to the
transactions contemplated hereby. The number of shares of Common Stock
authorized to be issued is Twenty-Five Million (25,000,000), par value $0.001.
As of the date hereof, and before giving effect to the transactions contemplated
hereby, 10,000 shares of Common Stock were issued and outstanding, all of which
were held by Optika-California.
B. Optika-California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital stock of
Nine Million Four Hundred Ninety-Three Thousand Twenty-Four (9,493,024) shares.
The number of shares of Preferred Stock authorized to be issued is One Million
Four Hundred Ninety-Three Thousand Twenty-Four (1,493,024), no par value, of
which Two Hundred Ninety-Eight Thousand Eight Hundred Sixty-Four (298,864)
shares, have been designated Series A Participating Convertible Preferred Stock
(the "Series A Preferred Stock"), Seven Hundred Fifty-Two Thousand One Hundred
Sixty (752,160) shares have been designated Series B Participating Convertible
Preferred Stock (the "Series B Preferred Stock"), and Four Hundred Forty-Two
Thousand (442,000) shares have been designated Series C Participating
Convertible Preferred Stock (the "Series C Preferred Stock"). The
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number of shares of Common Stock authorized to be issued is Eight Million
(8,000,000), no par value. As of the date hereof, and before giving effect to
the transactions contemplated hereby, Two Hundred Ninety-Eight Thousand Eight
Hundred Sixty-Four (298,864) shares of Series A Preferred Stock were issued and
outstanding, Seven Hundred Fifty-Two Thousand One Hundred Sixty (752,160) shares
of Series B Preferred Stock were issued and outstanding, Four Hundred Forty-One
Thousand One Hundred Seventy-Seven (441,177) shares of Series C Preferred Stock
were issued and outstanding, and Two Million Eight Hundred Forty-Seven Thousand
Thirty (2,847,030) shares of Common Stock were issued and outstanding.
C. The Board of Directors of Optika-California has determined that,
for the purpose of effecting the reincorporation of Optika-California in the
State of Delaware, it is advisable and in the best interests of Optika-
California that Optika-California merge with and into Optika-Delaware upon the
terms and conditions herein provided.
D. The respective Boards of Directors of Optika-Delaware and Optika-
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective sole stockholder and shareholders, and
executed by the undersigned officers.
E. Optika-Delaware is a wholly-owned subsidiary of Optika-California.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, Optika-Delaware and Optika-California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
------
General Corporation Law of the State of Delaware and the General Corporation Law
of the State of California, Optika-California shall be merged with and into
Optika-Delaware (the "Merger"), the separate existence of Optika-California
shall cease and Optika-Delaware shall be, and is herein sometimes referred to
as, the "Surviving Corporation," and the name of the Surviving Corporation shall
be Optika Imaging Systems, Inc.
1.2 Filing and Effectiveness. The Merger shall become effective when
------------------------
the following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and approved
by the shareholders of Optika-California and the sole stockholder of Optika-
Delaware in accordance with the requirements of the General Corporation Law of
the State of California and the General Corporation Law of the State of
Delaware;
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(b) All of the conditions precedent to the consummation of the Merger
specified in this Agreement shall have been satisfied or duly waived by the
party entitled to satisfaction thereof; and
(c) An executed Certificate of Merger or an executed counterpart of
this Agreement meeting the requirements of the General Corporation Law of the
State of Delaware shall have been filed with the Secretary of State of the State
of Delaware.
(d) An executed counterpart of the Certificate of Merger, an executed
counterpart of this Agreement or any other document filed with the Secretary of
State of the State of Delaware pursuant to section (c) above, shall have been
filed with the Secretary of State of the State of California.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger, the
--------------------
separate existence of Optika-California shall cease and Optika-Delaware, as the
Surviving Corporation (i) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (ii) shall be subject to all actions previously taken by its and
Optika-California's Board of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of Optika-California
in the manner more fully set forth in Section 259 of the General Corporation Law
of the State of Delaware, (iv) shall continue to be subject to all of the debts,
liabilities and obligations of Optika-Delaware as constituted immediately prior
to the Effective Date of the Merger, and (v) shall succeed, without other
transfer, to all of the debts, liabilities and obligations of Optika-California
in the same manner as if Optika-Delaware had itself incurred them, all as more
fully provided under the applicable provisions of the General Corporation Law of
the State of Delaware and the General Corporation Law of the State of
California.
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation
----------------------------
of Optika-Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Optika-Delaware as in effect immediately
------
prior to the Effective Date of the Merger shall continue in full force and
effect as the
3
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Bylaws of the Surviving Corporation until duly amended in accordance with the
provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Optika-
----------------------
Delaware immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors shall
have been duly elected and qualified or until as otherwise provided by law, the
Certificate of Incorporation of the Surviving Corporation or the Bylaws of the
Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 Optika-California Common Shares. Upon the Effective Date of the
-------------------------------
Merger, each share of Optika-California Common Stock, no par value, issued and
outstanding immediately prior thereto shall by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such shares or any
other person, be converted into and exchanged for one (1) fully paid and
nonassessable share of Common Stock, par value $0.001 per share, of the
Surviving Corporation. No fractional share interests of the Surviving
Corporation Common Stock shall be issued but shall, instead, be paid in cash by
Optika-Delaware to the holder of such shares.
3.2 Optika-California Preferred Shares.
----------------------------------
(a) Series A Convertible Preferred Stock. Upon the Effective Date of
------------------------------------
the Merger, each share of Series A Preferred Stock of Optika-California, no par
value, issued and outstanding immediately prior to the Merger, which shares are
convertible into such number of shares of Optika-California Common Stock as set
forth in the Articles of Incorporation of Optika-California, as amended, shall
by virtue of the Merger and without any action by the Constituent Corporations,
the holder of such shares or any other person, be converted into or exchanged
for one (1) fully paid and nonassessable share of Series A Preferred Stock of
the Surviving Corporation, par value $0.001 per share, respectively, having such
rights, preferences and privileges as set forth in the Certificate of
Incorporation of the Surviving Corporation. Upon the conversion of the
Surviving Corporation's Series A Preferred Stock, each share of such Series A
Preferred Stock of the Surviving Corporation shall be converted into Common
Stock on a one-for-one basis as set forth in the Certificate of Incorporation of
Optika-Delaware.
(b) Series B Convertible Preferred Stock. Upon the Effective Date of
------------------------------------
the Merger, each share of Series B Preferred Stock of Optika-California, no par
value, issued and outstanding immediately prior to the Merger, which shares are
convertible into such number of shares of Optika-California Common Stock as set
forth in the Articles of Incorporation of Optika-California, as amended, shall,
by virtue of the Merger and without any action by the Constituent Corporations,
the holder of such shares or any other person, be converted into or exchanged
for one (1) fully paid and nonassessable
4
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share of Series B Preferred Stock of the Surviving Corporation, par value $0.001
per share, respectively, having such rights, preferences and privileges as set
forth in the Certificate of Incorporation of the Surviving Corporation. Upon
the conversion of the Surviving Corporation's Series B Preferred Stock, such
Series B Preferred Stock of the Surviving Corporation shall be converted into
Common Stock on a 1-for-1.010985694 basis as set forth in the Certificate of
Incorporation of Optika-Delaware.
(c) Series C Convertible Preferred Stock. Upon the Effective Date of
------------------------------------
the Merger, each share of Series C Preferred Stock of Optika-California, no par
value, issued and outstanding immediately prior to the Merger, which shares are
convertible into such number of shares of Optika-California Common Stock as set
forth in the Articles of Incorporation of Optika-California, as amended, shall
by virtue of the Merger and without any action by the Constituent Corporations,
the holder of such shares or any other person, be converted into or exchanged
for one (1) fully paid and nonassessable share of Series C Preferred Stock of
the Surviving Corporation, par value $0.001 per share, respectively, having such
rights, preferences and privileges as set forth in the Certificate of
Incorporation of the Surviving Corporation. Upon the conversion of the
Surviving Corporation's Series C Preferred Stock, each share of such Series C
Preferred Stock of the Surviving Corporation shall be converted into Common
Stock on a one-for-one basis as set forth in the Certificate of Incorporation of
Optika-Delaware.
3.3 Optika-California 1992 Stock Option Plan and 1994 Stock
-------------------------------------------------------
Option/Stock Issuance Plan.
- --------------------------
(a) Upon the Effective Date of the Merger, the Surviving Corporation
shall assume the obligations of Optika-California under its 1992 Stock Option
Plan and 1994 Stock Option/Stock Issuance Plan and any other stock option grants
or plans (collectively, the "Plans"). Each outstanding and unexercised option
to purchase Optika-California Common Stock (an "Option") under the Plans shall
become, subject to the provisions in paragraph (c) hereof, an option to purchase
the Surviving Corporation's Common Stock, on the basis of one (1) share of the
Surviving Corporation's Common Stock for each one (1) share of Optika-California
Common Stock issuable pursuant to any such option, on the same terms and
conditions and at an exercise price reflecting the one-for-one (1 for 1) ratio
described above.
(b) One (1) share of the Surviving Corporation's Common Stock shall be
reserved for issuance upon the exercise of Options equal to one (1) share of
Optika-California Common Stock so reserved immediately prior to the Effective
Date of the Merger (rounded down to the nearest whole number).
(c) Following the Effective Date of the Merger, the number of shares
of the Surviving Corporation's Common Stock to which an Option holder would be
otherwise entitled upon exercise of an assumed Option shall be rounded down to
the nearest whole number and the per share exercise price shall be rounded up to
the
5
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nearest whole cent. In addition, no "additional benefits" (within the meaning
of Section 424(a)(2) of the Internal Revenue Code of 1986, as amended) shall be
accorded to the optionees pursuant to the assumption of their options.
3.4 Warrant and Contingent Right to Purchase Common Stock.
-----------------------------------------------------
(a) Upon the effective date of the Merger, the Surviving Corporation
shall assume the obligations of Optika-California to issue Ninety-Five Thousand
(95,000) shares of Common Stock pursuant to two certain warrants (the
"Warrants"). One (1) share of the Surviving Corporation's Common Stock shall be
reserved for issuance pursuant to the Warrants for each one (1) share of Optika-
California so reserved for issuance prior to the Effective Date of the Merger.
3.5 Optika-Delaware Common Stock. Upon the Effective Date of the
----------------------------
Merger, each share of Common Stock, par value $0.001 per share, of Optika-
Delaware issued and outstanding immediately prior thereto shall, by virtue of
the Merger and without any action by Optika-Delaware, the holder of such shares
or any other person, be cancelled and returned to the status of authorized but
unissued shares.
3.6 Exchange of Certificates. After the Effective Date of the
------------------------
Merger, each holder of an outstanding certificate representing shares of Optika-
California Common Stock or Preferred Stock may be asked to surrender the same
for cancellation to the Boston EquiServe (the "Exchange Agent"), and each such
holder shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of the Surviving Corporation's
Common Stock or Preferred Stock, as the case may be, into which the surrendered
shares were converted as herein provided. Until so surrendered, each
outstanding certificate theretofore representing shares of Optika-California
Common Stock or Preferred Stock shall be deemed for all purposes to represent
the number of shares of the Surviving Corporation's Common Stock or Preferred
Stock, respectively, into which such shares of Optika-California Common Stock or
Preferred Stock, as the case may be, were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of Common Stock or
Preferred Stock of the Surviving Corporation represented by such outstanding
certificate as provided above.
Each certificate representing Common Stock or Preferred Stock of the
Surviving Corporation so issued in the Merger shall bear the same legends, if
any, with respect to the restrictions on transferability as the certificates of
Optika-California so converted and given in exchange therefore, unless otherwise
determined by the Board of
6
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Directors of the Surviving Corporation in compliance with applicable laws, or
other such additional legends as agreed upon by the holder and the Surviving
Corporation.
If any certificate for shares of Optika-Delaware stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Optika-Delaware that
such tax has been paid or is not payable.
IV. GENERAL
4.1 Further Assurances. From time to time, as and when required by
------------------
Optika-Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Optika-California such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other actions
as shall be appropriate or necessary in order to vest or perfect in or conform
of record or otherwise by Optika-Delaware the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of Optika-California and otherwise to carry out the purposes of
this Agreement, and the officers and directors of Optika-Delaware are fully
authorized in the name and on behalf of Optika-California or otherwise to take
any and all such action and to execute and deliver any and all such deeds and
other instruments.
4.2 Abandonment. At any time before the Effective Date of the
-----------
Merger, this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either Optika-California or of
Optika-Delaware, or of both, notwithstanding the approval of this Agreement by
the shareholders of Optika-California or the sole stockholder of Optika-
Delaware.
4.3 Amendment. The Boards of Directors of the Constituent
---------
Corporations may amend this Agreement at any time prior to the filing of this
Agreement (or certificate in lieu thereof) with the Secretary of State of the
State of Delaware, provided that an amendment made subsequent to the adoption of
this Agreement by the stockholders of either Constituent Corporation shall not:
(1) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such Constituent Corporation, (2)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (3) alter or change any of the
terms and conditions of this Agreement if such
7
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alteration or change would adversely affect the holders of any class or series
of capital stock of any Constituent Corporation.
4.4 Registered Office. The registered office of the Surviving
-----------------
Corporation in the State of Delaware is 1013 Centre Road, Wilmington, DE 19805
and The Corporation Service Company is the registered agent of the Surviving
Corporation at such address.
4.5 Agreement. Executed copies of this Agreement will be on file at
---------
the principal place of business of the Surviving Corporation at 5755 Mark
Dabling Blvd., Colorado Springs, Colorado 80919, and copies thereof will be
furnished to any stockholder of either Constituent Corporation, upon request and
without cost.
4.6 Governing Law. This Agreement shall in all respects be
-------------
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the merger provisions of the
General Corporation Law of the State of California.
4.7 Counterparts. In order to facilitate the filing and recording of
------------
this Agreement, the same may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
8
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AGREEMENT AND PLAN OF REORGANIZATION
AMONG
OPTIKA IMAGING SYSTEMS, INC.,
OPTIKA ACQUISITION CORP.,
TEAMWORKS TECHNOLOGIES, INC. ("TEAMWORKS")
AND
THE STOCKHOLDERS OF TEAMWORKS
JANUARY 31, 1994
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TABLE OF CONTENTS
-----------------
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Page
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<S> <C> <C>
RECITALS.................................................................. 1
ARTICLE 1
PLAN OF REORGANIZATION......................... 2
1.1 Board of Directors' and Share/Stockholders'
Approval....................................................... 2
1.2 The Merger..................................................... 2
1.3 The Closing.................................................... 3
1.4 Effective Time................................................. 3
1.5 Restricted Securities.......................................... 3
1.6 Surrender and Exchange of Outstanding Certificates
and Options for TEAMWorks Common Stock and
TEAMWorks Options; Status of Outstanding
Certificates................................................... 4
1.7 Reorganization................................................. 4
1.8 Articles of Organization; Bylaws; Directors and
Officers of the Surviving Corporation.......................... 4
1.9 Escrow......................................................... 5
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TEAMWORKS.............. 5
2.1 Organization and Standing...................................... 5
2.2 Capitalization................................................. 6
2.3 Subsidiaries................................................... 7
2.4 Authority, Approval and Enforceability......................... 7
2.5 Financial Statements........................................... 8
2.6 Changes........................................................ 9
2.7 Returns........................................................ 10
2.8 Properties and Inventories..................................... 10
2.9 Insurance...................................................... 11
2.10 Purchase, Sale and Other Agreements............................ 11
2.11 Intellectual Property Rights................................... 13
2.12 Employees and Employee Benefit Plans........................... 14
2.13 Proprietary Information and Inventions and
Confidentiality Agreements..................................... 17
2.14 Powers of Attorney............................................. 17
2.15 Compliance with Laws........................................... 17
2.16 Absence of Litigation.......................................... 17
2.17 No Brokers..................................................... 18
2.18 Accuracy of Documents and Information.......................... 18
2.19 Taxes.......................................................... 18
2.20 Other Taxes.................................................... 24
2.21 Compliance with Instruments.................................... 24
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i.
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2.22 Foreign Status.................................................. 24
2.23 Consents and Approvals.......................................... 24
2.24 Accounts Receivable............................................. 25
2.25 Offices, Capital Equipment...................................... 25
2.26 Inventory....................................................... 25
2.27 No Undisclosed Liabilities...................................... 25
2.28 Related Party Transactions...................................... 26
2.29 Section 83(b) Elections......................................... 26
2.30 Customers....................................................... 26
2.31 Certification of Profitability.................................. 26
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
OPTIKA AND OPTIKA SUB 26
3.1 Organization and Standing....................................... 26
3.2 Subsidiaries.................................................... 27
3.3 Authority, Approval and Enforceability.......................... 27
3.4 Financial Statements............................................ 28
3.5 Changes......................................................... 28
3.6 Returns......................................................... 30
3.7 Insurance....................................................... 30
3.8 Compliance with Laws............................................ 30
3.9 Absence of Litigation........................................... 30
3.10 No Brokers...................................................... 31
3.11 Capitalization.................................................. 31
3.12 Dilutive Issuance............................................... 32
3.13 Intellectual Property Rights.................................... 32
3.14 Employee Benefit Plans.......................................... 32
3.15 Tax Matters..................................................... 32
ARTICLE 4
COVENANTS OF OPTIKA, OPTIKA SUB,
THE STOCKHOLDERS AND TEAMWORKS....................... 33
4.1 Maintenance of Business......................................... 33
4.2 Absence of Certain Changes...................................... 33
4.3 Actions Contrary to Stated Intent............................... 34
4.4 Access to Information........................................... 35
4.5 Other Discussions............................................... 35
4.6 Continuity of Interest and Restrictions on Resale............... 35
4.7 Best Efforts.................................................... 35
4.8 Stock Options................................................... 35
4.9 Information to Share/Stockholders............................... 36
4.10 TEAMWorks Payables.............................................. 36
4.11 Consents........................................................ 36
4.12 Tax Forms....................................................... 36
4.13 Commitment to Favorable Vote.................................... 36
4.14 Merger Expenses................................................. 37
4.15 Registration Rights............................................. 37
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ARTICLE 5
CONDITIONS TO OBLIGATIONS OF OPTIKA,
OPTIKA SUB, THE STOCKHOLDERS AND TEAMWORKS................... 37
5.1 Consents and Approvals......................................... 37
5.2 Representations, Warranties and Agreements..................... 37
5.3 Certificate.................................................... 37
5.4 Opinions of Counsel............................................ 37
5.5 No Actions..................................................... 40
5.6 Proceedings and Documents...................................... 41
5.7 Accuracy of Documents and Information.......................... 41
5.8 Employment Agreements.......................................... 41
5.9 Registration Agreement......................................... 41
5.10 Continuity of Interest and Restrictions on
Transfer....................................................... 41
5.11 Dissenting Shares.............................................. 41
5.12 Blue Sky Approvals............................................. 41
5.13 Agreement/Articles of Merger................................... 41
5.14 TEAMWorks Stock Option Plan.................................... 42
5.15 Resignations................................................... 42
5.16 Foreign Status Representation Letter........................... 42
5.17 Tax Clearance Certificate...................................... 42
5.18 Documents...................................................... 42
5.19 Escrow Agreement............................................... 42
5.20 "Pooling-of-Interests" Transaction............................. 42
5.21 Exercise of Warrants........................................... 42
5.22 Representation Agreement....................................... 43
ARTICLE 6
INDEMNITY .............................. 43
6.1 Escrow Deposit of Optika Common Stock.......................... 43
6.2 Indemnity by Optika and Optika Sub............................. 44
6.3 Limitations on Indemnity Obligations........................... 45
ARTICLE 7
TERMINATION ............................. 45
7.1 Termination by Mutual Consent.................................. 45
7.2 Termination by Optika or Optika Sub or TEAMWorks............... 45
7.3 Effect of Termination.......................................... 46
ARTICLE 8
MISCELLANEOUS ............................ 47
8.1 Notices........................................................ 47
8.2 Entire Agreement; Modifications; Waiver........................ 48
8.3 Captions....................................................... 48
8.4 Counterparts................................................... 48
8.5 Publicity...................................................... 48
8.6 Successors and Assigns......................................... 48
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8.7 Governing Law.................................................... 48
8.8 Further Assurances............................................... 48
8.9 Each Party to Bear Own Costs..................................... 48
8.10 Confidentiality and Nondisclosure Agreements..................... 49
8.11 Attorneys' Fees.................................................. 49
8.12 Optika and TEAMWorks Personnel................................... 49
8.13 Transfer of TEAMWorks Books and Assets........................... 49
8.14 Appointment and Indemnity of Escrow Committee.................... 49
8.15 Survivability of Representations, Warranties,
Covenants and Agreements......................................... 50
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iv.
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EXHIBITS
Exhibit A Form of Agreement of Merger
Exhibit B Form of Articles of Merger
Exhibit C Form of Escrow Agreement
Exhibit 1.5 Form of Affiliates Letter, Continuity of Interest
Certificate and Lock Up Agreement to be Executed by the
Stockholders
Exhibit 2.31 List of Anticipated Loss Contracts
Exhibit 4.8 Form of Option Assumption Agreement (together with
Memorandum to Optionholder)
Exhibit 5.8(a) Form of Employment Agreement for Richard Holzman
Exhibit 5.8(b) Form of Employment Agreement for David Holzman
Exhibit 5.8(c) Form of Employment Agreement for Eric Brown
Exhibit 5.8(d) Form of Employment Agreement for Kevin Ilsen
Exhibit 5.8(e) Form of Employment Agreement for James Schuster
Exhibit 4.15 Form of Amendment to the Registration Agreement
Exhibit 5.22 Form of Representation Agreement
v.
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is entered
into as of January 31, 1994, by and among Optika Imaging Systems, Inc., a
California corporation ("Optika"), Optika Acquisition Corp., a Delaware
corporation ("Optika Sub"), TEAMWorks Technologies, Inc., a Massachusetts
corporation (together with any subsidiaries, "TEAMWorks" or the "surviving
corporation"), and the stockholders of TEAMWorks (the "Stockholders").
RECITALS
--------
A. The parties hereto intend that, subject to the terms and conditions
hereinafter set forth, Optika Sub will be combined with TEAMWorks pursuant to
one or more transactions (collectively, the "Merger") to be completed in
accordance with this Agreement, an Agreement of Merger substantially in the form
attached hereto as Exhibit A (the "Agreement of Merger"), the Articles of Merger
---------
substantially in the form attached hereto as Exhibit B and the applicable
---------
provisions of the laws of the States of Delaware and California and the
Commonwealth of Massachusetts, in connection with which all of the outstanding
shares of the common stock of TEAMWorks ("TEAMWorks Common Stock") will be
exchanged for shares of common stock of Optika ("Optika Common Stock"), and all
outstanding stock options to purchase common stock of TEAMWorks ("TEAMWorks
Options") will be assumed by Optika. The TEAMWorks Common Stock shall be
automatically converted into Optika Common Stock, and certificates representing
TEAMWorks Common Stock will be exchanged for certificates representing Optika
Common Stock, all at the rates set forth herein and all as provided in this
Agreement and the Agreement of Merger.
B. By executing this Agreement, the parties hereto intend to adopt a plan
of reorganization within the meaning of Section 368(a) the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto, intending to be legally bound,
do hereby agree as follows:
<PAGE>
ARTICLE 1
PLAN OF REORGANIZATION
1.1 Board of Directors' and Share/Stockholders' Approval. The
----------------------------------------------------
respective boards of directors of Optika, Optika Sub and TEAMWorks have duly
adopted and approved this Agreement, and this Agreement shall be submitted to
the sole stockholder of Optika Sub and the stockholders of TEAMWorks for
approval in accordance with the applicable provisions of the General Corporation
Law of the State of Delaware and the Business Corporation Law of the
Commonwealth of Massachusetts and to the shareholders of Optika pursuant to
existing contractual provisions.
1.2 The Merger. Subject to the terms and conditions of this
----------
Agreement and the Agreement of Merger, Optika Sub shall be merged with and into
TEAMWorks pursuant to the Agreement of Merger, with TEAMWorks as the surviving
corporation and the separate existence of Optika Sub shall thereupon cease, and
at the Effective Time (as hereinafter defined) TEAMWorks, as the surviving
corporation in the Merger, shall continue its corporate existence under the laws
of the Commonwealth of Massachusetts.
(a) At the Effective Time of the Merger, (x) each of the issued
and outstanding shares of TEAMWorks Common Stock shall be converted
automatically into and exchanged for 0.6809 of one (1) share of Optika Common
Stock and (y) Optika shall assume the TEAMWorks Stock Option Plan, and each
issued and outstanding TEAMWorks Option shall be assumed by Optika and shall be
exercisable for Optika Common Stock at the same ratio as is set forth above for
the conversion of TEAMWorks Common Stock into Optika Common Stock, rounded up to
the nearest whole number of shares of Optika Common Stock, with a proportional
adjustment of the exercise price with the per share purchase price rounded up to
the nearest whole cent so that the aggregate exercise price under the assumed
option shall remain substantially unchanged. The assumption and adjustments of
such TEAMWorks options shall be effected in accordance with Section 4.8 hereof.
All shares of TEAMWorks Common Stock that are owned by TEAMWorks shall be
cancelled, and no securities of Optika or other consideration shall be delivered
in exchange therefor.
(b) At the Effective Time of the Merger, Optika Sub shall merge
with and into TEAMWorks, with TEAMWorks being the surviving corporation.
(c) All shares of Optika Common Stock issued in exchange for
unvested shares of TEAMWorks common stock shall be
2.
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subject to the same vesting schedule, and other terms as applicable to such
previously unvested shares of TEAMWorks common stock.
(d) Each share of Optika Sub stock that is outstanding
immediately prior to the Effective Time of the Merger shall be converted into
one (1) share of TEAMWorks common stock.
1.3 The Closing. Subject to termination of this Agreement as
-----------
provided in Article 7 below, the closing of the Merger shall take place by
telephone or in person at the offices of Brobeck, Phleger & Harrison, Two
Embarcadero Place, 2200 Geng Road, Palo Alto, California at 10:00 a.m. on
January 31, 1994, or such other place, time and date as Optika, Optika Sub and
TEAMWorks may mutually select (the "Closing").
1.4 Effective Time. Upon the complete satisfaction or satisfactory
--------------
waiver of any and all of the conditions set forth in Article 5 of this
Agreement, the Agreement of Merger and the Articles of Merger shall be executed
and filed as set forth herein. Simultaneously with the Closing, the Agreement
of Merger shall be filed in the office of the Secretary of State for the State
of Delaware and the Articles of Merger shall be filed in the office of the
Secretary of State for the Commonwealth of Massachusetts. The Merger shall
become effective immediately upon the filing of the Agreement of Merger and
related officers' certificates with the office of the Secretary of State for the
State of Delaware and the Articles of Merger with the Secretary of State of the
Commonwealth of Massachusetts (the "Effective Time").
1.5 Restricted Securities. The Optika Common tock will be subject
---------------------
Stock the following restrictions:
(a) restrictions imposed by applicable state securities laws;
(b) restrictions and obligations imposed in connection with
representations and warranties contained in an Affiliates Letter, Continuity of
Interest Certificate and Lock Up Agreement executed by the Stockholders in the
form attached hereto as Exhibit 1.5; and
-----------
(c) certificates representing Optika Common Stock will bear
legends describing the applicable restrictions on transferability referred to in
this Section 1.5 and related stop-transfer instructions will be placed on Optika
Common Stock by Optika or its duly appointed transfer agent and registrar.
3.
<PAGE>
1.6 Surrender and Exchange of Outstanding Certificates and Options
--------------------------------------------------------------
for TEAMWorks Common Stock and TEAMWorks Options; Status of Outstanding
- -----------------------------------------------------------------------
Certificates.
- ------------
(a) The conversion of shares of TEAMWorks Common Stock into
Optika Common Stock as provided for by this Agreement and the Agreement of
Merger shall occur automatically at the Effective Time without further action by
the holders thereof. Until surrendered, each certificate that prior to the
Effective Time represented shares of TEAMWorks Common Stock will be deemed to
evidence the right to receive the number of shares of Optika Common Stock into
which such TEAMWorks Common Stock have been converted. Optika shall, within
thirty business days after the Effective Time, notify each holder of a
certificate or certificates theretofore representing a share or shares of
TEAMWorks Common Stock to surrender all of such holder's certificates to Optika
and upon such surrender such holder shall be entitled to receive in exchange a
certificate or certificates representing the Optika Common Stock into which such
shares have been converted.
(b) The assumption of outstanding TEAMWorks Options by Optika
and their conversion into options to purchase shares of Optika Common Stock as
provided in Section 4.8 hereof shall occur automatically at the Effective Time
without further action on the part of the holders thereof. As soon as
practicable but in no event later than thirty business days after the Effective
Time, Optika shall issue an assumption agreement substantially in the form
attached hereto as Exhibit 4.8 to each holder of a TEAMWorks Option not
-----------
exercised prior the Effective Time that evidences Optika's
assumption of such option and the right of the option holder to purchase under
the assumed option the number of shares of Optika Common Stock as determined
under Section 4.8.
1.7 Reorganization. The parties intend to adopt the Agreement as a
--------------
plan of reorganization and to consummate the Merger in accordance with Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
1.8 Articles of Organization; Bylaws; Directors and Officers of the
---------------------------------------------------------------
Surviving Corporation.
- ---------------------
(a) The Articles of Organization as in effect immediately prior
to the Effective Time shall be the Articles of Organization of TEAMWorks as the
surviving corporation after the Merger unless and until thereafter amended.
(b) The Bylaws of TEAMWorks as in effect immediately prior to
the Effective Time shall be the Bylaws of the surviving corporation unless and
until thereafter amended.
4.
<PAGE>
(c) The directors and officers of the surviving corporation
immediately following the Effective Time of the Merger shall be as follows until
successors are elected or appointed and qualified;
Malcolm Thomson Chairman of the Board of Directors and Director
Richard Holzman President and Director
Steven M. Johnson Vice President, Finance, Chief Financial Officer
and Treasurer
Warren T. Lazarow Clerk
Harvey L. Jeane Director
Paul Carter Director
1.9 Escrow. Six Thousand Eight Hundred and Ten (6,810) shares of
------
Optika Common Stock, or 10% of the aggregate number of shares of Optika Common
Stock issued to TEAMWorks Stockholders in the Merger, (the "Escrow Shares")
shall be held in escrow as collateral for the indemnification obligations of the
Stockholders pursuant to Article 6 of this Agreement and the provisions of an
escrow agreement ("Escrow Agreement") in the form attached hereto as Exhibit C.
---------
The Escrow Shares shall be withheld pro rata from the shares of Optika Common
Stock to be received by the Stockholders upon conversion of their shares.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TEAMWORKS
Except as set forth in the disclosure letter dated the date of this
Agreement, certified by the President and Clerk of TEAMWorks and each of the
Stockholders and delivered by TEAMWorks and each of the Stockholders to Optika
and Optika Sub (the "TEAMWorks Letter"), which disclosures shall be deemed
representations, warranties and covenants hereunder, TEAMWorks and the
Stockholders, jointly and severally, represent and warrant to Optika and Optika
Sub as follows:
2.1 Organization and Standing.
-------------------------
(a) TEAMWorks is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts, has
all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted, and is duly qualified to
do business and is in good standing as a foreign corporation in each
5.
<PAGE>
jurisdiction in which the failure to so qualify could or would have a material
adverse effect upon the business, properties, condition (financial or otherwise)
or results of operations of TEAMWorks.
(b) TEAMWorks has delivered to Optika and Optika Sub complete
and accurate copies of its current Articles of Organization and Bylaws, and
minutes of all of its directors' and stockholders' meetings. TEAMWorks' stock
books provided to Optika and Optika Sub are complete and accurate as of the date
hereof.
2.2 Capitalization.
--------------
(a) TEAMWorks' capitalization (common stock, warrants and
options and any other issued or granted security or commitment thereto) is as
set forth in the TEAMWorks Letter. TEAMWorks has no other common stock or other
rights to purchase capital stock issued and outstanding. The TEAMWorks Letter
accurately describes the vesting schedules, if any, associated with such common
stock and options and the addresses of all of its securityholders. TEAMWorks
does not have in effect any stock appreciation rights plan and no stock
appreciation rights are currently outstanding.
(b) TEAMWorks does not have outstanding any preemptive or
subscription rights, options, warrants, rights to convert, capital stock
equivalents or other rights to purchase or otherwise acquire any of TEAMWorks'
capital stock or other securities.
(c) All of the issued and outstanding shares of TEAMWorks'
Common Stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such common stock has been issued in full compliance with all
applicable federal and state securities laws. All of TEAMWorks' incentive stock
options under Section 422 of the Internal Revenue Code have been issued in
compliance with all laws, rules and regulations necessary to preserve such
incentive stock option treatment. None of the issued and outstanding shares of
TEAMWorks Common Stock is subject to repurchase or redemption. All TEAMWorks
options have been issued in accordance with TEAMWorks' 1993 Stock Plan and all
state securities laws. The TEAMWorks 1993 Stock Plan was approved by the
TEAMWorks stockholders prior to January 12, 1994.
(d) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, co-sale right,
right of participation, right of first offer, option or other restriction on
transfer applicable to any shares of TEAMWorks Common Stock.
6.
<PAGE>
(e) TEAMWorks is not a party to any contract which does, or may,
require it to register under the Securities Act of 1933, as amended, any shares
of TEAMWorks Common Stock or any other of its securities that might be issued in
the future if the Merger were not consummated.
(f) TEAMWorks is not a party or subject to any agreement or
understanding, and there is no agreement or under standing between or among any
persons that affects or relates to the voting or giving of written consent with
respect to any outstanding security of TEAMWorks.
2.3 Subsidiaries. TEAMWorks does not own or control, directly
------------
or indirectly, any corporation, partnership, business, trust or other entity.
2.4 Authority, Approval and Enforceability.
--------------------------------------
(a) Subject to obtaining any required approvals of the TEAMWorks
Board of Directors and the holders of TEAMWorks Common Stock, TEAMWorks has full
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the Agreement of Merger, and all corporate action on
its part necessary for such execution, delivery and performance has been duly
taken.
(b) Subject to obtaining all necessary consents, the execution
and delivery by it of this Agreement and the Agreement of Merger do not, and the
performance and consummation of the transactions contemplated by this Agreement
and the Agreement of Merger will not, result in any conflict with, breach or
violation of or default, termination or forfeiture under (or upon the failure to
give notice or the lapse of time, or both, result in any conflict with, breach
or violation of or default, termination or forfeiture under) any terms or
provisions of its current Articles of Organization or Bylaws, or any statute,
rule, regulation, judicial, governmental, regulatory or administrative decree,
order or judgment, or any agreement, lease or other instrument to which it is a
party or to which any of its assets is subject.
(c) No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental or administrative body is required on its part for the
consummation by it of the transactions contemplated by this Agreement and the
Agreement of Merger, except (i) any tax clearance certificate referred to in
Section 5.16, (ii) any blue sky approvals referred to in Section 5.11, and (iii)
the filing of the Agreement of Merger and related officers' certificates with
the Secretary of State of the State
7.
<PAGE>
of Delaware and the Articles of Merger with the Secretary of State of the
Commonwealth of Massachusetts.
(d) Upon due execution and delivery by TEAMWorks, this Agreement
and the Agreement of Merger will be its legal, valid and binding obligation,
enforceable against it in accordance with the respective terms hereof and
thereof, except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and subject to the availability of equitable remedies, and, with respect to the
Agreement of Merger, subject to TEAMWorks and Optika Sub obtaining the required
approvals of their respective stockholders.
2.5 Financial Statements.
--------------------
(a) TEAMWorks has delivered to Optika and Optika Sub complete
copies of its balance sheets and the related statements of operations as at and
for the periods ended December 31, 1992, and November 22, 1993 (collectively,
the "Financials"), which have been prepared and compiled by TEAMWorks'
independent certified public accountants. TEAMWorks' Financials present fairly
its financial position as of those dates and the results of its operations and
changes in its financial position for the periods ended, to the best of its
knowledge, after due inquiry in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis.
(b) As of November 22, 1993, there are no debts, liabilities or
claims against it that are not currently reflected in the Financials, contingent
or otherwise, which are or would be of a nature required to be reflected in a
balance sheet prepared in accordance with GAAP and which, individually or in the
aggregate, exceed $5,000. As of November 22, 1993, TEAMWorks has no liabilities
other than those set forth in the Financials and in the TEAMWorks Letter.
TEAMWorks' revenue recognition policies with respect to its Financials have been
made in accordance with GAAP. TEAMWorks maintains a standard system of
accounting in accordance with GAAP. All of TEAMWorks' general ledgers, books and
records are located at TEAMWorks' principal place of business. TEAMWorks does
not have any of its records, systems, controls, data or information recorded,
stored, maintained, operated or otherwise wholly or partly dependent upon or
held by any means (including any electronic, mechanical or photographic process,
whether computerized or not) that (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of
TEAMWorks. TEAMWorks' financial reserves are adequate to cover claims already
incurred. The provision for taxes of TEAMWorks as set forth in its Financials
8.
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is adequate and accurate for taxes due or accrued as of such dates.
(c) All of the accounts receivable and notes receivable owing to
TEAMWorks as of the date hereof constitute, and as of the Effective Time will
constitute, valid and enforceable claims arising from bona fide transactions in
the ordinary course of business, and there are no known, contingent or asserted
claims, refusals to pay, or other rights of set-off against any thereof. As of
January 30, 1994, there is (i) no account debtor or note debtor delinquent in
its payment by more than 60 days, (ii) no account debtor or note debtor that has
refused (or threatened to refuse) to pay its obligations for any reason, (iii)
to the best of its knowledge, after due inquiry, no account debtor or note
debtor that is insolvent or bankrupt, and (iv) no account receivable or note
receivable which is pledged to any third party by TEAMWorks.
(d) All accounts payable and notes payable by TEAMWorks to third
parties as of the date hereof arose, and as of the Closing will have arisen, in
the ordinary course of business, and, there is no such account payable or note
payable delinquent in its payment.
2.6 Changes. Other than in the ordinary course of business, since
-------
November 22, 1993, there has not been:
(a) any change in its assets, liabilities, finan cial condition,
or operating results from that reflected in the Financials or any decrease in
working capital or revenues from preceding years;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting its business, properties, prospects,
or financial condition (as such business is presently conducted and as it is
proposed to be conducted);
(c) any waiver or compromise by it of a valuable right or of a
debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by it, except that which is not
material to its business, properties, prospects, or financial condition (as such
business is presently conducted and as it is proposed to be conducted);
(e) any material change to a contract or arrangement by which it
or any of its assets is bound or subject;
9.
<PAGE>
(f) any material change in any compensation arrangement or
agreement with any employee, consultant, officer, director or stockholder;
(g) any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets, or other intangible assets;
(h) any resignation or termination of employment of any of its
key officers; and TEAMWorks, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(i) notification that there has been a loss of order or contract
cancellation by any of its customers;
(j) any mortgage, pledge, transfer of a security interest in, or
lien created by it, with respect to any of its material properties or assets,
except liens for taxes not yet due or payable;
(k) any loans or guarantees made by it to or for the benefit of
its employees, officers, or directors, or any members of their immediate
families;
(l) any declaration, setting aside, or payment or other
distribution in respect of any of its capital stock, or any direct or indirect
redemption, purchase, or other acquisition of any of such stock by it;
(m) any other event or condition of any character that could
reasonably be expected to result in a material adverse effect upon the business,
properties, condition (financial or otherwise) or results of operations of
TEAMWorks; or
(n) any agreement or commitment by it to do any of the things
described in this Section 2.6.
2.7 Returns. TEAMWorks has not had any of its products returned by a
-------
purchaser or user or distributor thereof, other than for minor, nonrecurring
warranty problems. TEAMWorks is not aware of any pending warranty claims since
January 1, 1992. Attached to the TEAMWorks letter is a summary of all rights of
return, including the estimated dollar amount and the approximate term of such
rights. Since incorporation, TEAMWorks has not experienced any rights of return
of PaperBridge products from third parties that have aggregated more than 1.25%
of the total revenue.
2.8 Properties and Inventories.
--------------------------
10.
<PAGE>
(a) TEAMWorks has good and marketable title to, valid leasehold
interests in, or other right to use all of the assets used in its operations or
necessary for the conduct of its business, free and clear of any mortgages,
pledges, security interests, licenses, encumbrances, restrictions or adverse
claims, except as disclosed in the notes to its Financials. All of the physical
assets of TEAMWorks are in good operating condition, normal wear and tear
excepted, and are adequate and suit able for the purposes for which they are
presently being used .
(b) Since November 22, 1993, there has not occurred any transfer
of title other than in the ordinary course of business, any abandonment, or to
the best of its knowledge, any pilferage or any other material loss with respect
to, any of its property, plant or equipment.
(c) Set forth in the TEAMWorks Letter is a true and correct list
of all of the physical assets (including fixed assets) having a net book value
in excess of $3,000 owned or leased by TEAMWorks. TEAMWorks does not own any
real property. To the best knowledge of TEAMWorks, all improvements on leased
property used in the business of TEAMWorks and the present use thereof are in
accordance with all applicable laws. The tangible personal property owned by
TEAMWorks and used in its business at the date hereof is in good operating
condition and repair, normal wear and tear excepted. The net book value of any
fixed assets used in TEAMWorks' business has not been written up or down, other
than pursuant to depreciation or amortization expense in accordance with its
historical practice.
2.9 Insurance. TEAMWorks maintains policies of insurance covering
---------
its assets, properties and business in types and amounts customary for similarly
sized companies engaged in similar businesses. To the best knowledge of
TEAMWorks, it is in compliance with each of such policies such that none of the
coverage provided under such policies has been invalidated.
2.10 Purchase, Sale and Other Agreements.
-----------------------------------
(a) TEAMWorks is not currently a party to or subject to any oral
or written:
(i) agreement for the purchase of inventory, supplies,
equipment or other real or personal property, or the procurement of services,
except individual purchase orders or aggregate purchase orders to a single
vendor involving payments of less than $2,500;
(ii) lease or ownership of equipment, machinery or other
personal property involving aggregate annual payments in excess of $2,500;
11.
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(iii) agreement for the sale or lease of products or
furnishing of its services except individual purchase orders or aggregate
purchase orders from a single customer involving payments of less than $2,500;
(iv) joint venture, partnership or other contract or
arrangement involving the sharing of profits;
(v) agreement relating to the purchase or acquisition, by
merger or otherwise, of a portion of its business, assets or securities by any
other person or of any other person by it other than as contemplated herein;
(vi) agreement containing a covenant or covenants which
purport to limit its ability or right to engage in its present business
activity;
(vii) agreement presently in effect pursuant to which it
has appointed any organization or person to act as its distributor or sales
agent or pursuant to which it has been appointed a distributor or sales agent by
any third party;
(viii) agreement with any of its officers, directors or
affiliates, other than stock option or stock purchase plans or agreements or
proprietary information or consulting or independent contractor agreements;
(ix) agreement for the license of any patent, copyright,
trade secret or other proprietary right or indemnification by it with respect to
infringements of proprietary rights, except employee or consultant proprietary
information agreements;
(x) agreements involving payments to or obligations of it
not otherwise described in this Section 2.10 in excess of $2,500; or
(xi) agreements of indebtedness or capital equipment
leases.
(b) To the best of TEAMWorks' knowledge, no party to any such
contract, agreement or arrangement intends to cancel, withdraw, modify or amend
such agreement or arrangement or return a product for reimbursement or
discontinue any provision of agreed upon services.
(c) TEAMWorks has performed all material obligations required to
be performed by it on or prior to the date hereof under each material contract,
obligation, commitment, agreement, undertaking, arrangement or lease referred to
in this Agreement or any exhibit hereto, and it is not in material
12.
<PAGE>
default, breach or violation thereunder, or under any other material agreements,
and is not aware of any facts from which it should reasonably conclude that it
will not be able to perform all material obligations required to be performed by
it subsequent to the date hereof under each such agreement.
2.11 Intellectual Property Rights.
----------------------------
(a) TEAMWorks has sufficient right, title and interest in and to
all patents, trademarks, license rights, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes (collectively,
"Intellectual Property") necessary for or used in its business as now conducted
and as proposed to be conducted without any conflict with or infringement of the
rights of others. There are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is it bound by or a party to any
options, licenses or agreements of any kind with respect to the Intellectual
Property of any other person or entity. It has not received any communications
nor is it aware of any entity alleging that it has violated or, by conducting
its business as proposed, would violate any Intellectual Property of any other
person or entity. To the best of its knowledge after due inquiry, none of its
employees or consultants is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
TEAMWorks or that would conflict with its business as proposed to be conducted.
Neither the execution nor delivery of this Agreement or the Agreement of Merger,
nor the carrying on of its business by its employees or consultants, nor the
conduct of its business as proposed, will conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees, or
consultants to the best of its knowledge, after due inquiry, or the Company is
now obligated. TEAMWorks does not believe it is or will be necessary to utilize
any inventions of any of its employees or consultants (or persons it currently
intends to hire as service providers) made prior to their employment by it. The
TEAMWorks Letter also sets forth all patents, patent applications, trademarks
(registered or unregistered), license agreements, independent contractor or
consulting agreements and any other Intellectual Property that requires a
consent or waiver to consummate the transactions contemplated in this Agreement.
All of TEAMWorks' license agreements with respect to its Intellectual Property
are in writing and evidence legitimate ownership of such rights in TEAMWorks.
All royalty obligations of TEAMWorks are listed in the TEAMWorks Letter. No
claims for royalties have been, are or, to the best of its knowledge after due
inquiry, will be asserted against TEAMWorks.
13.
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No invention that is shown as being owned by any individual service provider of
TEAMWorks is necessary for the conduct of TEAMWorks' business.
(b) None of TEAMWorks nor, to its best knowledge after due
inquiry, any of its service providers is making use of any confidential
information of third parties or any confidential information in which any of its
present or past employees or other service providers, has claimed a proprietary
interest; and TEAMWorks is not actually aware of any facts that would give rise
to such a claim. To best knowledge of TEAMWorks after due inquiry, no TEAMWorks
service provider is in violation or as a result of the Merger would be in
violation of any agreement with any former employer.
(c) Without limiting the generality of the foregoing
representations, TEAMWorks and the Stockholders expressly represent and warrant
that:
(i) TEAMWorks has satisfied all obligations pursuant to
any and all consulting agreements and TEAMWorks is not using nor has it
developed any derivatives or modifications thereof;
(ii) TEAMWorks has no reasonable basis to believe that it
has any present or future liability under any agreement to (a) provide
indemnification for infringement of any third party rights or otherwise; or (b)
provide updates, enhancements, modifications, bug fixes, support, maintenance or
the like of any products, or technology; and
(iii) TEAMWorks has not entered into nor negotiated with
others to enter into any consulting agreements, software development agreements,
license agreements or similar agreements.
2.12 Employees and Employee Benefit Plans.
------------------------------------
(a) Other than as set forth in the TEAMWorks Letter (such plans,
the "2.12 Plans"), TEAMWorks is not a party to any pension, profit sharing,
savings, retirement or other deferred compensation plan, any employee stock
option, stock bonus or stock purchase plan, or any bonus or incentive program,
or any group health plan (whether insured or self-funded), or any disability or
group life insurance plan or other employee welfare benefit plan, or to any
collective bargaining agreement or other agreement, written or oral, with any
trade or labor union, employees association or similar organization, TEAMWorks
is not a party to, nor has it made any contribution to or otherwise incurred any
obligation under, any "multiemployer plan" as
14.
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defined in Section 3(37) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
With respect to each such 2.12 Plan, TEAMWorks has furnished to Optika
and Optika Sub or their counsel complete and accurate copies of the plan
documents (including trust documents, insurance policies or contracts, employee
booklets, summary plan descriptions and other authorizing documents, and to the
extent still in its possession any material employee communications relating
thereto). With respect to each of the 2.12 Plans subject to ERISA as either an
employee pension benefit plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
TEAMWorks has prepared in good faith and timely filed all requisite governmental
reports and has properly and timely posted or distributed all notices, reports
and summary plan descriptions to employees required to be filed, posted or
distributed with respect to each such 2.12 Plan. Each such 2.12 Plan has at all
times been operated and administered in all material respects in accordance with
its terms and all applicable laws, including, but not limited to, ERISA and the
Code.
(b) There are no strikes or labor disputes pending or threatened
by or any attempts at union organization of any TEAMWorks employees. No employee
or group of employees whose continued services are material to TEAMWorks'
business as presently conducted and as intended to be conducted has terminated
employment and, to the best of TEAMWorks' knowledge after due inquiry, there is
none that intends to do so.
(c) TEAMWorks has attached in the Letter to Optika and Optika
Sub a full and complete list of all directors, officers, employees, independent
contractors, and consultants of TEAMWorks as of the effective time of the
Merger, specifying their names and job title, the total amount of base salary,
whether fixed or commission or a combination thereof. The employment of each of
TEAMWorks' employees is "at will" employment. TEAMWorks does not have any
obligation (i) to provide any particular form or period of notice prior to
termination, or (ii) to pay any of such employees any severance benefits in
connection with their termination of employment or service. In addition, no
severance pay will become due to any TEAMWorks employees or other service
providers in connection with the Merger, as a result of any TEAMWorks agreement,
plan or program. TEAMWorks does not owe and has not accrued any bonuses or
vacation pay or retirement benefits to any service provider or former service
provider. TEAMWorks has not entered into any consulting agreements with any
service providers who owe services to TEAMWorks or are owed compensation by
TEAMWorks for services provided. To the best of its knowledge, after due
inquiry, none of the TEAMWorks service providers is or will be in violation of
15.
<PAGE>
any judgment, decree, or order, or any term of any employment contract, patent
or trademark disclosure agreement, or other contract or agreement relating to
the relationship of any such service provider with TEAMWorks or any other party
because of the nature of the business conducted or to be conducted by TEAMWorks
or to the use by the service provider of such service provider's best efforts
with respect to such business. TEAMWorks is not aware that any officer or
employee, or that any group of employees, intends to terminate their employment
with it, nor does it have a present intention to terminate the employment of any
of the foregoing. TEAMWorks has not made any oral or written promise to its
employees regarding any payments to be made or received under the TEAMWorks
Pension Plan.
(d) No TEAMWorks plan is subject to Section 412 of the
Code.
(e) TEAMWorks has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") applicable to its employees prior to the
Effective Time of the Merger.
(f) TEAMWorks knows of no basis for the disqualification of
any "employee pension benefit plan" as defined in Section 3(2) of ERISA
("TEAMWorks Pension Plan") subject to Section 401(a) of the Code.
(g) Neither TEAMWorks nor any TEAMWorks Pension Plan, nor
any trustee or administrator thereof, nor any party in interest (as defined in
Section 3(14) of ERISA) or disqualified person (as defined in Section 4975(e)(2)
of the Code) with respect to such plan has engaged in any transaction which
would subject TEAMWorks, the TEAMWorks Pension Plan, any trust created under
such plan, or any trustee or administrator thereof, or any party dealing with
such TEAMWorks Pension Plan or any such trust to either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section
4975, 4976 or 4979 of the Code. TEAMWorks has no knowledge of any breach of
fiduciary duties owed to TEAMWorks Pension Plan participants pursuant to the
provisions of Part 4 of Title I of ERISA.
(h) There are no pending claims by or on behalf of any of
the TEAMWorks Pension Plans, by any employee or beneficiary covered under any
such TEAMWorks Pension Plan, or otherwise involving any such TEAMWorks Pension
Plan (other than routine claims for benefits).
(i) There are no "reportable events" under Section 4043 of ERISA
with respect to any TEAMWorks Pension Plan subject to Title IV of ERISA, and
neither TEAMWorks nor any of its affiliates has incurred any liability under
Title IV of ERISA
16.
<PAGE>
in connection with the termination of any TEAMWorks Pension Plan or the complete
or partial withdrawal from any multiemployer plan within the meaning of Section
3(37) of ERISA.
2.13 Proprietary Information and Inventions and Confidentiality
----------------------------------------------------------
Agreements. Each employee, consultant, service provider, officer and director
- ----------
of TEAMWorks has executed a proprietary information and inventions and
confidentiality agreement, copies of which have been provided to counsel to
Optika and Optika Sub. To the best of its knowledge, after due inquiry, none of
such persons is in violation thereof, and TEAMWorks will use its best efforts to
prevent any such violation.
2.14 Powers of Attorney. No person holds a power of attorney from
------------------
TEAMWorks.
2.15 Compliance with Laws. The business and operations of TEAMWorks
--------------------
are in compliance with all foreign, federal, state, local and county laws,
ordinances, regulations, judgments, orders, decrees or rules of any court,
arbitrator or governmental, regulatory or administrative agency or entity,
except where TEAMWorks' failure to so comply would not have a materially adverse
effect on TEAMWorks or its properties. TEAMWorks has all valid and current
permits, licenses, orders, authorizations, registrations, approvals and other
analogous instruments (and each is in full force and effect), and TEAMWorks has
made all filings and registrations and the like necessary or required by law to
conduct its business except where its failure to do so would not have a
materially adverse effect on TEAMWorks or its properties. TEAMWorks has not
received any governmental notice within two years of the date hereof of any
violation by TEAMWorks of any such laws, rules, regulation or orders. TEAMWorks
is not in material default or material noncompliance under any such permits,
consents, or similar instruments except where such default or noncompliance
would not have a materially adverse effect on TEAMWorks or its properties.
2.16 Absence of Litigation. Neither TEAMWorks nor, to the best of its
---------------------
knowledge, any of its officers or directors is engaged in, or has received any
threat of, any litigation, arbitration, investigation or other proceeding
relating to it, its employee benefit plans, property, business, assets,
licenses, permits or goodwill, or against or affecting the Merger or the actions
taken or contemplated in connection therewith, nor, to the best of its
knowledge, is there any reasonable basis therefor. There is no action, suit,
proceeding or investigation pending or threatened against TEAMWorks that
questions the validity of this Agreement or the Agreement of Merger, or the
right of TEAMWorks to enter into this Agreement or the Agreement of Merger, or
to consummate the transactions contemplated hereby
17.
<PAGE>
or thereby. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to it) by any employee or consultant
with respect to any matter or involving the prior employment of any of its
employees, their use in connection with its business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. There is no action,
suit, proceeding or investigation by TEAMWorks currently pending or which it
intends to initiate. Neither TEAMWorks nor, to the best of its knowledge, any
of its officers or directors is bound by any judgment, decree, injunction,
ruling or order of any court, governmental, regulatory or administrative
department, commission, agency or instrumentality, arbitrator or any other
person.
2.17 No Brokers. TEAMWorks is not obligated for the payment of fees
----------
or expenses of any broker or finder in connection with the origin, negotiation
or execution of this Agreement or the Agreement of Merger, or in connection with
any transaction contemplated hereby or thereby.
2.18 Accuracy of Documents and Information. The copies of all
-------------------------------------
instruments, agreements, other documents and written information delivered by
TEAMWorks to Optika and Optika Sub or their counsel are and will be complete and
correct in all material respects as of the date of delivery thereof. No
representations or warranties made by TEAMWorks in this Agreement, nor any
document, written information, statement, financial statement, letter,
certificate or exhibit prepared and furnished or to be prepared and furnished by
TEAMWorks or its representatives or TEAMWorks Stockholders to Optika and Optika
Sub pursuant hereto or in connection with the transactions contemplated hereby
taken as a whole, contains or will contain any untrue statement of a material
fact, or omits or will omit to state a material fact necessary to make the
statements or facts contained herein or therein not misleading. There is no
presently existing event, fact or condition that could or would have a material
adverse effect upon the business, properties, condition (financial or otherwise)
or results of operations of TEAMWorks that could reasonably be expected to do
so, which has not been set forth in this Agreement or the exhibits hereto or
otherwise disclosed by TEAMWorks to Optika and Optika Sub in writing.
2.19 Taxes.
-----
(a) Definitions. For purposes of this Agreement:
-----------
(i) the term "Taxes" means (A) all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll,
18.
<PAGE>
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts with respect thereto, (B) any liability for payment of
amounts described in clause (A) whether as a result of transferee liability, of
being a member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person; and the term "Tax" means any
one of the foregoing Taxes; and
(ii) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
(b) TEAMWorks has properly completed and filed on a timely basis
and in correct form all Returns required to be filed on or prior to the date of
this Agreement. As of the time of filing, the foregoing Returns correctly
reflected the facts regarding the income, business, assets, operations,
activities, status or other matters of TEAMWorks or any other information
required to be shown thereon. An extension of time within which to file any
Return that has not been filed has not been requested or granted. TEAMWorks will
properly complete and file on a timely basis and in correct form all Returns
required to be filed on or prior to the Closing, and will provide Optika and
Optika Sub the opportunity to review and comment on any such material Return
prior to its filing.
(c) With respect to all amounts in respect of Taxes imposed upon
TEAMWorks, or for which TEAMWorks is or could be liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods or portions of periods ending on or before the date of Closing, all
applicable tax laws and agreements have been fully complied with, and all such
amounts required to be paid by TEAMWorks to taxing authorities or others on or
before the date of this Agreement have been paid. Except for current periods
with respect to which taxes are not yet due, TEAMWorks does not owe any taxes on
compensation paid to any of its employees.
(d) No issues have been raised (and are currently pending) by
any taxing authority in connection with any of the Returns. No extensions or
waivers of statutes of limitations with respect to the Returns have been given
by or requested from TEAMWorks. The TEAMWorks Letter sets forth: (i) the taxable
19.
<PAGE>
years of TEAMWorks as to which the respective statutes of limitations with
respect to Taxes have not expired, and (ii) with respect to such taxable years
sets forth those years for which examinations have been completed, those years
for which examinations are presently being conducted, those years for which
examinations have not been initiated, and those years for which required Returns
have not yet been filed. Except to the extent indicated in the TEAMWorks
Letter, all deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in the
Financials of TEAMWorks, or are being contested and an adequate reserve therefor
has been established and is fully reflected in the Financials of TEAMWorks.
(e) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of TEAMWorks.
(f) TEAMWorks is not a party to or bound by (nor will TEAMWorks
become a party to or bound by) any tax indemnity, tax sharing or tax allocation
agreement.
(g) TEAMWorks has never been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code, other than as a
common parent corporation, and each of the subsidiaries of TEAMWorks has never
been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code, except where TEAMWorks was the common parent
corporation of such affiliated group.
(h) TEAMWorks has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it.
(i) TEAMWorks has not elected to be treated as an S Corporation
pursuant to Section 1362(a) of the Code.
(j) None of the assets of TEAMWorks is property that TEAMWorks
is required to treat as being owned by any other person pursuant to the so-
called "safe harbor lease" provisions of former Section 168(f)(8) of the Code.
(k) None of the assets of TEAMWorks directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code.
20.
<PAGE>
(l) None of the assets of TEAMWorks is "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
(m) TEAMWorks has not made or will not make a deemed dividend
election under Treas. Reg. (S) 1.1502-32(f)(2) or a consent dividend election
under Section 565 of the Code.
(n) TEAMWorks has not agreed to make, nor is it required to
make, any adjustment under Sections 481(a) or 263A of the Code or any comparable
provision of state or foreign tax laws by reason of a change in accounting
method or otherwise.
(o) TEAMWorks has not participated in (and, prior to the Merger,
will not participate in) an international boycott within the meaning of Section
999 of the Code.
(p) TEAMWorks is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in connection with the Merger, any change of control of TEAMWorks or
any other transaction contemplated by this Agreement, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code.
(q) TEAMWorks is not, and has not been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(r) No Stockholder of TEAMWorks is other than a United States
person within the meaning of the Code.
(s) TEAMWorks does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention between the United States of America and such foreign country and
TEAMWorks has not engaged in a trade or business within any foreign country.
(t) Except as set forth in the TEAMWorks Letter, TEAMWorks is
not party to any joint venture, partnership, or other arrangement or contract
which could be treated as a partnership for federal income tax purposes.
(u) TEAMWorks' basis, and excess loss account, if any, in each
subsidiary of TEAMWorks, is set forth in the TEAMWorks Letter. The earnings and
profits (and any adjustment required by Section 1503(e) of the Code) for each
subsidiary are set forth in the TEAMWorks Letter.
21.
<PAGE>
(v) The unpaid Taxes of TEAMWorks as of December 31, 1992, and
November 22, 1993, do not exceed the reserve for Tax liability (excluding any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth or included in TEAMWorks' balance sheets as at
December 31, 1992, and November 22, 1993, respectively. No Tax liability of
TEAMWorks has been incurred since December 31, 1992, other than in the ordinary
course of business and an adequate reserve on the Financials has been made for
all Taxes since that date.
(w) All material elections with respect to Taxes affecting
TEAMWorks as of the date of this Agreement are set forth in the TEAMWorks
Letter. After the date of this Agreement, no material election with respect to
Taxes will be made without the prior written consent of Optika and Optika Sub.
(x) The TEAMWorks letter summarizes (i) any foreign Tax holidays
that TEAMWorks has in any jurisdiction, including the nature, amount and lengths
of such Tax holiday, (ii) any transfer pricing agreements or other arrangements
that have been established by TEAMWorks in any foreign jurisdiction, and (iii)
any expatriate tax programs or policies affecting TEAMWorks.
(y) TEAMWorks is not currently and never has been subject to the
reporting requirements of Section 6038A of the Code.
(z) TEAMWorks will pay the expenses, if any, of TEAMWorks and of
the stockholders of TEAMWorks incurred in connection with the Merger.
(aa) TEAMWorks has made no transfer of any of its assets
(including any distribution of assets with respect to, or in redemption of,
stock) in contemplation of the Merger or during the period ending at the
Effective Time of the Merger and beginning with the commencement of negotiations
(whether formal or informal) with Optika regarding the Merger (the "Pre-Merger
Period")) other than (i) in the ordinary course of business and (ii) payments
for expenses incurred in connection with the Merger. TEAMWorks has no plan or
intention to sell or otherwise dispose of any of its assets or of any of the
assets acquired from Optika Sub in the Merger except for dispositions made in
the ordinary course of business or the payment of expenses incurred by TEAMWorks
pursuant to the Merger.
(ab) At the time of the Merger, except as specified in, or
disclosed in a schedule or exhibit to, this Agreement, TEAMWorks will have no
outstanding warrants, options or convertible securities nor any other type of
right outstanding
22.
<PAGE>
pursuant to which any person could acquire shares of TEAMWorks capital stock or
any other equity interest in TEAMWorks. TEAMWorks has not declared any dividends
on shares of TEAMWorks Preferred Stock or Common Stock.
(ac) TEAMWorks has no obligation, understanding, agreement or
intention to issue additional shares of stock after the Merger that would result
in Optika losing control (within the meaning of Section 368(c)(1)) of Optika
Sub.
(ad) Other than shares of TEAMWorks capital stock or options to
acquire TEAMWorks capital stock issued as compensation to present or former
service providers (including, without limitation, employees and directors) of
TEAMWorks in the ordinary course of business, no issuances of TEAMWorks capital
stock or rights to acquire TEAMWorks capital stock have occurred or will occur
during the Pre-Merger Period.
(ae) Cash or other property paid to employees of TEAMWorks during
the Pre-Merger Period has been or will be in the ordinary course of business or
pursuant to agreements entered into prior to the Pre-Merger Period.
(af) None of the amounts paid by TEAMWorks and treated as
compensation for services or a covenant not to compete received by any
stockholder-employees of TEAMWorks will be separate consideration for, or
allocable to, any of their shares of TEAMWorks capital stock; and the
compensation paid by TEAMWorks to any stockholder-employees of TEAMWorks will be
for services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
(ag) No direct or indirect subsidiary of TEAMWorks owns any
shares of TEAMWorks capital stock.
(ah) No "poison pill" or similar rights will be associated with
shares of TEAMWorks capital stock on or prior to the date of the Merger.
(ai) In the Merger, shares of TEAMWorks capital stock
representing "Control" of TEAMWorks will be exchanged solely for voting stock of
Optika; at the time of the Merger, there will exist no rights to acquire
TEAMWorks capital stock or to vote (or restrict or otherwise control the vote
of) TEAMWorks capital stock which, if exercised, could affect Optika's
acquisition and retention of Control of TEAMWorks. For purposes of this
paragraph, shares of TEAMWorks capital stock exchanged in the Merger for cash
and other property will be treated as TEAMWorks capital stock outstanding on the
date of the Merger but not exchanged for voting stock of Optika. As used herein,
23.
<PAGE>
"Control" of a corporation shall consist of ownership of stock possessing at
least eighty percent (80%) of the total combined voting power of all classes of
stock entitled to vote and at least eighty percent (80%) of the total number of
shares of each other class of stock of the corporation. For purposes of
determining Control, a person shall not be considered to own voting stock if
rights to vote such stock (or to restrict or otherwise control the voting of
such stock) are held by a third party (including a voting trust) other than an
agent of such person.
2.20 Other Taxes.
-----------
(a) The hours worked by and payments made to TEAMWorks'
employees have not been, to the best of its knowledge, in violation of the Fair
Labor Standards Act or any other applicable federal, foreign, state or local
laws dealing with such matters.
(b) All payments due from TEAMWorks on account of employee
health and welfare insurance have been paid or accrued as a liability on its
balance sheets as at December 31, 1992, and November 22, 1993.
(c) All severance and vacation payments by TEAMWorks which are
or were due under the terms of any agreement have been paid or accrued as a
liability on its balance sheets as at December 31, 1992, and November 22, 1993.
2.21 Compliance with Instruments. TEAMWorks is not in violation of or
---------------------------
conflict with, breach of or in default under (either with the giving of notice
or the passage of time or both) any term or provision of its current Articles of
Organization or Bylaws. TEAMWorks is not in material violation of or conflict
with, breach of or in default under (either with the giving of notice or the
passage of time or both) any agreement, arrangement, contract, lease or other
instrument to which it or its properties is or may be subject.
2.22 Foreign Status. TEAMWorks is not a foreign corporation, foreign
--------------
partnership, foreign trust or foreign establishment (as each such term is
defined in the Code).
2.23 Consents and Approvals. The TEAMWorks Letter lists all consents
----------------------
and approvals required for the execution and delivery of this Agreement by
TEAMWorks and the consummation of the Merger by TEAMWorks, including those that
are necessary because of the transactions contemplated by this Agreement or
those which a third party has decided are necessary to avoid the loss of the
rights to use TEAMWorks' Intellectual Property or other rights.
24.
<PAGE>
2.24 Accounts Receivable. The accounts receivable shown on the
-------------------
Financials as of December 31, 1992, and November 22, 1993, and thereafter
formulated by TEAMWorks, consisted only of items that are fully collectible,
good and payable within sixty days after the Closing. The TEAMWorks Letter
lists all accounts receivable, unbilled invoices and other debts due or recorded
in the records of TEAMWorks. The amount of all accounts receivable, unbilled
invoices and other debts due or recorded in the records and books of account of
TEAMWorks as being due to TEAMWorks as at the Closing will be good, payable and
collectible in full in the ordinary course of business within sixty days after
the Closing; no contest with respect to the amount or validity of any amount is
pending; and none of such accounts receivable or other debts is or will at the
Closing be subject to any counterclaim or set-off. The values at which accounts
receivable are carried reflect the accounts receivable valuation policy of
TEAMWorks which is consistent with GAAP applied on a consistent basis.
2.25 Offices, Capital Equipment. The offices and capital equipment of
--------------------------
TEAMWorks are in good operating condition and repair, normal wear and tear
excluded, and are adequate for the uses to which they are being put; and none of
such offices or capital equipment is in need of maintenance or repairs except
for ordinary and routine maintenance and repairs that are not material in nature
or cost.
2.26 Inventory. The inventories shown on the Financials as of
---------
December 31, 1992, and November 22, 1993, or thereafter acquired by TEAMWorks,
consisted of items of a quantity and quality usable or salable in the ordinary
course of its business. Since November 22, 1993, TEAMWorks has continued to
replenish inventories in a normal and customary manner consistent with past
practices. TEAMWorks has not received written or oral notice that it will
experience in the foreseeable future any difficulty in obtaining, in the desired
quantity and quality and at a reasonable price and upon reasonable terms and
conditions, the raw materials, supplies or component products required for the
manufacture, assembly or production of its products. TEAMWorks does not have
any sole source suppliers and has been and is able to acquire component parts
from multiple sources on a timely basis. The values at which inventories are
carried reflect the inventory valuation policy of TEAMWorks which is consistent
with its past practice and in accordance with GAAP applied on a consistent
basis.
2.27 No Undisclosed Liabilities. There is no outstanding claim,
--------------------------
liability or obligation of any nature, whether absolute, accrued, known or
unknown, contingent or otherwise, other than the liabilities and obligations
that are fully reflected, accrued or reserved against on the Financials for
which the reserves are appropriate and reasonable.
25.
<PAGE>
2.28 Related Party Transactions. No employee, officer or director of
--------------------------
TEAMWorks or member of his or her immediate family is indebted to TEAMWorks, nor
is TEAMWorks indebted (or committed to make loans or extend or guarantee credit)
to any of them. To the best of TEAMWorks' knowledge, none of such persons has
any direct or indirect ownership interest in any firm or corporation with which
TEAMWorks is affiliated or with which TEAMWorks has a business relationship, or
any firm or corporation that competes with TEAMWorks, except that the employees,
officers or directors of TEAMWorks and members of their immediate families may
own stock in publicly traded companies that may compete with TEAMWorks. No
member of the immediate family of any officer or director of TEAMWorks is
directly interested in any material contract with TEAMWorks.
2.29 Section 83(b) Elections. All individuals who have purchased
-----------------------
shares of TEAMWorks Common Stock have timely filed valid elections under Section
83(b) of the Code (and delivered all notices required in connection therewith)
and any analogous provisions of applicable state law.
2.30 Customers. TEAMWorks has not been informed by any of its ten
---------
largest customers during the past twelve (12) months (determined on the basis of
shipments during such period) that such customer has terminated, or intends to
reduce or terminate during the next twelve (12) months, the amount of business
conducted with TEAMWorks.
2.31 Certification of Profitability. TEAMWorks has performed current
------------------------------
cost-to-completion on all of its contracts and, to the best of its knowledge and
belief, all contracts will be completed profitably (after taking into account
all anticipated costs and reimbursements). Exhibit 2.31 contains a list of all
contracts in which a loss is anticipated and such loss amount with an
explanation or analysis therein.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
OPTIKA AND OPTIKA SUB
Except as set forth in the disclosure letter dated the date of this
Agreement, certified by the President and Secretary of Optika and delivered by
Optika to TEAMWorks (the "Optika Letter"), which disclosures shall be deemed
representations, warranties and covenants hereunder, each of Optika and Optika
Sub represents and warrants to TEAMWorks and TEAMWorks Stockholders as follows:
3.1 Organization and Standing.
-------------------------
26.
<PAGE>
(a) Each of Optika and Optika Sub is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted, and
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to so qualify could or
would have a material adverse effect upon its business, properties, condition
(financial or otherwise) or results of operations.
(b) Each of Optika and Optika Sub has delivered or make
available to TEAMWorks complete and accurate copies of its current Articles or
Certificate of Incorporation and Bylaws, as the case may be, and minutes of all
of its directors' and share/stockholders' meetings.
3.2 Subsidiaries. Except as set forth in the Optika Letter, Optika
------------
does not own or control, directly or indirectly, any corporation, partnership,
business, trust or other entity, except Optika Sub.
3.3 Authority, Approval and Enforceability.
--------------------------------------
(a) Subject to obtaining the required approval of Optika, as
sole stockholder of Optika Sub, each corporation has full corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Agreement of Merger, as the case may be, and all corporate action on
their respective parts necessary for such execution, delivery and performance
has been duly taken.
(b) Subject to obtaining all necessary consents, the execution
and delivery by each of Optika and Optika Sub, as the case may be, of this
Agreement and the Agreement of Merger do not, and the performance and
consummation of the transactions contemplated by this Agreement and the
Agreement of Merger will not, result in any conflict with, breach or violation
of or default, termination or forfeiture under (or upon the failure to give
notice or the lapse of time, or both, result in any conflict with, breach or
violation of or default, termination or forfeiture under) any terms or
provisions of its current Articles or Certificate of Incorporation or Bylaws, as
the case may be, or, any statute, rule, regulation, judicial, governmental,
regulatory or administrative decree, order or judgment, or any agreement, lease
or other instrument to which either is a party or to which any of its assets is
subject.
(c) No consent, approval, authorization, order, registration,
qualification or filing of or with any court or any regulatory authority or any
other governmental or administrative
27.
<PAGE>
body is required on its part for the consummation by each of Optika and Optika
Sub, as the case may be, of the transactions contemplated by this Agreement and
the Agreement of Merger, except (i) any tax clearance certificate referred to in
Section 5.16, (ii) any blue sky approvals referred to in Section 5.11 and (iii)
the filing of the Agreement of Merger and related officers' certificates with
the Secretary of State of the State of Delaware and the Articles of Merger with
the Secretary of State of the Commonwealth of Massachusetts.
(d) Upon due execution and delivery by Optika and Optika Sub,
this Agreement and the Agreement of Merger will be the legal, valid and binding
obligation of each of them, to the extent applicable, enforceable against such
parties in accordance with the respective terms hereof and thereof, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally and subject to the
availability of equitable remedies, and, with respect to the Agreement of
Merger, subject to Optika Sub obtaining the required approval of its sole
stockholder and TEAMWorks obtaining the required approval of its stockholders.
3.4 Financial Statements.
--------------------
(a) Optika has delivered to TEAMWorks complete copies of its
audited balance sheet as at December 31, 1992 (the "Audited Financials"), which
have been audited by its independent certified public accountants. Optika's
Audited Financials present fairly its financial position as of that date in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis.
(b) Optika has delivered to TEAMWorks an unaudited balance sheet
as of December 31, 1993 (the "Unaudited Financials"). Optika's Unaudited
Financials present fairly its financial condition as of December 31, 1993. The
Audited Financials and the Unaudited Financials are hereinafter collectively
referred to as the "Financials."
3.5 Changes. Since December 31, 1993, there has not been:
-------
(a) any change in its assets, liabilities, financial condition,
or operating results from that reflected in the Financials, except changes in
the ordinary course of business that have not been, in the aggregate, material;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting its business, properties, prospects,
or financial condition (as such
28.
<PAGE>
business is presently conducted and as it is proposed to be conducted);
(c) any waiver or compromise by it of a valuable right or of a
debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by it, except in the ordinary course of
business and that is not material to its business, properties, prospects, or
financial condition (as such business is presently conducted and as it is
proposed to be conducted);
(e) any material change to a contract or arrangement by which it
or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or
agreement with any employee, consultant, officer, director or stockholder;
(g) any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets, or other intangible assets other than
ordinary course of business product licenses;
(h) any resignation or termination of employment of any of its
key officers; and Optika and Optika Sub to the best of their knowledge, do not
know of the impending resignation or termination of employment of any such
officer;
(i) notification that there has been a loss of order or contract
cancellation by any of its customers;
(j) any mortgage, pledge, transfer of a security interest in, or
lien created by it, with respect to any of its material properties or assets,
except liens for taxes not yet due or payable;
(k) any loans or guarantees made by it to or for the benefit of
its employees, officers, or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of its business;
(l) any declaration, setting aside, or payment or other
distribution in respect of any of its capital stock, or any direct or indirect
redemption, purchase, or other acquisition of any of such stock by it;
(m) any other event or condition of any character that could
reasonably be expected to result in a material adverse
29.
<PAGE>
effect upon the business, properties, condition (financial or otherwise) or
results of operations of Optika; or
(n) any agreement or commitment by it to do any of the things
described in this Section 3.5.
3.6 Returns. Optika has not had any of its products returned by a
-------
purchaser, user or distributor thereof, other than for minor, nonrecurring
warranty problems. Optika is not aware of any pending warranty claims since
January 1, 1992.
3.7 Insurance. Optika maintains policies of insurance covering its
---------
assets, properties and business in types and amounts customary for similarly
sized companies engaged in similar businesses. To the best knowledge of Optika,
it is in compliance with each of such policies such that none of the coverage
provided under such policies has been invalidated.
3.8 Compliance with Laws. The business and operations of Optika are
--------------------
in compliance with all foreign, federal, state, local and county laws,
ordinances, regulations, judgments, orders, decrees or rules of any court,
arbitrator or governmental, regulatory or administrative agency or entity,
except where Optika's failure to so comply would not have a materially adverse
effect on Optika or its properties. Optika has all valid and current permits,
licenses, orders, authorizations, registrations, approvals and other analogous
instruments (and each is in full force and effect) and Optika has made all
filings and registrations and the like necessary or required by law to conduct
its business, except where its failure to do so would not materially adversely
affect Optika or its properties. Optika has not received any governmental
notice within two years of the date hereof of any violation by Optika of any
such laws, rules, regulation or orders. Optika is not in material default or
material noncompliance under any such permits, consents, or similar instruments,
except where such default or noncompliance would not adversely affect Optika or
its properties.
3.9 Absence of Litigation. Other than as set forth in the Optika
---------------------
Letter, neither Optika nor, to the best of its knowledge, any of its officers or
directors is engaged in, or has received any threat of, any litigation,
arbitration, investigation or other proceeding relating to it, its employee
benefit plans, property, business, assets, licenses, permits or goodwill, or
against or affecting the Merger or the actions taken or contemplated in
connection therewith, nor, to the best of its knowledge, is there any reasonable
basis therefor. There is no action, suit, proceeding or investigation pending
or threatened against Optika that questions the validity of this Agreement or
the Agreement of Merger, or the right of Optika or Optika Sub to
30.
<PAGE>
enter into this Agreement or the Agreement of Merger, as the case may be, or to
consummate the transactions contemplated hereby or thereby. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to Optika) involving the prior employment of any of its
employees, their use in connection with its business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. Other than as set forth
in the Optika Letter, there is no action, suit, proceeding or investigation by
Optika currently pending or which it intends to initiate. Neither Optika nor,
to the best of its knowledge, any of its officers or directors is bound by any
judg ment, decree, injunction, ruling or order of any court, govern mental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person which would or could have a material adverse
effect.
3.10 No Brokers. Optika is not obligated for the payment of fees or
----------
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Agreement of Merger, or in connection with
any transaction contemplated hereby or thereby.
3.11 Capitalization.
--------------
(a) Optika's capitalization (common stock, preferred stock,
warrants and options and any other issued or granted security) is as set forth
in the Optika Letter.
(b) All of the issued and outstanding shares of Optika's capital
stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock has been issued in full compliance with
all applicable federal and state securities laws.
(c) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, co-sale right,
right of participation, right of first offer, option or other restriction on
transfer applicable to any share of Optika's capital stock.
(d) Optika is not a party or subject to any agreement or
understanding and there is no agreement or understanding between or among any
persons that affects or relates to the voting or giving of written consent with
respect to any outstanding security of Optika.
(e) Optika does not have outstanding any preemptive or
subscriptions rights,
<PAGE>
options, warrants, rights to convert, capital stock equivalents or other rights
to purchase or
31.
<PAGE>
otherwise acquire any of Optika's capital stock or other securities.
3.12 Dilutive Issuance. The consummation of the Merger and the
-----------------
issuance of Optika Common Stock to the Stockholders and the assumption of
outstanding TEAMWorks options will not trigger any anti-dilution adjustment to
the conversion price of the preferred stock of Optika.
3.13 Intellectual Property Rights. Optika has sufficient right, title
----------------------------
and interest in and to all Intellectual Property necessary for or used in its
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others. Optika has not received any
communications, nor is it aware of any entity, alleging that it has violated or,
by conducting its business as proposed, would violate any Intellectual Property
of any other person or entity. All of Optika's license agreements with respect
to its Intellectual Property are in writing and evidence legitimate ownership of
such rights in Optika.
3.14 Employee Benefit Plans. Optika does not have or otherwise
----------------------
contribute to or participate in any "employee benefit plan," including, without
limitation, any pension and welfare benefit plans, as defined by ERISA. Optika
is not a party to, not has it made any contribution to or otherwise incurred any
obligation under, any "multiemployer plan," as defined by ERISA. With respect
to any employee benefit plan that is regulated by, or subject to, ERISA, neither
Optika nor any "affiliate" (as defined by ERISA) has failed to make any
contribution or pay any amount due as required by ERISA or under the terms of
any such plan, and there are no facts existing which have resulted in, or may
reasonably be expected to result in, the imposition of any liability on Optika
or any "affiliate" (as defined by ERISA) either under such plans or under ERISA.
3.15 Tax Matters.
-----------
(a) Optika Sub is a newly formed corporation and a wholly owned
subsidiary of Optika. Optika Sub will not, prior to the Closing, transact any
business except in connection with the transactions contemplated by this
Agreement and the Agreement of Merger.
(b) Optika is, and will be at the Closing, in "control" of
Optika Sub within the meaning of Section 368(a)(2)(E) of the Code. Following the
Closing, Optika intends to maintain "control" of Optika Sub and will not
transfer, sell, assign or otherwise alienate any of the shares of Optika Sub or
discontinue the business of TEAMWorks if such action would result
32.
<PAGE>
in the disqualification of the transaction as a reorganization within the
meaning of Section 368 of the Code.
ARTICLE 4
COVENANTS OF OPTIKA, OPTIKA SUB,
THE STOCKHOLDERS AND TEAMWORKS
Each of Optika, Optika Sub the Stockholders and TEAMWorks, as the case
may be, covenants to the other, except as expressly provided otherwise herein,
as follows:
4.1 Maintenance of Business.
-----------------------
(a) During the period from the date hereof to the Effective
Time, it shall carry on and preserve its business, goodwill and its
relationships with customers, suppliers, officers, employees, agents and others
in substantially the same manner as it did prior to the date of this Agreement.
It will use its best efforts to keep and maintain the existing favorable
business relationship with each of such customers, suppliers, officers,
employees and agents. If it becomes aware of a deterioration in a relationship
with any customer, supplier, officer, employee or agent which is material to its
business or prospects, it will promptly bring such information to the attention
of the other and will use its best efforts to restore such relationship or
establish a reasonable replacement relationship, as may be appropriate.
(b) TEAMWorks agrees to consult with Optika concerning any
operating decisions (including, without limitation, proposed employee hiring,
layoff and termination decisions), other than in the ordinary course of
business. Notwithstanding the foregoing, TEAMWorks expressly acknowledges that
TEAMWorks alone shall make such operating decisions and shall be solely
responsible for their implementation, consequences and liabilities, if any.
4.2 Absence of Certain Changes. Prior to the Closing, except as
--------------------------
expressly permitted or contemplated hereby, TEAMWorks will not, without Optika's
prior written consent:
(a) incur any additional indebtedness for money borrowed or
guarantee any indebtedness or obligation of any other party, other than in the
ordinary course of business;
(b) set aside or pay any dividend or distribution of assets to,
or repurchase any of its stock from any of its Stockholders, except for one
income tax payment in accordance with historical practice.
33.
<PAGE>
(c) issue or grant any securities or securities convertible into
capital stock or grant or issue any options, warrants or rights to subscribe for
its capital stock or securities convertible into its capital stock (except for
the exercise of all outstanding warrants);
(d) enter into, amend or terminate any employment or consulting
agreement or any similar agreement or arrangement;
(e) increase the compensation payable or to become payable to
any of its officers, employees or agents above the amount payable as of November
22, 1993, or adopt or amend any employee benefit plan or arrangement;
(f) acquire or dispose of any properties or assets used in its
business except in the ordinary course of business;
(g) waive any statute of limitations so as to extend any tax or
other liability;
(h) permit any change in the nature of its status as a developer
and marketer of software products or the manner in which its books and records
are maintained;
(i) create or suffer to be imposed any lien, mortgage, security
interest or other charge on or against its properties or assets;
(j) enter into, amend or terminate any lease of real or personal
property otherwise than in the ordinary course of business;
(k) amend its Articles of Organization or Bylaws;
(l) engage in any activities or transactions outside the
ordinary course of its business as conducted at the date hereof;
(m) make any amendments or changes in any instruments,
agreements, other documents or written information delivered by it or its
representatives to Optika or Optika Sub or either of their representatives; or
(n) accelerate the vesting of any employee stock benefit
(including vesting under stock purchase agreements or exercisability of stock
options).
4.3 Actions Contrary to Stated Intent. Each party will use its best
---------------------------------
efforts to cause the Merger to qualify as a tax-free reorganization under
Sections 368(a)(1)(A) and
34.
<PAGE>
368(a)(2)(E) of the Code and accordingly will not knowingly, either before or
after consummation of the Merger, take any action or fail to take any action
which would prevent the Merger from so qualifying as a tax-free reorganization
under Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code (or be inconsistent
with such qualification), or from being eligible for pooling-of-interests
accounting treatment.
4.4 Access to Information. Each party will give to the other party
---------------------
and their respective accountants, legal counsel and other representatives full
access, during normal business hours throughout the period prior to the Closing,
to all of the properties, books, contracts, commitments and records relating to
its business, assets and liabilities, and each party will furnish to the other
party, their respective accountants, legal counsel and other representatives
during such period all such information concerning its affairs as the other may
reasonably request but subject to Section 8.10 below; provided, that any
furnishing of such information pursuant hereto or any investigation by each
party hereto shall not affect such party's right to rely on the representations,
warranties, agreements and covenants made by the other party in this Agreement.
4.5 Other Discussions. From the date hereof until the Closing or the
-----------------
termination of this Agreement in accordance with Article 7 hereof, whichever
occurs first, neither TEAMWorks nor any officer, director, agent or
representative of TEAMWorks will discuss or negotiate, or authorize any person
or entity to discuss or negotiate on its or their behalf, with any other party,
concerning the possible disposition of TEAMWorks' business, assets or capital
stock.
4.6 Continuity of Interest and Restrictions on Resale. The
-------------------------------------------------
Stockholders shall execute and deliver to Optika the Affiliates Letter,
Continuity of Interest Certificate and the Lock Up Agreement in the form
attached hereto as Exhibit 1.6.
4.7 Best Efforts. TEAMWorks, Optika and Optika Sub will each use
------------
their best efforts to cause all conditions to the Closing to be satisfied.
4.8 Stock Options. Optika shall assume the TEAMWorks Stock Option
-------------
Plan, and each TEAMWorks Option that is outstanding thereunder as of the Closing
shall be assumed by Optika and evidenced by an option assumption agreement
substantially in the form attached hereto as Exhibit 4.8. Each assumed
-----------
TEAMWorks option shall accordingly become an option to purchase the same number
of shares of Optika Common Stock as the number of shares of TEAMWorks common
stock subject to such TEAMWorks Option immediately prior to the Effective Time
of the Merger would, if outstanding, be converted into pursuant to the Agreement
of
35.
<PAGE>
Merger, rounded up to the nearest whole number of shares of Optika Common Stock,
and the exercise price per share payable for the Optika Common Stock purchasable
under the assumed option shall be the exercise price per share in effect
immediately prior to the Effective Time of the Merger for the TEAMWorks common
stock purchasable under such TEAMWorks Option proportionately adjusted and
rounded up to the nearest whole cent so that the aggregate exercise price under
the assumed option shall remain substantially unchanged. All the terms and
conditions of each TEAMWorks Option in effect immediately prior to the
assumption shall continue in full force and effect under the assumed option.
Notwithstanding the foregoing, the assumption of any TEAMWorks Options that are
incentive stock options by Optika pursuant to this Section 4.8 shall comply in
all respects with the applicable requirements of Section 424 of the Code, and
the Treasury Regulations thereunder, and the provisions of this Section 4.8
shall be deemed amended as necessary to comply therewith.
4.9 Information to Share/Stockholders. It will provide to all
---------------------------------
holders of its capital stock entitled to vote upon or consent to the Merger all
information necessary to satisfy all requirements of applicable federal and
state securities laws in connection with the submission of the Merger to such
share/stockholders for their approval.
4.10 TEAMWorks Payables. TEAMWorks shall continue to pay its accounts
------------------
payable, including (without limitation) its payroll, amounts due under equipment
and facilities leases, loan agreements and similar leases and agreements, sales
and payroll taxes and trade payables, and all other taxes, in the same manner as
TEAMWorks has paid such accounts payable prior to November 22, 1993.
4.11 Consents. Each party shall use its best efforts to obtain any of
--------
its consents necessary or desirable in connection with the consummation of the
transactions contemplated by this Agreement.
4.12 Tax Forms. TEAMWorks shall not make or change any material Tax
---------
election, adopt or change any material Return or any amendment to a material
Return, enter into any closing agreement, settle any Tax claim or assessment, or
consent to any extension or waiver of limitation period applicable to any Tax
claim or assessment, without the prior consent of Optika, which consent will not
be unreasonably withheld.
4.13 Commitment to Favorable Vote. The Stockholders agree to vote all
----------------------------
shares of TEAMWorks Common Stock held by them (or by entities with which they
are associated) in favor of the Merger.
36.
<PAGE>
4.14 Merger Expenses. Any expenses incurred prior to the effective
---------------
time shall be incurred for the incurring party's own account. TEAMWorks shall
not incur in excess of $20,000 in the aggregate for all of its merger-related
fees and expenses, including, without limitation, counsel, accounting and
valuation fees and expenses. TEAMWorks will use its best efforts to limit all
of its non merger-related fees and expenses to be incurred by it prior to or on
the Closing.
4.15 Registration Rights. Optika shall use its best efforts to cause
-------------------
the Registration Agreement (the "Registration Agreement"), dated as of December
21, 1993, to be amended as provided in Exhibit 4.15.
ARTICLE 5
CONDITIONS TO OBLIGATIONS OF OPTIKA,
OPTIKA SUB, THE STOCKHOLDERS AND TEAMWORKS
The obligations of Optika, Optika Sub, the Stockholders and TEAMWorks
to consummate the transactions contemplated hereby are, at the election of each
such party, subject to satisfaction of the following conditions by the other
parties, to the extent applicable to the other parties, or waiver thereof:
5.1 Consents and Approvals. The parties hereto shall have obtained
----------------------
all consents and approvals of share/stockholders and third parties (including
governmental authorities) required to consummate the transactions contemplated
by this Agreement and the Agreement of Merger.
5.2 Representations, Warranties and Agreements. All representations
------------------------------------------
and warranties (including those contained in the Optika and TEAMWorks Letters)
made herein by the other party and those contained in any documents executed by
share/stockholders of the other party shall be true, accurate and correct in all
respects as of the date made and as if made as of the Closing. The other party
shall have performed all obligations and agreements undertaken by it herein to
be performed at or prior to the Closing.
5.3 Certificate. It shall have received at the Closing a
-----------
certificate, dated as of the Closing and executed by the other's President and
Secretary or Clerk, as applicable, to the effect that the conditions set forth
in Sections 5.1 and 5.2 shall have been satisfied or waived by the other party.
5.4 Opinions of Counsel.
-------------------
(a) Optika and Optika Sub shall have received at the Closing the
opinion of Lucash, Gesmer & Updegrove, counsel to
37.
<PAGE>
TEAMWorks, in form and substance reasonably satisfactory to Optika and Optika
Sub and their counsel, substantially to the effect that, except as set forth in
the TEAMWorks Letter:
(i) TEAMWorks is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of its
incorporation, has all requisite corporate power and authority to own, operate
and lease its properties and carry on its business as now conducted and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction of the United States of America in which the nature of its
business or the ownership of its properties makes such qualification necessary,
except where any statutory fines or penalties or any corporate disability
imposed for the failure to qualify would not materially adversely affect such
corporation, taken as a whole.
(ii) The authorized and outstanding shares of capital
stock of TEAMWorks is as set forth in the TEAMWorks Letter. All outstanding
shares of TEAMWorks Common Stock have been duly and validly issued and are fully
paid and nonassessable.
(iii) To the best of such counsel's knowledge, the
transactions contemplated by this Agreement, including the Merger, will not
constitute a violation of any right of first refusal, option or other
restriction applicable to the transfer of any shares of TEAMWorks Common Stock
pursuant to TEAMWorks' Articles of Organization or Bylaws. To the best of such
counsel's knowledge, TEAMWorks does not have outstanding any common stock
preemptive or subscription rights, options, warrants, rights to convert, capital
stock equivalents, stock appreciation rights or other rights to purchase or
otherwise acquire any of TEAMWorks' preferred stock or other securities, or to
be paid any amount based on the value of any such securities.
(iv) TEAMWorks has the requisite corporate power and
authority to execute and deliver, and to perform its obligations under, this
Agreement and the Agreement of Merger. TEAMWorks and its stockholders have taken
all requisite corporate action to approve and adopt this Agreement and the
Agreement of Merger and the performance by each of the respective obligations
thereunder. This Agreement and the Agreement of Merger have been duly and
validly executed and delivered by TEAMWorks and constitute legal, valid and
binding obligations of TEAMWorks, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors rights and subject to general equity
principles and to limitations on the availability of equitable relief, including
specific performance and except that
38.
<PAGE>
no opinion shall be rendered with respect to any of the indemnification
provisions contained in such agreements.
(v) The execution and delivery of this Agreement and the
Agreement of Merger by TEAMWorks, and the performance and consummation by
TEAMWorks of the transactions contemplated by such agreements, do not result in
any conflict with, breach or violation of or default, termination, forfeiture or
lien under (or upon the failure to give notice or the lapse of time, or both,
result in any conflict with, breach or violation of or default, termination,
forfeiture or lien under) any terms or provisions of TEAMWorks' Articles of
Organization or Bylaws, or, to the best of such counsel's knowledge, any
material judicial or governmental decree, order, judgment or material instrument
to which TEAMWorks is a party or to which it or any of its assets is subject.
(vi) To the best of such counsel's knowledge, there is no
consent, approval, authorization, order, registration, qualification or filing
of or with any court or any regulatory authority or other governmental body
(other than the filing of the Agreement of Merger and the Articles of Merger and
other than consents or filings required by state and federal securities laws in
connection with the issuance of Optika Common Stock or the assumption of
TEAMWorks Options) or any third party required for the consummation by TEAMWorks
of the transactions contemplated by this Agreement and the Agreement of Merger
which has not been obtained or waived.
(vii) To the best of such counsel's knowledge, there is no
suit, arbitration or legal, administrative or other proceeding or governmental
investigation pending or threatened to which TEAMWorks is a party that might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition or affairs of TEAMWorks.
(b) TEAMWorks shall have received at the Closing the opinion of
Brobeck, Phleger & Harrison, counsel to Optika and Optika Sub, in form and
substance reasonably satisfactory to TEAMWorks and its counsel, substantially to
the effect that, except as set forth in the Optika Letter:
(i) Each of Optika and Optika Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of its incorporation, has the corporate authority to own, operate or lease its
properties and carry on its business as now conducted.
(ii) All outstanding shares of the capital stock of Optika
and Optika Sub have been duly and validly issued and are fully paid and non-
assessable.
39.
<PAGE>
(iii) Each of Optika and Optika Sub has the corporate
power and authority to execute and deliver, and to perform its obligations
under, this Agreement and the Agreement of Merger, as the case may be. Each of
Optika and Optika Sub has taken the corporate action to approve and adopt this
Agreement and the Agreement of Merger, as the case may be, and the performance
of each of its respective obligations hereunder and thereunder. This Agreement
and the Agreement of Merger have been duly and validly executed and delivered by
each of Optika and Optika Sub, as the case may be, and constitute legal, valid
and binding obligations of each of Optika and Optika Sub, as the case may be,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors rights and subject to general equity principles and to limitations on
the availability of equitable relief, including specific performance and except
that no opinion shall be rendered with respect to any of the indemnification
provisions contained in such agreements.
(iv) The execution and delivery of this Agreement and the
Agreement of Merger by each of Optika and Optika Sub, as the case may be, and
the performance and consummation by each of Optika and Optika Sub, as the case
may be, of the transactions contemplated by such agreements, do not result in
any conflict with, breach or violation of or default, termination, forfeiture
or lien under (or upon the failure to give notice or the lapse of time, or both,
result in any conflict with, breach or violation of or default, termination,
forfeiture or lien under) any terms or provisions of Optika's or Optika Sub's
Articles or Certificate of Incorporation or Bylaws, as the case may be, or, to
such counsel's knowledge, any material judicial or governmental decree, order or
judgment, to which Optika or Optika Sub is a party or to which either or any of
their respective assets is subject.
(v) To the best of such counsel's knowledge, there is no
consent, approval, authorization, order, registration, qualification or filing
of or with any court or any regulatory authority or other governmental body
(other than the filing of the Agreement of Merger and the Articles of Merger and
other than consents or filings required by state and federal securities laws in
connection with the issuance of Optika Common Stock or the assumption of
TEAMWorks Options) or any third party required for the consummation by Optika or
Optika Sub of the transactions contemplated by this Agreement and the Agreement
of Merger which has not been obtained or waived.
5.5 No Actions. Consummation of the transactions contemplated by
----------
this Agreement and the Agreement of Merger shall not violate any order, decree
or judgment of any court or governmental body having jurisdiction.
40.
<PAGE>
5.6 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
reasonably satisfactory to its counsel, and it shall have received all such
counterpart originals or certified or other copies of such documents as it may
reasonably request.
5.7 Accuracy of Documents and Information. The copies of all
-------------------------------------
material instruments, agreements, other documents and written information
delivered to the other by it or its representatives shall be complete and
correct as of the Closing.
5.8 Employment Agreements. Each of Mr. Richard Holzman, Mr. David
---------------------
Holzman, Mr. Eric Brown, Mr. Kevin Ilsen and Mr. James Schuster shall have
entered into an Employment Agreement substantially in the forms attached hereto
as Exhibits 5.8(a), 5.8(b), 5.8(c), 5.8(d) and 5.8(e), respectively.
5.9 Registration Agreement. Optika, the stockholders and
----------------------
optionholders of TEAMWorks and certain parties shall have entered into an
Amendment to the Registration Agreement in substantially the form attached
hereto as Exhibit 4.15.
------------
The obligations of Optika and Optika Sub to consummate the
transactions contemplated hereby are, at the sole election of Optika, subject to
satisfaction of each of the following conditions or waiver thereof by Optika:
5.10 Continuity of Interest and Restrictions on Transfer. Optika and
---------------------------------------------------
Optika Sub shall have received an Affiliates Letter, Continuity of Interest
Certificate and Lock Up Agreement executed by each stockholder of TEAMWorks.
5.11 Dissenting Shares. Optika and TEAMWorks shall be satisfied that
-----------------
all holders of shares of TEAMWorks Common Stock shall have voted in favor of the
Merger.
5.12 Blue Sky Approvals. Optika shall have obtained all necessary
------------------
blue sky approvals for the issuance of the Optika Common Stock and the
assumption of the TEAMWorks Options pursuant to the Merger required to be
obtained prior to the Effective Time.
5.13 Agreement/Articles of Merger. Optika and TEAMWorks shall be
----------------------------
satisfied that simultaneously with the Closing, the Agreement of Merger shall
have been filed in the office of the Secretary of State of the State of Delaware
and the Articles of Merger shall have been filed in the office of the Secretary
of State of the Commonwealth of Massachusetts.
<PAGE>
5.14 TEAMWorks Stock Option Plan. Optika shall be satisfied that
---------------------------
TEAMWorks shall have received any regulatory, corporate and stockholder
approvals that may be necessary to implement or amend TEAMWorks' 1993 Stock Plan
in a form reasonably satisfactory to Optika and its counsel.
5.15 Resignations. Each member of the TEAMWorks Board of Directors
------------
and each officer of TEAMWorks shall have resigned effective as of the Closing
and Optika shall have received written evidence of such resignations.
5.16 Foreign Status Representation Letter. TEAMWorks shall furnish
------------------------------------
Optika with an affidavit stating under penalty of perjury that, TEAMWorks is not
a United States real property interest within the meaning of Sections 897 of the
Code and will provide in such affidavit its taxpayer identification number and
shall have executed a representation letter substantially in the form provided
before Closing to TEAMWorks and its counsel and make such filings with such tax
authorities as are reasonable requested by Optika in connection with such
representations.
5.17 Tax Clearance Certificate. Optika and Optika Sub shall have
-------------------------
received copies of all necessary tax clearance certificates that satisfy the
requirements of all relevant state authorities.
5.18 Documents. Optika shall have received copies of all written
---------
documentation requested by it confirming the Intellectual Property rights of
TEAMWorks including (a) Proprietary Information Agreements from all employees,
consultants, service providers, officers and directors of TEAMWorks and (b)
license or technology agreements with which TEAMWorks has contractual
arrangements.
5.19 Escrow Agreement. The Escrow Agreement shall be executed by all
----------------
of the appropriate parties.
5.20 "Pooling-of-Interests" Transaction. Price Waterhouse shall have
----------------------------------
advised Optika in writing that the Merger will qualify for accounting treatment
purposes as a "pooling-of-interests." All stockholders of TEAMWorks shall have
executed any documents reasonably requested by Optika in order to receive such
pooling-of-interests treatment.
5.21 Exercise of Warrants. On or prior to the Effective Time, all
--------------------
outstanding warrants or rights to acquire capital stock of TEAMWorks shall be
either exercised for shares of TEAMWorks common stock or terminated pursuant to
its original terms.
42.
<PAGE>
5.22 Representation Agreement. Optika and Optika Sub shall have
-------------------------
received an agreement regarding certain representations and warranties in
substantially the form attached hereto as Exhibit 5.22 that has been executed by
each of the optionholders of TEAMWorks.
ARTICLE 6
INDEMNITY
6.1 Escrow Deposit of Optika Common Stock. Each of the Stockholders,
-------------------------------------
jointly and severally, agrees to indemnify, defend and hold harmless Optika and
Optika Sub from and against and shall reimburse Optika and Optika Sub against
and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, remedies and penalties, including interest,
penalties and attorneys' fees and expenses (collectively, "Losses") that Optika,
TEAMWorks or Optika Sub shall incur or suffer and which arise from or are
attributable to by reason of or in connection with any breach or inaccuracy of
or any failure to perform or comply with any of TEAMWorks' or the Stockholders'
representations, warranties, agreements or covenants contained in this Agreement
(including any exhibit, letter, schedule or certificate or other instrument
referred to herein) or in the Escrow Agreement.
For purposes of the indemnification set forth herein and in the Escrow
Agreement, the fair market value of one share of Optika Common Stock shall equal
$7.50.
The indemnity obligations of the Stockholders pursuant to this Section
6.1 (and the representations, warranties, covenants and other agreements set
forth in this Agreement and in the Escrow Agreement) for a breach or inaccuracy
of or a failure to perform or comply with any or all of TEAMWorks' or the
Stockholders' representations, warranties, covenants and agreements shall
terminate upon the earlier to occur of: (i) one (1) year after the Effective
Time of the Merger or (ii) the date of the issuance of the first audited
financial statements that contain the combined results of Optika, Optika Sub and
TEAMWorks, except to the extent that claims against the Escrow Shares have been
submitted or notice of the claims provided during such escrow period and only
with respect to such anticipated or actual Losses arising from such claims.
Notwithstanding the disclosure contained in the TEAMWorks Letter as well as any
materiality or knowledge qualification set forth therein and herein with respect
to any potential obligation or liability of TEAMWorks or the Stockholders for
any product return or state sales or use tax, the Stockholders shall be liable,
but only to the extent otherwise set forth in this Section 6.1, to TEAMWorks,
Optika or Optika Sub for any Losses in excess of $10,000 (exclusive of Losses up
to $10,200 with respect to the DataImage, Inc. right of
43.
<PAGE>
product return) incurred or suffered by TEAMWorks, Optika or Optika Sub for any
product returns or sales and use tax obligations arising from sales or purported
sales in existence on or before the date hereof.
In any case in which claims have been asserted or are pending, all
parties agree that the indemnity obligations of the Stockholders with respect to
such matters shall continue in full force and effect until such matters have
been settled by agreement of the parties or by resolution of such matters in
accordance with the terms of the Escrow Agreement. No investigation made by or
on behalf of Optika or Optika Sub with respect to TEAMWorks or the Stockholders
shall be deemed to affect Optika's or Optika Sub's reliance on the
representations, warranties, covenants and agreements made by TEAMWorks or the
Stockholders contained in this Agreement and shall not be a waiver of Optika's
or Optika Sub's rights to indemnity as herein provided for the breach or
inaccuracy of or failure to perform or comply with any of TEAMWorks' or the
Stockholders' representations, warranties, covenants or agreements under this
Agreement or the Escrow Agreement.
As set forth herein, the indemnity obligations of the Stockholders
under this Article 6 (together with all of TEAMWorks' and the Stockholders'
representations, warranties, covenants and other agreements) set forth herein
shall survive the Closing. Absent fraud, this Article 6 sets forth the sole
liability of the Stockholders, and the sole remedy of TEAMWorks, Optika and
Optika Sub with respect to, in connection with or arising under any and all
breaches of, inaccuracies in or failures to comply with or perform any of the
representations, warranties, agreements or covenants of TEAMWorks and/or any
Stockholders contained in this Agreement (including any exhibit, letter,
schedule, certificate or instrument other than the covenants under the various
employment agreements between the Stockholders and TEAMWorks and the
Registration Agreement) or in the Escrow Agreement.
6.2 Indemnity by Optika and Optika Sub. Each of Optika and Optika
----------------------------------
Sub, jointly and severally, agrees to indemnify, defend and hold harmless the
Stockholders from and against and shall reimburse the Stockholders against and
in respect of any and all Losses that the Stockholders shall incur or suffer and
which arise from or are attributable to by reason of or in connection with any
breach or inaccuracy of or any failure to perform or comply with any of Optika's
or Optika Sub's representations, warranties, agreements or covenants contained
in this Agreement (including any exhibit, letter, schedule, certificate or
instrument other than the covenants under the various employment agreements
between the Stockholders and
44.
<PAGE>
TEAMWorks and the Registration Agreement) or in the Escrow Agreement.
The indemnity obligations of Optika and Optika Sub pursuant to this
Section 6.2 (and the representations, warranties, covenants and other
agreements set forth in this Agreement) for a breach or inaccuracy of any or all
of Optika's or Optika Sub's representations or warranties or any failure to
perform or comply with any of the Optika's or Optika Sub's agreements or
covenants shall terminate upon the earlier to occur of: (i) one (1) year after
the Effective Time of the Merger or (ii) the date of the issuance of the first
audited financial statements that contain the combined results of Optika, Optika
Sub and TEAMWorks.
The amount of the indemnity obligations of Optika and Optika Sub under
this Article 6 set forth herein shall be limited in the aggregate to the fair
market value of the Escrow Shares as provided in Section 6.1 hereof, which shall
constitute the sole recourse of the Stockholders under this Agreement. Absent
fraud, this Article 6 sets forth the sole liability of Optika and Optika Sub,
and the sole remedy of the Stockholders with respect to, in connection with or
arising under any and all breaches of, inaccuracies in or failures to comply
with or perform any of the representations, warranties, agreements or covenants
of Optika and/or Optika Sub contained in this Agreement (including any exhibit,
letter, schedule, certificate, or instrument other than the covenants under the
various employment agreements between the Stockholders and TEAMWorks and the
Registration Agreement) or in the Escrow Agreement.
6.3 Limitations on Indemnity Obligations. Notwithstanding the amount
------------------------------------
of indemnification available to any of the indemnified parties pursuant to
Sections 6.1 and 6.2, absent fraud, the total amount available for
indemnification to all of the indemnified parties under this Agreement for all
Losses during the term of the indemnity period shall not exceed an amount equal
to the fair market value as of the Closing of the Escrow Shares.
ARTICLE 7
TERMINATION
7.1 Termination by Mutual Consent. At any time prior to the Closing,
-----------------------------
this Agreement and the Agreement of Merger may be terminated by mutual agreement
of Optika, Optika Sub and TEAMWorks, notwithstanding approval of the Merger by
the stock/shareholders of Optika Sub or TEAMWorks.
45.
<PAGE>
7.2 Termination by Optika or Optika Sub or TEAMWorks.
------------------------------------------------
(a) Optika or Optika Sub may terminate this Agreement and the
Agreement of Merger at any time prior to the Closing by delivery of written
notice to TEAMWorks if: (1) TEAMWorks or the Stockholders have breached or
violated this Agreement in any respect and, if such breach or violation is
curable, has failed to cure such violations within five (5) days of receiving
written notice thereof; (2) any representation or warranty made by TEAMWorks or
the Stockholders is false or inaccurate in any respect or there is any
misrepresentation or omission by TEAMWorks or the Stockholders; (3) the Closing
has not occurred by February 15, 1994; (4) Optika or Optika Sub determines in
the exercise of its judgment that the pendency of any lawsuit or the institution
or threat of any governmental or administrative action, investigation or inquiry
which questions the validity or the legality of the transactions contemplated
hereby or which seeks to prevent, restrain, change or obtain damages in respect
of such transactions, makes it inadvisable in Optika's judgment to consummate
the transactions contemplated hereby, notwithstanding that such lawsuit, action,
investigation or inquiry may be deemed to be without merit; or (5) if following
the completion of a due diligence investigation by Optika or Optika Sub and its
advisors of TEAMWorks legal, financial, accounting, employee-related and other
matters, in Optika or Optika Sub's opinion there is an adverse state of facts or
circumstances or developments with regard to TEAMWorks' conditions (financial or
otherwise), results of operations or prospects.
(b) TEAMWorks may terminate this Agreement and the Agreement of
Merger at any time prior to the Closing by delivery of written notice to Optika
and Optika Sub if: (1) Optika or Optika Sub has breached or violated this
Agreement in any respect and, if such breach or violation is curable, has failed
to cure such violations within five (5) days of receiving written notice
thereof; (2) any representation or warranty made by Optika or Optika Sub is
false or inaccurate in any respect or there is any misrepresentation or omission
by either Optika or Optika Sub; (3) the Closing has not occurred by February 15,
1994; or (4) TEAMWorks determines in the exercise of its judgment that the
pendency of any lawsuit or the institution or threat of any governmental or
administrative action, investigation or inquiry which questions the validity or
the legality of the transactions contemplated hereby or which seeks to prevent,
restrain, change or obtain damages in respect of such transactions, makes it
inadvisable in TEAMWorks' judgment to consummate the transactions contemplated
hereby, notwithstanding that such lawsuit, action, investigation or inquiry may
be deemed to be without merit.
46.
<PAGE>
7.3 Effect of Termination. In the event of termination as provided
---------------------
above, all parties hereto shall bear their own costs associated with this
Agreement and all transactions described herein and there shall be no obligation
on the part of either party's officers, directors or share/stockholders;
provided, that (a) Sections 8.5, 8.9, 8.10, 8.11 and 8.12 shall survive such
termination and continue in full force and effect, and (b) nothing herein will
relieve any party from liability for any breach of this Agreement prior to such
termination.
ARTICLE 8
MISCELLANEOUS
8.1 Notices. Any notice given hereunder shall be in writing and
-------
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by facsimile) or the third day after mailing by certified or
registered mail, postage prepaid, as follows:
(a) If to Optika or Optika Sub:
Optika Imaging Systems, Inc., Inc.
5755 Mark Dabling Blvd., Suite 100
Colorado Springs, CO 80919
Attention: Steven M. Johnson
Facsimile: (719) 531-7915
With a copy to:
Warren T. Lazarow, Esq.
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Facsimile: (415) 496-2885
(b) If to TEAMWorks:
TEAMWorks Technologies, Inc.
65 Boston Post Road West, Suite 200
Marlboro, MA 01752-1855
Attention: Richard Holzman
Facsimile: (508) 460-0255
With a copy to:
William Contente, Esq.
Lucash, Gesmer & Updegrove
One McKinley Square
Boston, MA 02109
47.
<PAGE>
Facsimile: (617) 723-3357
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above.
8.2 Entire Agreement; Modifications; Waiver. Except as set forth in
---------------------------------------
Section 8.10 herein, this Agreement constitutes the final, exclusive and
complete understanding of the parties with respect to the subject matter hereof
and supersedes any and all prior agreements, understandings and discussions with
respect thereto, including, without limitation, the Letter of Intent, dated
November 16, 1993, by and among Optika, TEAMWorks and the Stockholders. No
variation or modification of this Agreement and no waiver of any provision or
condition hereof, or granting of any consent contemplated hereby, shall be valid
unless in writing and signed by the party against whom enforcement of any such
variation, modification, waiver or consent is sought. The rights available to
Optika and Optika Sub pursuant to this Agreement and all exhibits hereunder
shall be cumulative.
8.3 Captions. The captions in this Agreement are for convenience
--------
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
8.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one agreement.
8.5 Publicity. Except for disclosure (if any) required by any law to
---------
which any party is subject, the timing and content of any announcements, press
releases and public statements concerning the acquisition contemplated hereby
shall be by mutual agreement of Optika and TEAMWorks.
8.6 Successors and Assigns. No party may, without the prior express
----------------------
written consent of each other party, assign this Agreement in whole or in part.
This Agreement shall be binding upon and inure to the benefit of the respective
successors and permitted assigns of the parties hereto.
8.7 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California as applied to contracts
between California residents made and to be performed entirely within the State
of California.
8.8 Further Assurances. At the request of any of the parties hereto,
------------------
and without further consideration, the other parties agree to execute such
documents and instruments and to do
48.
<PAGE>
such further acts as may be necessary or desirable to effectuate the Merger.
8.9 Each Party to Bear Own Costs. Each of the parties shall pay all
----------------------------
costs and expenses incurred or to be incurred by it in negotiating and preparing
this Agreement and the Agreement of Merger and in closing and carrying out the
transactions contemplated by this Agreement and the Agreement of Merger. Each
of the parties and its respective advisors shall use its best efforts to
minimize all Merger-related fees and expenses.
8.10 Confidentiality and Nondisclosure Agreements. Except as required
--------------------------------------------
by law, statute, rule or regulation, all confidential information which shall
have been furnished or disclosed by one party to the other pursuant to this
Agreement shall be held in confidence pursuant hereto or pursuant to the
confidential information non-disclosure agreements entered into by such parties
and shall not be disclosed to any person other than their respective employees,
directors, legal counsel, accountants or financial advisors, with a need to have
access to such information.
8.11 Attorneys' Fees. In the event of any suit or other proceeding to
---------------
construe or enforce any provision of this Agreement or any other agreement to be
entered into pursuant hereto, or otherwise in connection with this Agreement,
the prevailing party's or parties' reasonable attorneys' fees and costs (in
addition to all other amounts and relief to which such party or parties may be
entitled) shall be paid by the other party or parties.
8.12 Optika and TEAMWorks Personnel. If the transaction contemplated
------------------------------
herein is not consummated, Optika and TEAMWorks each agree not to solicit for
employment any personnel employed by the other prior to August 1, 1995, without
the other party's prior written consent.
8.13 Transfer of TEAMWorks Books and Assets. TEAMWorks agrees, at any
--------------------------------------
time after the Closing, upon the request of Optika or Optika Sub to do, execute,
acknowledge and deliver or to cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers, conveyances,
power of attorney and assurances as may be required for the better assigning,
transferring, conveying and confirming to Optika, or to its successors and
assigns, or for the aiding, assisting, collecting and reducing to possession of
any or all of the books, records and assets of TEAMWorks. TEAMWorks and its
counsel shall provide Optika and its counsel upon request all documentation
covering all aspects of TEAMWorks' business operations. Stockholders agree to
use their best efforts to cause their accountants to assist Optika and Optika's
accountants in auditing
49.
<PAGE>
TEAMWorks' books in a public offering of the share of Optika Common Stock.
8.14 Appointment and Indemnity of Escrow Committee.
---------------------------------------------
(a) By approval of this Agreement (by written consent or at a
duly authorized stockholders' meeting) the Stockholders shall appoint Messrs.
Richard Holzman, Harvey Jeane and Steven M. Johnson as committee members
pursuant to the Escrow Agreement. Such committee members shall have all of the
authority granted pursuant to Section 3.1 of the Escrow Agreement.
(b) The escrow committee members appointed by the Stockholders
shall not be liable to anyone whatsoever by reason of any error or judgment or
of any act done or step taken or omitted by him in good faith or for any mistake
of fact or law as is provided in Section 3.2 of the Escrow Agreement.
8.15 Survivability of Representations, Warranties, Covenants and
-----------------------------------------------------------
Agreements. Except as expressly set forth herein, each of the parties'
- ----------
respective representations, warranties, covenants and agreements shall terminate
and be of no further force and effect after the Closing date.
50.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
OPTIKA IMAGING SYSTEMS, INC.
By: _____________________________________
Harvey Jeane, President
and Chief Executive Officer
OPTIKA ACQUISITION CORP.
By: _____________________________________
Steven M. Johnson, Chief Financial
Officer, Vice President, Finance
TEAMWORKS TECHNOLOGIES, INC.
By: _____________________________________
Richard Holzman, President
THE STOCKHOLDERS OF TEAMWORKS
__________________________________________
Richard Holzman
__________________________________________
David Holzman
__________________________________________
Eric Brown
___________________________________________
James Schuster
___________________________________________
Kevin Ilsen
51.
<PAGE>
EXHIBIT A
---------
AGREEMENT OF MERGER
BETWEEN
OPTIKA ACQUISITION CORP.
AND
TEAMWORKS TECHNOLOGIES, INC.
This Agreement of Merger, dated as of the 31st day of January, 1994
("Merger Agreement"), by and between Optika Acquisition Corp., a Delaware
corporation ("Optika Sub"), and TEAMWorks Technologies, Inc., a Massachusetts
corporation ("TEAMWorks").
RECITALS
--------
A. TEAMWorks was incorporated in the Commonwealth of Massachusetts on
February 2, 1989, and on the date hereof has (i) no shares of its Preferred
Stock outstanding and (ii) 100,000 shares in the aggregate of its Common Stock
outstanding ("TEAMWorks Common Stock").
B. Optika Sub was incorporated in Delaware on December 16, 1993, under
the name Optika Acquisition Corp. On the date hereof, Optika Sub has 100 shares
of its Common Stock outstanding, par value $0.001 per share (the "Optika Common
Stock"), all of which are owned by Optika Imaging Systems, Inc., Inc.
("Optika"), the corporate parent of Optika Sub.
C. TEAMWorks and its stockholders, and Optika and Optika Sub have entered
into an Agreement and Plan of Reorganization (the "Agreement and Plan of
Reorganization") providing for representations, warranties, covenants and
agreements in connection with the transactions contemplated hereby. This Merger
Agreement and the Agreement and Plan of Reorganization are intended to be
construed together to effectuate their purpose.
D. The Boards of Directors of TEAMWorks and Optika Sub deem it advisable
and in their mutual best interests and in the best interests of the stockholders
of TEAMWorks and the stockholder of Optika Sub that TEAMWorks be acquired by
Optika Sub through a merger ("Merger") of Optika Sub with and into TEAMWorks.
E. The Boards of Directors of TEAMWorks and Optika Sub and their
stockholders and stockholder, respectively, have approved the Merger.
<PAGE>
AGREEMENTS
----------
The parties hereto hereby agree as follows:
1. Optika Sub shall be merged with and into TEAMWorks and TEAMWorks
shall be the surviving corporation.
2. The Merger shall become effective at such time (the "Effective
Time" of the Merger) as this Merger Agreement and the officers' certificates of
TEAMWorks and Optika Sub are filed with the office of Secretary of State of the
State of Delaware pursuant to Section 252 of the General Corporation Law of the
State of Delaware and the Articles of Merger are filed with the office of the
Secretary of the Commonwealth of Massachusetts pursuant to Section 79 of Chapter
156B of the Massachusetts General Laws.
3. At the Effective Time of the Merger, (a) each of the issued and
outstanding shares of TEAMWorks Common Stock shall be converted automatically
into and exchanged for 0.6809 of one (1) share of Optika Common Stock, and (b)
Optika shall assume the TEAMWorks 1993 Stock Option Plan and each issued and
outstanding TEAMWorks option to purchase TEAMWorks common stock under such Plan
shall be assumed by Optika, and shall be exercisable for Optika Common Stock at
the same ratio as is set forth in clause (a) above for the conversion of
TEAMWorks Common Stock into Optika Common Stock, rounded up to the nearest whole
number of shares of Optika Common Stock, with a proportional adjustment of the
exercise price with the per share purchase price rounded up to the nearest whole
cent so that the aggregate exercise price under the assumed option shall remain
substantially unchanged. All shares of TEAMWorks Common Stock that are owned by
TEAMWorks shall be cancelled, and no securities of Optika or other consideration
shall be delivered in exchange therefor.
Each share of Optika Sub stock that is outstanding immediately prior
to the Effective Time of the Merger shall be converted into one (1) share of
TEAMWorks Common Stock.
4. Notwithstanding any other term or provision hereof, no fractional
shares of Optika Common Stock and no certificates or scrip therefor, or other
evidence of ownership thereof, will be issued. In lieu of such fractional
shares, each TEAMWorks stockholder who would otherwise be entitled to a
fractional share of Optika Common Stock will, upon surrender of his TEAMWorks
share certificate or certificates, receive that number of shares of Optika
Common Stock that is the integral number of such shares nearest in amount to and
larger than the total number of shares of Optika Common Stock (computed on an
aggregate basis for each TEAMWorks stockholder) to which such stockholder is
specifically entitled hereunder.
2.
<PAGE>
5. The conversion of TEAMWorks Common Stock and the assumption of
TEAMWorks options as provided by this Merger Agreement shall occur automatically
at the Effective Time of the Merger without action by the holders thereof. Each
holder of TEAMWorks Common Stock shall thereupon be entitled to receive shares
of Optika Common Stock in accordance with Section 3. Such stockholder shall
receive certificates that represent that number of shares of Optika Common Stock
(less the number of shares of Optika Common Stock being deposited in escrow
pursuant to the Agreement and Plan of Reorganization and the Escrow Agreement
(the "Escrow Agreement") attached as an exhibit to such Agreement and Plan of
Reorganization) in accordance with the following procedures:
(a) Promptly after the Effective Time of the Merger, but in no
event later than thirty business days thereafter, Optika shall make available
for exchange in accordance with Section 3, through such reasonable procedures as
Optika may adopt, the shares of Optika Common Stock issuable pursuant to Section
3 (less the number of shares of Optika Common Stock being deposited in escrow
pursuant to the Agreement and Plan of Reorganization and the Escrow Agreement)
in exchange for all outstanding shares of TEAMWorks Common Stock.
(b) As soon as practicable after the Effective Time of the
Merger, Optika shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time of the Merger
represented outstanding shares of TEAMWorks Common Stock (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to such TEAMWorks Common Stock certificates shall pass, only upon
delivery of such certificates to Optika and shall be in such form and have such
other provisions as Optika may reasonably specify) and (ii) instructions for use
in effecting the surrender of the certificates in exchange for certificates
evidencing Optika Common Stock. Upon surrender of a certificate for
cancellation to Optika or to such other agent or agents as may be appointed by
Optika, together with such letter of transmittal, duly executed, the holder of
such certificate shall be entitled to receive in exchange therefor the number of
shares of Optika Common Stock to which the holder of TEAMWorks Common Stock is
entitled pursuant to Section 3 (less the number of shares of Optika Common Stock
being deposited in escrow pursuant to the Agreement and Plan of Reorganization
and the Escrow Agreement) hereof and is represented by the certificate so
surrendered. The certificate so surrendered shall forthwith be cancelled. In the
event of a transfer of ownership of TEAMWorks Common Stock which is not
registered in the transfer records of TEAMWorks, Optika Common Stock may be
delivered to a transferee if the certificate representing such TEAMWorks Common
Stock is presented to Optika and accompanied by all documents required to
evidence and effect
3.
<PAGE>
such transfer and to evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 5, each certificate
shall be deemed at any time after the Effective Time of Merger to represent the
right to receive upon such surrender such number of shares of Optika Common
Stock as provided by Section 3 and the provisions of applicable law.
(c) No dividends on the Optika Common Stock shall be paid to the
holder of any unsurrendered certificate until the holder of record of such
certificate shall surrender such certificate. Subject to the effect, if any,
of applicable escheat and other laws, following surrender of any certificate,
there shall be delivered to the person entitled thereto, without interest, the
amount of dividends theretofore paid with respect to the Optika Common Stock so
withheld as of any date subsequent to the Effective Time of the Merger and prior
to such date of delivery.
(d) All Optika Common Stock delivered upon the surrender for
exchange of shares of TEAMWorks Common Stock in accordance with the terms hereof
shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such shares of TEAMWorks Common Stock. There shall be no further
registration of transfers on the stock transfer books of the surviving
corporation of the shares of TEAMWorks Common Stock that were outstanding
immediately prior to the Effective Time of the Merger. If, after the Effective
Time of the Merger, certificates for shares of securities of TEAMWorks are
presented to Optika for any reason, they shall be cancelled and exchanged as
provided in this Section 5.
(e) The shares of Optika Common Stock deposited in escrow
pursuant to the Agreement and Plan of Reorganization shall be subject to the
terms of the Escrow Agreement.
(f) Outstanding TEAMWorks options will be assumed by Optika in
accordance with Section 3 above. All existing vesting provisions with respect
to shares of TEAMWorks Common Stock issuable pursuant to such options will also
remain in effect in accordance with their terms.
6. At the Effective Time of the Merger, the separate existence of
Optika Sub shall cease, and TEAMWorks shall succeed, without other transfer, to
all of the rights and properties of Optika Sub and shall be subject to all of
the debts and liabilities thereof in the same manner as if TEAMWorks had itself
incurred them. All rights of creditors and all liens upon the property of each
corporation shall be preserved unimpaired, provided that such liens upon
property of Optika Sub shall be limited to the property affected thereby
immediately prior to the Effective Time of the Merger.
4.
<PAGE>
7. After the Effective Time of the Merger, Optika Sub, through the
persons who were its officers immediately prior to the Merger, shall execute or
cause to be executed such further assignments, assurances or other documents as
may be necessary or desirable to confirm title to properties, assets and rights
in TEAMWorks.
8. This Merger Agreement is intended as a plan of reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended.
9. a. Notwithstanding the approval of this Merger Agreement by the
stockholders of TEAMWorks and the sole stockholder of Optika Sub, this Merger
Agreement may be terminated at any time prior to the Effective Time of the
Merger by mutual agreement of the Boards of Directors of TEAMWorks and Optika
Sub.
b. Notwithstanding the approval of this Merger Agreement by the
stockholders of TEAMWorks and the sole stockholder of Optika Sub, this Merger
Agreement shall terminate forthwith in the event that the Agreement and Plan of
Reorganization shall be terminated as therein provided.
c. In the event of the termination of this Merger Agreement as
provided above, this Merger Agreement shall forthwith become void and there
shall be no liability on the part of TEAMWorks, Optika or Optika Sub or their
respective officers or directors, except as otherwise provided in the Agreement
and Plan of Reorganization.
d. This Merger Agreement may be signed in one or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement.
e. This Merger Agreement may be amended by the parties hereto
any time before or after approval hereof by the stockholders of TEAMWorks and
the sole stockholder of Optika Sub, but, after such approval, no amendments
shall be made which by law require the further approval of such
share/stockholders without obtaining such approval. This Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
f. The Articles of Organization and the Bylaws of TEAMWorks as
in effect immediately prior to the Effective Time shall be the Articles of
Organization and the Bylaws of TEAMWorks unless and until either is thereafter
amended.
10. TEAMWorks hereby agrees that it may be served with process in the
State of Delaware in any proceeding for
5.
<PAGE>
enforcement of any obligation of Optika Sub, and for enforcement of any
obligation of TEAMWorks arising from the Merger, and it hereby irrevocably
appoints the Secretary of State of the State of Delaware as its agent to accept
service of process in any such suit or other proceedings in the manner provided
in Section 252(d) of the Delaware General Corporation Law. The address to which
a copy of such process shall be mailed by the Secretary of State is: TEAMWorks
Technologies, Inc., 65 Boston Post Road West, Suite 200, Marlboro, MA 01752-
1855.
6.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Merger Agreement as
of the date first written above.
OPTIKA ACQUISITION CORP.
By: ______________________________
Harvey L. Jeane, President
By: ______________________________
Steven M. Johnson, Treasurer
Attest:
___________________________
Warren T. Lazarow
Secretary
TEAMWORKS TECHNOLOGIES, INC.
By: ______________________________
Richard Holzman, President
By: ______________________________
James T. Schuster, Treasurer
Attest:
___________________________
7.
<PAGE>
ASSET PURCHASE AGREEMENT
by and among
Optika Imaging Systems, Inc., a California corporation,
Optika Asia, Inc., a Delaware corporation,
IPRS Asia (S) Pte Ltd., a Singapore corporation,
Intuit Development Limited, a Hong Kong corporation,
Golden King Trading Limited, a Western Samoa corporation,
Gillespie Limited, a Western Samoa corporation,
and
Paul Callander and Alistair Burgoyne
November 13, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS..................................... 1
Section 1.1 Definition of Assets.................................. 1
Section 1.2 Description of Assets to be Acquired.................. 2
Section 1.3 Excluded Assets....................................... 3
Section 1.4 Nonassignment of Certain Assets....................... 3
ARTICLE II LIABILITIES.................................................... 4
Section 2.1 Liabilities Assumed by Optika......................... 4
Section 2.2 Liabilities Not Assumed............................... 4
ARTICLE III PURCHASE PRICE................................................. 6
Section 3.1 Consideration......................................... 6
Section 3.2 Delivery of Shares.................................... 6
Section 3.3 Allocation of Purchase Price.......................... 6
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................. 7
Section 4.1 Representations and Warranties of
Optika and Optika Asia................................ 7
(a) Organization.......................................... 7
(b) Authorization......................................... 7
(c) Capitalization and Voting Rights...................... 7
(d) Valid Issuance of Common Stock........................ 8
(e) Compliance with other Instruments..................... 8
(f) Consents.............................................. 8
Section 4.2 Representations and Warranties of the
Sellers and the Shareholders.......................... 8
(a) Organization.......................................... 9
(b) Shareholders.......................................... 9
(c) Subsidiaries.......................................... 9
(d) Authorization......................................... 9
(e) Compliance with other Instruments..................... 9
(f) Financial Statements.................................. 10
(g) Absence of Certain Changes and Events................. 11
(h) Undisclosed Liabilities............................... 12
(i) Inventory............................................. 12
(j) Taxes................................................. 12
(k) Compliance With Law................................... 13
(l) Consents.............................................. 14
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(m) Restrictive Documents or Orders....................... 14
(n) Contracts and Commitments............................. 14
(o) Assets................................................ 15
(p) Operating Condition of Assets......................... 15
(q) Title to the Assets................................... 15
(r) Litigation............................................ 15
(s) No Conflict or Default................................ 16
(t) Employee Benefit Plans and Employees.................. 16
(u) Contractual Limitations............................... 16
(v) Products Liability.................................... 16
(w) Insurance............................................. 17
(x) Intellectual Property Rights.......................... 17
(y) U.S. Foreign Corrupt Practices Act.................... 17
(z) Brokers' and Finders' Fees............................ 18
(aa) Books and Records..................................... 18
(ab) Backlog............................................... 18
(ac) Accounts Receivable................................... 18
(ad) Certification of Profitability........................ 18
(ae) Interested Party Relationships........................ 19
(af) Returns............................................... 19
(ag) Disclosure............................................ 19
ARTICLE V COVENANTS....................................................... 19
Section 5.1 Employment Non-Competition Agreements................. 19
Section 5.2 Best Efforts.......................................... 20
Section 5.3 Option Agreements..................................... 20
Section 5.4 Shareholders' Agreement............................... 20
Section 5.5 Miscellaneous and Other Forms of Assistance........... 20
Section 5.6 Taxes................................................. 21
Section 5.7 Conduct of Business................................... 21
Section 5.8 Access to Information................................. 23
Section 5.9 Sales, Transfer and Other Taxes....................... 23
Section 5.10 Tax Returns........................................... 24
Section 5.11 Delivery of Closing Date Balance Sheet................ 24
Section 5.12 Mail and Receivables Payments......................... 24
Section 5.13 Breach of Representations, Warranties, Agreements and
Covenants............................................. 24
Section 5.14 Dissolution of IPRS and Intuit........................ 25
Section 5.15 Best Efforts.......................................... 25
ARTICLE VI CLOSING........................................................ 25
Section 6.1 Time of Closing....................................... 25
Section 6.2 Deliveries by Seller.................................. 25
Section 6.3 Deliveries by Optika and Optika Asia.................. 26
</TABLE>
ii.
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS........................... 26
Section 7.1 Conditions to Obligations of Optika and
Optika Asia........................................... 26
(a) Representations and Warranties........................ 27
(b) Transfer of Shares in IPRS............................ 27
(c) Transfer of Ownership of Golden King.................. 27
(d) Transfer of Ownership of Gillespie.................... 27
(e) Performance of Agreement.............................. 27
(f) No Material Adverse Change............................ 27
(g) Absence of Governmental or Other Objection............ 27
(h) Due Diligence Review.................................. 27
(i) Evidence of Title..................................... 28
(j) Approval of Documentation............................. 28
(k) Licenses and Permits.................................. 28
Section 7.2 Conditions to Obligations of Sellers.................. 28
(a) Representations and Warranties........................ 28
(b) Performance of Agreement.............................. 29
(c) Absence of Governmental or Other Objection............ 29
ARTICLE VIII INDEMNIFICATION............................................... 29
Section 8.1 Survival of Representations, Warranties, and
Agreements............................................ 29
Section 8.2 Indemnification....................................... 29
Section 8.3 Procedure for Indemnification with Respect to
Third-Party Claims.................................... 30
Section 8.4 Procedure For Indemnification with Respect to
Non-Third Party Claims................................ 31
Section 8.5 Set-off for Indemnification Claims.................... 31
ARTICLE IX TERMINATION.................................................... 32
Section 9.1 Termination........................................... 32
ARTICLE X MISCELLANEOUS PROVISIONS........................................ 33
Section 10.1 Notice................................................ 33
Section 10.2 Entire Agreement...................................... 33
Section 10.3 Binding Effect; Assignment............................ 33
Section 10.4 Expenses of Transaction; Taxes........................ 33
Section 10.5 Waiver; Consent....................................... 34
Section 10.6 Third-Party Beneficiaries............................. 34
Section 10.7 Survival.............................................. 34
Section 10.8 Counterparts.......................................... 34
Section 10.9 Severability.......................................... 34
Section 10.10 Remedies of Parties................................... 34
Section 10.11 Governing Law......................................... 35
Section 10.12 Attorneys' Fees....................................... 35
Section 10.13 Cooperation and Records Retention..................... 35
</TABLE>
iii.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<C> <S>
1.2(a) List of Related Personal Property
1.2(b)(i) List of Inventory
1.2(b)(ii) List of Leased Properties
1.2(c) List of Contracts
1.2(d) List of Government Permits and Licenses
1.2(e) List of Intellectual Property Rights
1.2(f) List of Accounts Receivable
1.2(k) List of Other Assets
1.3 List of Excluded Assets
2.1 List of Assumed Liabilities
2.2 Litigation Matters
4.1 Optika's Schedule of Exceptions
4.2 Sellers' Schedule of Exceptions
4.2(ab) Backlog
4.2(ad) List of Unprofitable Contracts
5.1 List of Employees
<CAPTION>
EXHIBITS
<C> <S>
3.1 Form of Restricted Stock Issuance Agreement
5.1(a) Form of Non-Competition Agreement for Employees
5.1(c) Form of Non-Competition Agreement for Burgoyne
5.3(a) Form of Option Agreement for Callander
5.3(b) Form of Option Agreement for Burgoyne
5.4 Form of Shareholders' Agreement
6.2(a) Form of Bill of Sale
6.2(g)(i) Form of Opinion of Counsel to IPRS
6.2(g)(ii) Form of Statement of Corporate Secretary of Intuit
6.2(h) Form of Secretary's Certificate for IPRS and Intuit
6.3(c) Form of Opinion of Counsel to Optika and Optika Asia
6.3(d) Form of Secretary's Certificate for Optika and Optika Asia
</TABLE>
iv.
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
this 13th day of November, 1995, by and among Optika Imaging Systems, Inc., a
California corporation ("Optika"), Optika Asia, Inc., a Delaware corporation and
a wholly owned subsidiary of Optika ("Optika Asia"), IPRS Asia (S) Pte Ltd., a
Singapore corporation ("IPRS"), Intuit Development Limited, a Hong Kong
corporation ("Intuit"), Golden King Trading Limited, a Western Samoa corporation
and a shareholder of each of Intuit and IPRS ("Golden King"), Gillespie Limited,
a Western Samoa corporation and a shareholder of each of Intuit and IPRS
("Gillespie"), Paul Callander ("Callander") and Alistair Burgoyne ("Burgoyne").
Each of IPRS and Intuit are hereinafter individually referred to as a
"Seller" and collectively referred to as the "Sellers." Each of Golden King,
Gillespie, Callander and Burgoyne are hereinafter individually referred to as a
"Shareholder" and collectively referred to as the "Shareholders."
WHEREAS, the Sellers are currently engaged in the business of
manufacturing, distributing, selling, customizing, servicing and installing
electronic document imaging/management products and providing services related
to such products (the "Business");
WHEREAS, each Seller desires to sell certain of the assets,
properties, goodwill and other rights of such Seller as set forth in this
Agreement and to transfer certain specified liabilities incurred in connection
with the Business as set forth in this Agreement to Optika; and
WHEREAS, Optika desires to acquire such assets, properties, goodwill
and other rights and is willing to assume certain specified liabilities of the
Sellers on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
---------------------------
Section 1.1 Definition of Assets. The assets, properties and rights
----------- --------------------
to be conveyed, sold, transferred, assigned and delivered by each Seller to
Optika pursuant to Section 1.2 below are hereinafter collectively referred to as
the "Assets." At the Closing
<PAGE>
(as hereinafter defined), each Seller shall provide a separate schedule to
Optika that contains an itemized list of the Assets.
Section 1.2 Description of Assets to be Acquired. Except with
----------- ------------------------------------
respect to the Excluded Assets (as hereinafter defined), upon the terms and
subject to the conditions set forth in this Agreement, at the Time of Closing
(as hereinafter defined), each Seller, agrees to convey, sell, transfer, assign
and deliver to Optika, and Optika shall purchase from each such Seller, all of
such Seller's right, title and interest at the Time of Closing in and to all of
the assets, properties and rights of every kind, nature and description,
personal, tangible and intangible, known of unknown wherever located, that are
used in or useful for the operation of the Business of the Sellers, including
the following assets as set forth below.
(a) All interests of such Seller in machinery, equipment,
instruments, computer hardware and software (including, without limitation,
underlying information, technology, algorithms and the like), documentation,
furniture, fixtures, production supplies, office supplies, tools, motor
vehicles, repair, spare and maintenance parts, fixed assets and all other
tangible property, excluding any unused, excess and/or obsolete items,
including, without limitation, the property listed on Schedule 1.2(a) hereto
(collectively, the "Related Personal Property");
(b) (i) All of such Seller's inventory, parts, raw materials,
products, work-in process, demonstration units, finished goods and supplies,
(whether located on the premises of such Seller, in transit to or from such
premises, in other facilities or locations or otherwise), including without
limitation, those listed on Schedule 1.2(b)(i) hereto (the "Inventory") and (ii)
all interests (leasehold or other) of such Seller in the real property listed on
Schedule 1.2(b)(ii), and all facilities located therein and any leasehold
improvements thereto (collectively, the "Leased Properties");
(c) All claims and rights of such Seller under all other agreements,
contracts, contract rights, licenses, third party software, confidentiality and
proprietary information and similar agreements, distribution agreements,
reseller agreements, license agreements, invoices, purchase and sale orders,
service contracts, maintenance agreements, quotations and other instruments or
executory commitments of such Seller, including, without limitation, those
listed on Schedule 1.2(c) hereto (collectively, the "Contracts");
(d) All franchises, licenses, permits, consents, authorizations,
certificates and approvals of any regulatory, administrative or governmental
agency or body issued to or held by such Seller that are necessary, related or
incidental to the Business, including those listed on Schedule 1.2(d) hereto
(collectively, the "Governmental Permits and Licenses");
2.
<PAGE>
(e) All rights, title and interest to patents, trademarks, patent
applications, trademark rights, trade secrets, information, proprietary rights,
license rights, service marks, inventions, tradenames, copyrights, processes,
technical information, software, licenses, designs, logos, and customer and
supplier lists related to the Business, together with the goodwill associated
therewith, including without limitation, those listed on Schedule 1.2(e) hereto
(collectively, the "Intellectual Property Rights");
(f) All accounts receivable of such Seller as of the Time of Closing
listed on Schedule 1.2(f) hereto, including, without limitation, those reflected
and accrued on the balance sheet of each such Seller's Business as at the Time
of Closing (the "Closing Date Balance Sheet") (collectively, the "Accounts
Receivable") and all security deposits, prepaid expenses and any other asset of
the Business;
(g) All originals of all books of account, general ledgers, sales
invoices, accounts payable and payroll records, tax returns and supporting
schedules, drawings, advertising materials, marketing plans, files, papers,
lists of customers and suppliers and all other records relating to the Business
(collectively, the "Records") and all of such Seller's claims and rights under
express or implied warranties or guarantees from suppliers, manufacturers or
vendors or other persons relating to the properties and assets included in the
Business and all of such Seller's rights to market, license and sell all
Products marketed, licensed or sold by such Seller in the Business;
(h) All of such Seller's causes of action, judgments and claims,
refunds, credits, rights or demands of whatever kind or description arising out
of or relating to the Business;
(i) All goodwill relating to the Business;
(j) All cash and cash equivalents set forth on the Closing Date
Balance Sheet that are maintained in all bank accounts of such Seller for the
benefit of the Business; and
(k) Such other properties or assets that are listed on Schedule
1.2(k) hereto (collectively, the "Other Assets").
Section 1.3 Excluded Assets. The Assets to be transferred by each
----------- ---------------
Seller to Optika pursuant to this Agreement shall not include the assets listed
on Schedule 1.3 hereto (collectively, the "Excluded Assets").
Section 1.4 Nonassignment of Certain Assets. Notwithstanding
----------- -------------------------------
anything to the contrary in this Agreement, to the extent that the assignment or
subcontracting hereunder of any of the Assets shall require the consent of any
other party and such consent has not been obtained (or in the event that any of
the same shall be nonassignable), neither this Agreement nor any action taken
pursuant to the provisions
3.
<PAGE>
of this Agreement or any Related Agreement (as hereinafter defined) shall
constitute an assignment or subcontract or an agreement to assign or subcontract
if such assignment or subcontract or attempted assignment or subcontract would
constitute a breach thereof or result in the loss or diminution thereof. If
such consent is not obtained by the Time of Closing, each Seller shall use its
best efforts to obtain such consent and shall cooperate with Optika in any
arrangement designed for Optika to perform such Seller's obligations with
respect to such Asset after the Time of Closing, and for Optika to receive the
benefits under any such Asset after the Time of Closing, which arrangements may
include the enforcement, for the account and benefit of Optika, or any assignee
of Optika, of any and all rights of such Seller against any other person arising
out of the breach or cancellation by such other person or otherwise, all of such
actions of such Seller to be at the direction and expense of Optika.
ARTICLE II
LIABILITIES
-----------
Section 2.1 Liabilities Assumed by Optika. Optika hereby agrees to
----------- -----------------------------
assume, accept, pay and discharge only those specific liabilities of the
Business of the Sellers that are set forth on Schedule 2.1 hereto (collectively,
the "Assumed Liabilities"). Neither Optika nor Optika Asia shall assume or
guarantee any liabilities or obligations of the Shareholders. Further, Optika
Asia shall not assume or guarantee any liabilities of the business of the
Sellers.
Section 2.2 Liabilities Not Assumed. Optika shall in no event
----------- -----------------------
assume, incur, be liable for or be obligated to pay, nor shall any affiliate of
Optika (including, without limitation, Optika Asia) be deemed to have assumed or
guaranteed, any of the obligations and liabilities of the Business of the
Sellers, or claims of such liability or obligation, whether accrued, matured or
unmatured, liquidated or unliquidated, fixed or contingent, known or unknown,
that are not set forth in Schedule 2.1 (collectively, the "Sellers' Retained
Liabilities"), including, without limitation any liabilities or obligations:
(a) arising from or related to, directly or indirectly, any claim of
a violation of any environmental statute, regulation or ordinance by Sellers or
third parties acting on behalf of, or performing any function at the request of
Sellers to the extent that liability is imposed, asserted or incurred as a
result of acts or omissions of Sellers or said third parties prior to the Time
of Closing;
(b) arising or resulting from any litigation pending against either
Seller or any Shareholder at the Time of Closing or derivations of such
litigation arising from the same facts or occurrences as set forth on Schedule
2.2(b) (which Schedule 2.2(b) each Seller and each Shareholder represents and
warrants to Optika contains all of the
4.
<PAGE>
pending litigation against such Seller and such Shareholder as it pertains to
the Business);
(c) for any Taxes (as hereinafter defined) (including, without
limitation, those imposed on Sellers or Optika or Optika Asia) relating to
periods ending on or prior to the Time of Closing or the portion up to and
including the Time of Closing of periods beginning prior to the Time of Closing
and ending after the Time of Closing, including Taxes relating to the
transactions effected pursuant to this Agreement and the Related Agreements,
including, without limitation, sales and use taxes, income taxes (including any
franchise or other taxes measured by reference to income or receipts) and
payroll and employment-related taxes, except to the extent such sales and use
taxes, income Taxes and payroll and employment-related Taxes are reflected and
accrued on the Closing Date Balance Sheet;
(d) for any Taxes or any other obligations (as hereinafter defined)
(including, without limitation, those imposed on Shareholders, Sellers or Optika
or Optika Asia) in connection with the transfer of the Shares (as hereinafter
defined) in connection with the liquidation of Intuit or IPRS as contemplated by
Section 5.14 hereof, the transfer of the Shares as contemplated by the
Shareholders' Agreement (as hereinafter defined) or otherwise;
(e) to shareholders, officers, directors, employees, consultants,
other service providers or affiliates of such Seller, including, without
limitation any amounts due to Golden King, Gillespie, Callander or Burgoyne in
satisfaction of outstanding indebtedness to such entities or persons;
(f) arising from or related to either Seller's obligations to any of
the former or current employees, consultants or other service providers of the
either Seller's Business in connection with services provided prior to the Time
of Closing or the termination of such employees, consultants or other service
providers prior to, on or after the Time of Closing, whether in connection with
the transactions contemplated by this Agreement and the Related Agreements or
otherwise;
(g) arising from or related to any disputes among the parties to the
Shareholders' Agreement (as hereinafter defined), other than as expressly set
forth in such Shareholders' Agreement;
(h) arising from or related to a business other than the Business;
(i) arising, directly or indirectly, from any of the Excluded Assets;
(j) arising from acts or occurrences, or related to any of the
Assets, prior to the Time of Closing;
5.
<PAGE>
(k) for warranty labor relating to any Products (as hereinafter
defined) sold prior to the Time of Closing; and
(l) for discounts, rebates, offsets, royalties, returns or similar
arrangements offered on Products sold, delivered or shipped (except to the
extent reflected and accrued on each Seller's Closing Date Balance Sheet) or
Products to be sold, delivered or shipped (except to the extent reflected and
accrued on each Seller's Closing Date Balance Sheet) to current or prospective
customers that have been agreed to by either Seller or any Shareholder prior to
the Time of Closing.
Sellers agree to retain and be responsible for each of the Sellers'
Retained Liabilities. In the event Optika or Optika Asia is deemed responsible
for any of the Sellers' Retained Liabilities, Sellers shall indemnify Optika and
Optika Asia from and against all losses incurred by such parties in satisfying
such liabilities or obligations.
ARTICLE III
PURCHASE PRICE
--------------
Section 3.1 Consideration. Upon the terms and subject to the
----------- -------------
conditions contained in this Agreement, the Restricted Stock Issuance Agreement
in the form attached as Exhibit 3.1 hereto (the "Restricted Stock Issuance
Agreement") and the Shareholders' Agreement (as hereinafter defined) in
consideration for the purchase of the Assets, Optika shall deliver, or cause to
be delivered, shares of the Common Stock of Optika (the "Shares") as set forth
in Section 3.2 hereof to Sellers, and Optika will assume all of the Assumed
Liabilities.
Section 3.2 Delivery of Shares. In addition to Optika's assumption
----------- ------------------
of the Assumed Liabilities, the consideration to be paid or payable by Optika to
Sellers for the Business (the "Purchase Price") shall consist of an aggregate of
One Hundred Sixty-Six Thousand Four Hundred Eighty-Five (166,485) Shares to be
delivered to IPRS and Intuit.
Section 3.3 Allocation of Purchase Price. The purchase price for the
----------- ----------------------------
Assets shall be allocated among the Assets using the allocation methods and
principles required by Section 1060 of the U.S. Internal Revenue Code of 1986,
as amended (the "Code"), and the Treasury Regulations promulgated thereunder.
Neither Optika, Optika Asia nor any Seller shall take any position inconsistent
with such allocation, and any and all filings with and reports made to any
Taxing authority will be consistent with such allocation.
6.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 Representations and Warranties of Optika and Optika Asia.
----------- --------------------------------------------------------
Except as set forth in Schedule 4.1 hereto ("Optika's Schedule of Exceptions"),
each of Optika and Optika Asia hereby represents and warrants to each Seller and
each Shareholder as of the date hereof and as of the Closing as follows:
(a) Organization. Each of Optika and Optika Asia is a corporation
------------
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has all requisite power and authority to own and
operate its business in the jurisdictions where such business is now conducted
and to own, lease and operate its assets. Each of Optika and Optika Asia is
duly qualified or licensed to do business in jurisdiction in which its failure
to so qualify would have a material adverse effect on the business, properties,
financial condition or results of operations of Optika and its affiliates, taken
as a whole.
(b) Authorization. Each of Optika and Optika Asia has full corporate
-------------
power and authority to enter into this Agreement and the Non-Competition
Agreements (as hereinafter defined), the Option Agreements (as hereinafter
defined), the Restricted Stock Issuance Agreements, and the Shareholders'
Agreement (the Non-Competition Agreements, the Option Agreements, the Restricted
Stock Issuance Agreements and the Shareholders' Agreement are referred to
collectively herein as the "Related Agreements"), to the extent each is a party
thereto to perform its obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. Each of Optika and Optika
Asia has taken all necessary and appropriate corporate action with respect to
the execution and delivery of this Agreement and the Related Agreements, and
this Agreement and each of the Related Agreements constitute valid and binding
obligations of each of Optika and Optika Asia, enforceable in accordance with
their respective terms: (i) except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other laws affecting creditors' rights
and remedies generally and (ii) except as the indemnification provisions hereof
and the non-competition provisions contained in the Non-Competition Agreements
may be limited by principles of public policy.
(c) Capitalization and Voting Rights.
--------------------------------
(i) The authorized capital stock of Optika consists, or will
consist prior to the Time of Closing, of :
(A) 1,060,000 shares of Preferred Stock, of which (1)
300,000 shares have been designated Series A Preferred Stock, 298,864 of which
are, or will be, issued and outstanding and (2) 760,000 shares have been
designated Series B
7.
<PAGE>
Preferred Stock, 752,160 of which are, or will be, issued and outstanding. The
rights, privileges and preferences of the Series A and Series B Preferred Stock
are as stated in Optika's Amended and Restated Articles of Incorporation.
(B) 6,320,000 shares of Common Stock, of which (1)
4,001,152 shares are, or will be, issued and outstanding, or subject to options
granted pursuant to Optika's 1992 Stock Plan or its 1994 Stock Option/Stock
Issuance Plan and (2) 95,000 shares are, or will be, subject to outstanding
warrants to purchase such shares.
(ii) The authorized capital stock of Optika Asia consists, or
will consist prior to the Time of Closing of 1,000 shares of Common Stock, all
of which are or will be issued and outstanding.
(d) Valid Issuance of Common Stock. The Shares to be delivered to
------------------------------
Sellers hereunder, when issued, sold and delivered in accordance with the terms
of this Agreement, the Restricted Stock Issuance Agreement and the Shareholders'
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer set forth in this Agreement, the
Shareholders' Agreement and the articles of incorporation and bylaws of Optika
and under applicable U.S. federal and state securities laws.
(e) Compliance with other Instruments. The execution and delivery of
---------------------------------
this Agreement and the Related Agreements by Optika and Optika Asia, to the
extent each is a party thereto, the consummation of the transactions
contemplated hereby and thereby, and the compliance with the terms hereof and
thereof do not, or, as of the Time of Closing will not, conflict with or result
in a breach of any terms of, or constitute a default under, the articles of
incorporation or bylaws or any material agreement, obligation or instrument to
which Optika or Optika Asia is a party or by which any of Optika's or Optika
Asia's assets or properties is bound.
(f) Consents. No consent, approval, order or authorization of, or
--------
registration, qualification, designation, declaration or filing with any United
States governmental, regulatory or administrative authority on the part of
Optika is required in connection with the consummation of the purchase of the
Business of Sellers. No consent, approval or authorization of Optika's or
Optika Asia's Board of Directors (or any committee thereof) or their respective
shareholders or stockholders is required in connection with Optika's or Optika
Asia's consummation of the transactions contemplated hereunder that will not
have been obtained or waived by the Time of Closing.
Section 4.2 Representations and Warranties of the Sellers and the
----------- -----------------------------------------------------
Shareholders. Except as set forth in Schedule 4.2 hereto (the "Sellers'
- ------------
Schedule of Exceptions"), each of IPRS and Intuit and each Shareholder jointly
and severally makes
8.
<PAGE>
the following representations and warranties to each of Optika and Optika Asia
as of the date hereof and as of the Closing:
(a) Organization. Each of IPRS and Intuit is a corporation duly
------------
organized and validly existing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to own and operate its
Business in the jurisdictions where the Business is now conducted and to own,
lease and operate the Assets.
(b) Shareholders. Golden King and Gillespie constitute the sole
------------
shareholders of each of IPRS and Intuit. Deloitte Touche Secrataries Limited
("DT") as Nominee for Callander constitutes the sole shareholder of Golden King,
and DT as Nominee for Burgoyne constitutes the sole shareholder of Gillespie as
of the Time of Closing. Except as expressly set forth in this Agreement and the
Shareholders' Agreement, none of IPRS, Intuit, Golden King, Gillespie, Callander
or Burgoyne has any contract, undertaking, obligation, agreement or arrangement
with any person or entity to sell, transfer or grant participations in or to any
of the shares of IPRS, Intuit, Golden King or Gillespie to such person or entity
or to any third person or entity.
(c) Subsidiaries. Neither IPRS nor Intuit controls directly or
------------
indirectly or has any direct or indirect equity participation in any
corporation, partnership, trust or other business association.
(d) Authorization. Each of IPRS and Intuit and each Shareholder has
-------------
full power and authority to enter into this Agreement and each of the Related
Agreements to which it or he is a party, to perform its or his respective
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby, including, without limitation, the execution
and delivery of this Agreement, bills of sale, assignments and assumptions,
novations and the other documents and instruments evidencing the conveyance of
the Assets delivered in accordance with Section 6.2 hereunder, and the Related
Agreements to which it or he is a party. Each of IPRS and Intuit and each
Shareholder that is a non-natural person (a "Corporate Shareholder") has taken
all necessary and appropriate corporate action with respect to the execution and
delivery of this Agreement and the Related Agreements to which it is a party.
This Agreement and the Related Agreements constitute valid and binding
obligations of each of IPRS and Intuit and each Shareholder, as applicable,
enforceable in accordance with their respective terms.
(e) Compliance with other Instruments. The execution and delivery of
---------------------------------
this Agreement and the Related Agreements by each of IPRS and Intuit and each
Shareholder, the consummation of the transactions contemplated hereby and
thereby, and the compliance with the terms hereof and thereof by them do not, or
as of the Time of Closing will not, conflict with or result in a breach of any
terms of, or constitute a default under, the respective current charter
documents or bylaws of IPRS, Intuit or any Corporate Shareholder or any
agreement, obligation or instrument to which IPRS, Intuit
9.
<PAGE>
or any Shareholder is a party or by which any of IPRS, Intuit or any Shareholder
or any of their respective assets or properties is bound, except that the
assignment of certain agreements, obligations, Assets and the like may require
the consent of third parties, which consent shall have been obtained prior to
the Time of Closing in each instance.
(f) Financial Statements.
--------------------
(i) Each Seller has delivered to Optika and Optika Asia complete
copies of its balance sheets and the related statements of operations as at and
for the one-year period ended December 31, 1994, which have been audited by such
Seller's independent certified public accountants, its balance sheet and the
related statement of operations as at and for the ten-month period ended October
31, 1995 (collectively, the "Financials."), and its balance sheet at the Time of
Closing (the "Closing Date Balance Sheet"). Each Seller's Financials and
Closing Date Balance Sheet present fairly such Seller's financial position as of
those dates and the results of its operations and changes in its financial
position for the periods then ended, in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis.
(ii) As of October 31, 1995, there are no debts, liabilities or
claims against either Seller that are not currently reflected in such Seller's
Financials, contingent or otherwise, which are or would be of a nature required
to be reflected in a balance sheet prepared in accordance with GAAP and which,
individually or in the aggregate, exceed $5,000. As of October 31, 1995, neither
Seller has any liabilities other than those set forth in such Seller's
Financials. Each Seller's revenue recognition policies with respect to its
Financials have been made in accordance with GAAP. Each Seller maintains a
standard system of accounting in accordance with GAAP. All of each Seller's
general ledgers, books and records are located at such Seller's principal place
of business. Neither Seller has any of its records, systems, controls, data or
information recorded, stored, maintained, operated or otherwise wholly or partly
dependent upon or held by any means (including any electronic, mechanical or
photographic process, whether computerized or not) that (including all means of
access thereto and therefrom) are not under the exclusive ownership and direct
control of such Seller. Each Seller's financial reserves are adequate to cover
claims already incurred. The provision for Taxes of each Seller as set forth in
its Financials is adequate and accurate for taxes due or accrued as of such
dates.
(iii) All of the accounts receivable and notes receivable owing
to each Seller as of the Time of Closing will constitute valid and enforceable
claims arising from bona fide transactions in the ordinary course of business,
and there are no known, contingent or asserted claims, refusals to pay, or other
rights of set-off against any such accounts receivable or notes. As of October
31, 1995, there is (i) no account debtor or note debtor delinquent in its
payment by more than 60 days, (ii) no account debtor or note debtor that has
refused (or threatened to refuse) to pay its obligations for any reason, (iii)
to the best of its knowledge, after due inquiry, no account debtor or note
10.
<PAGE>
debtor that is insolvent or bankrupt, and (iv) no account receivable or note
receivable that is pledged to any third party by either seller.
(iv) All accounts payable and notes payable by each Seller to
third parties as of the date hereof arose, and as of the Time of Closing will
have arisen, in the ordinary course of business, and, there is no such account
payable or note payable that is delinquent in its payment.
(g) Absence of Certain Changes and Events. Since October 31, 1995,
-------------------------------------
there has not been:
(i) Any adverse change in the financial condition, results of
operation, assets, liabilities, business, or prospects of either Seller or any
occurrence, circumstance, or combination thereof which reasonably could be
expected to result in any such adverse change to the Business;
(ii) Any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting either Seller's Business, properties,
prospects, or financial condition (as such Business is presently conducted and
as it is proposed to be conducted);
(iii) Any waiver or compromise by either Seller of a valuable
right or of a debt owed to it;
(iv) Any change made by either Seller in its method of operating
the Business or its accounting practices relating thereto;
(v) Any sale, lease, transfer or disposition of, or any
agreement to sell, lease, transfer or dispose of any of the Assets, other than
sales, leases, or dispositions in the usual and ordinary course of business and
consistent with prior practice;
(vi) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect to, any
term, condition or provision of any Contract relating to or affecting the
Business, the Assets or the Assumed Liabilities, other than any satisfaction by
performance in accordance with the terms thereof in the usual and ordinary
course of business and consistent with prior practice;
(vii) Any adverse relationships or conditions with vendors,
suppliers, customers or value-added resellers that may have an adverse effect on
the Business or the Assets;
11.
<PAGE>
(viii) Any material change in any compensation arrangement or
agreement with any employee, consultant, officer, director or shareholder of
either Seller;
(ix) Any resignation or termination of employment of any of
either Seller's key officers; and, except as contemplated by this Agreement and
the Related Agreements, neither Seller nor any Shareholder, knows of the
impending resignation or termination of employment of any such officer;
(x) Any notification that there has been a loss of order or
contract cancellation by any of the customers of either Seller;
(xi) Any mortgage, pledge, transfer of a security interest in,
or lien created by either Seller, with respect to any of the material properties
or assets of such Seller, except liens for taxes not yet due or payable;
(xii) Any loans or guarantees made by either Seller to or for
the benefit of its employees, officers or directors, or any members of their
immediate families;
(xiii) Any other event or condition of any character which
adversely affects, or may reasonably be expected to so affect, the Assets or the
Business; or
(xiv) Any agreement or commitment by either Seller to do any of
the things described in this Section 4.2(g).
(h) Undisclosed Liabilities. There are no debts, claims, liabilities
-----------------------
or obligations with respect to the Business or to which the Assets are subject,
liquidated, unliquidated, accrued, absolute, contingent or otherwise, that are
not identified in the Financials and on the Closing Date Balance Sheet of each
Seller.
(i) Inventory. Schedule 1.2(b)(i) hereto lists all of each Seller's
---------
inventory. All items included in the Inventory are the property of such Seller
and, as of the Time of Closing, are free and clear of any mortgage, pledge,
lien, security interest or other encumbrance. All of the Inventory consists of
items of a quality and quantity usable and saleable in the ordinary and usual
course of the business of each Seller.
(j) Taxes.
-----
(i) Each Seller has completed and duly and timely filed in
correct form with the appropriate governmental agencies and regulatory bodies
and with the appropriate foreign countries and political subdivisions thereof,
all Tax returns and reports required to be filed; all of such returns and
reports are accurate and complete;
12.
<PAGE>
and each Seller has paid in full or made adequate provisions on its financial
statements for all Taxes assessments or deficiencies shown to be due on such Tax
returns and reports or claimed to be due by any taxing authority or otherwise
due or owing. Each Seller has made all payments of estimated income Tax through
the date hereof and all withholdings of Tax required to be made under all
applicable laws, ordinances and regulations, and such withholdings have either
been paid to the respective governmental agencies and regulatory bodies or set
aside in accounts for such purpose or accrued, reserved against and entered upon
the books of such Seller.
(ii) The Assets are not subject to any liens for Taxes, except
liens for current Taxes not yet due.
(iii) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
current or former employee of the Business that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to Section 280G or Section 162 of the Code.
(iv) Neither Seller is a party to or bound by (nor will such
Seller become a party to or bound by) any tax indemnity, tax sharing or tax
allocation agreement.
(v) No Tax liability of either Seller has been incurred since
December 31, 1994, other than in the ordinary course of business and an adequate
reserve on the Financials has been made for all Taxes since that date.
(vi) For purposes of this Agreement, "Tax" (and, with
correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use
withholding, payroll, employment, excise, severance, stamp duty, occupation,
premium, property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental, regulatory or administrative entity or agency
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined, unitary or
other group for any period and (iii) any liability for the payment of any
amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other person.
(k) Compliance With Law. Each of IPRS and Intuit is in compliance
-------------------
with all applicable laws, statutes, licensing requirements, rules and
regulations and judicial or administrative decisions applicable to the Business.
Each of IPRS and Intuit has been granted all licenses, permits, authorizations
and approvals from governmental,
13.
<PAGE>
regulatory or administrative bodies necessary to operate its Business, and all
of such licenses, permits, authorizations and approvals are currently valid and
in full force and effect. There are no judgments, injunctions, orders, consent
decrees, claims, notices of violations or notices or threats of investigation:
(A) that are applicable to the operations or properties of either IPRS or Intuit
with respect to the Business or the Assets and (B) that may give rise to any
liability of IPRS or Intuit or otherwise form the basis of any ongoing or
threatened claims, actions, demands, suits, proceedings, hearings, studies or
investigations against or relating to IPRS or Intuit with respect to the
Business or the Assets which if adversely determined against the Business, would
have a material adverse effect on the results of operations or financial
condition of the Business.
(l) Consents. No consent, approval, order or authorization of, or
--------
registration, qualification, designation, declaration or filing with any
governmental, regulatory or administrative authority on the part of IPRS or
Intuit is required in connection with the consummation of the transactions
contemplated hereunder. No consent, approval or authorization of IPRS' or
Intuit's Board of Directors (or any committee thereof), shareholders or of any
third party (other than Optika, Optika Asia and parties related to Optika and
Optika Asia, such as lenders, stockholders, shareholders and similar persons) is
required in connection with IPRS' and Intuit's consummation of the transactions
contemplated hereunder that has not been obtained or waived by the Time of
Closing.
(m) Restrictive Documents or Orders. Neither IPRS nor Intuit nor any
-------------------------------
Shareholder is a party to or bound under any material agreement, order, judgment
or decree which materially adversely affects (i) the continued operation by
Optika and Optika Asia of the Business of IPRS or Intuit after the Time of
Closing on a basis similar as such Business was theretofore operated or (ii) the
consummation of the transactions contemplated by this Agreement and the Related
Agreements.
(n) Contracts and Commitments.
-------------------------
(i) There is set forth on Schedule 1.2(c) a list of all
outstanding Contracts, setting forth the parties and the dates, including
expiration dates, thereto which relate to the Business, whether or not in
writing, to which either Seller is a party or to which any of the Assets are
subject.
(ii) Each Seller has performed all of its obligations under the
terms of each Contract and is not in default thereunder. No event or omission
has occurred which but for the giving of notice or lapse of time or both would
constitute a default by any party thereto under any such Contract, where such
default by any party could have an adverse impact on the Business or the Assets.
Each such Contract is valid and binding on all parties thereto and in full force
and effect. Neither Seller has received any notice of default, cancellation or
termination in connection with any such Contract.
14.
<PAGE>
(iii) Schedule 1.2(c) lists all Contracts, under the heading
"Contracts to be Novated," that shall be novated prior to the Time of Closing so
that Optika shall be made a party in place of Seller (the "Contracts to be
Novated"). Such list is complete, accurate and includes every Contract which,
if not novated to make Optika a party thereto, would have an adverse effect on
Optika's and Optika Asia's ability to operate the Business in the same manner as
the Business was operated by Seller's prior to the Time of Closing.
(iv) Schedule 1.2(c) lists all Contracts, under the heading
"Performance Obligations," that require ongoing or future performance
obligations on the part of Sellers or their assignees, including a brief
description of the Sellers' or their assignees' obligations thereunder and the
time period during which or the deadline by which such performance must be
rendered, including, without limitation service, warranty, delivery and
installation obligations.
(o) Assets. The Assets include all property in which either Seller
------
has any right, title and interest in order to conduct the Business. The Assets
(excluding the Excluded Assets) include all the assets necessary to operate the
Business in the same manner as the Business was operated by Sellers prior to the
Time of Closing.
(p) Operating Condition of Assets. All of the Assets are being
-----------------------------
transferred to Optika in good operating condition and repair (normal wear and
tear excepted) and are sufficient to conduct the Business in the same manner as
it was conducted by Sellers prior to the Time of Closing.
(q) Title to the Assets. Each Seller has good and marketable title
-------------------
to the Assets free and clear of any pledges, liens, encumbrances, security
interests, equities, charges, and restrictions of any nature whatsoever
(collectively, the "Liens"), and Seller shall transfer the Assets to Optika free
and clear of all Liens. Each Seller has a valid leasehold interests in all
leased properties listed on Schedule 1.2(b)(ii) and is not in default with
respect to any obligations due under any agreements providing for such
leaseholds interests.
(r) Litigation. There is no litigation, action, suit or proceeding,
----------
administrative or judicial, pending, claimed or threatened against either of
IPRS or Intuit or any Shareholder with respect to the Business or the Assets at
law or in equity before any court or regulatory agency or other governmental
authority, including, without limitation, any unfair labor practice or grievance
proceedings or otherwise. There is no pending or threatened lawsuit challenging
the transactions contemplated hereby and by the Related Agreements by any body
or agency of any government or by any third party, and the consummation of such
transactions has not been enjoined by a court of competent jurisdiction.
15.
<PAGE>
(s) No Conflict or Default. Neither the execution and delivery of
----------------------
this Agreement or the Related Agreements, nor compliance with the terms and
provisions hereof and thereof, including without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation or ordinance of any governmental authority or conflict with or result
in the breach of any term, condition or provision of either Seller's or any
Corporate Shareholder's charter documents or bylaws or of any agreement,
obligation or instrument to which either Seller or any Shareholder is a party or
by which the Business or any of the Assets are or may be bound, or constitute a
default (or an event which, with the lapse of time or the giving of notice, or
both, would constitute a default) thereunder.
(t) Employee Benefit Plans and Employees.
------------------------------------
(i) None of the current employees, consultants or other service
providers of either Seller's Business are covered under any of the following
plans, programs or agreements to which either IPRS or Intuit is a party or
contributor: (i) any pension, profit sharing, savings, retirement or other
deferred compensation plan, (ii) any insured or self-funded group health plan,
(iii) any disability or group life insurance plan or retiree health care program
or other employee welfare benefit plan, (iv) any collective bargaining agreement
or other arrangement, whether written or oral, with any trade or labor union,
employees association or other similar organization or (v) any severance plan.
(ii) There is no outstanding liability under any applicable
statute, regulation or ordinance with respect to any of the plans or
arrangements referred to in subsection (i) above.
(iii) All salary, severance, bonus and vacation payments payable
by either Seller which are or were due under the terms of any agreement, written
or oral, or in connection with this Agreement or the Related Agreements, have
been paid or accrued as a liability on such Seller's Closing Date Balance Sheet.
(u) Contractual Limitations. None of IPRS, Intuit nor any officer,
-----------------------
director, employee, agent, shareholder or representative of IPRS or Intuit
(collectively, "Representatives") is or has been subject to any agreement,
letter of intent or understanding of any kind which prohibits or restricts IPRS
or Intuit or its Representatives from negotiating or entering into this
Agreement or the Related Agreements and consummating the transactions
contemplated hereby and thereby.
(v) Products Liability. There are no claims received by IPRS, Intuit
------------------
or any Shareholder against IPRS or Intuit, fixed or contingent, asserting (a)
any damage, loss or injury caused by any Product or (b) any breach of any
express or implied product warranty or any other similar claim with respect to
any Product other than standard warranty obligations (to replace, repair or
refund) made by IPRS or Intuit in the
16.
<PAGE>
ordinary course of business, except for those claims that, if adversely
determined against IPRS or Intuit, would not have a material adverse change on
the business results of operations, financial condition or prospects of the
Business. As used herein, "Product" shall mean any products manufactured,
designed, developed, distributed, sold, re-sold, customized or serviced by IPRS
or Intuit in connection with the Business.
(w) Insurance. Each Seller maintains policies of insurance covering
---------
its assets, properties and business in types and amounts customary for similarly
sized companies engaged in similar businesses. Each of IPRS and Intuit is in
compliance with each of its insurance policies that relates to its Business such
that none of the coverage provided under such policies has been invalidated.
Each such insurance policy is in all material respects in full force and effect,
and neither IPRS nor Intuit is in breach or default under any such policy.
Neither IPRS nor Intuit has received any written notice from the insurer
disclaiming coverage or reserving rights with respect to a particular claim or
such policy in general.
(x) Intellectual Property Rights.
----------------------------
(i) Set forth on Schedule 1.2(e) hereto is a complete and
accurate list and brief description of all Intellectual Property Rights owned or
held by each Seller that is used or usable in the Business. Each of IPRS and
Intuit is the sole undisputed owner of all right, title and interest in the
patents and trademark registrations (as well as their respective applications)
listed on Schedule 1.2(e) immediately prior to the Time of Closing, (ii) neither
IPRS nor Intuit has assigned, transferred, licensed, pledged or otherwise
encumbered any of such patents and trademark registrations (as well as their
respective applications) assigned hereunder, (iii) each of IPRS and Intuit has
full power and authority to make the assignments made hereunder, (iv) there are
no claims by third parties that there is a violation, infringement or
misappropriation of any third party's patents, copyrights, trademarks or trade
secrets, (v) all patents and trademark registrations (as well as their
respective applications) owned or controlled (in whole or in part) by Intuit and
IPRS and used in the Business are being transferred to Optika pursuant to this
Agreement and (vi) neither IPRS nor Intuit is aware of any questions or
challenges with respect to the patentability or validity of any claims of any
existing patents assigned hereunder.
(ii) Schedule 1.2(e) also indicates all patents, patent
applications, copyrights, copyright applications, trademarks (registered or
unregistered), trademark applications and any other Proprietary Rights that
require a consent or waiver to consummate the transactions contemplated in this
Agreement. All of each Seller's license and value-added reseller agreements with
respect to its Proprietary Rights are in writing and evidence legitimate
ownership of such rights in such Seller.
(y) U.S. Foreign Corrupt Practices Act. Each of IPRS and Intuit is
----------------------------------
familiar with the U.S. Foreign Corrupt Practices Act (the "Act") and its
purposes; and that, in particular, each is familiar with that Act's prohibition
of the payment or giving of anything
17.
<PAGE>
of value, either directly or indirectly, by an American company to an official
of a foreign government for the purpose of influencing an act or decision in
such official's official capacity, or inducing such official to use such
official's influence with the foreign government, to assist a company in
obtaining or retaining business for or with, or directing business to, any
person. Neither IPRS nor Intuit nor any of their respective affiliates,
directors, officers, employees, agents, distributors or subcontractors have made
any payment or given anything of value, directly, or indirectly, to any
government official (including any director, employee or agent of any government
department, agency or instrumentality) to influence his, her or its decision, or
to gain any other advantage for that party or the other parties, in connection
with the respective Businesses of IPRS or Intuit or the consummation of the
transactions contemplated hereby and by the Related Agreements.
(z) Brokers' and Finders' Fees. Neither Seller is obligated to pay
--------------------------
any fees or expenses of any broker or finder in connection with the origin,
negotiation or execution of this Agreement or the Related Agreements or in
connection with any transactions contemplated hereby or thereby.
(aa) Books and Records. The books and records of each Seller to
-----------------
which Optika, Optika Asia and their respective accountants and counsel have been
given access are the true books and records of such Seller and truly and fairly
reflect the underlying facts and transactions in all respects.
(ab) Backlog. Schedule 4.2(ab) hereto sets forth the backlog of
-------
orders relating to the Business that each Seller is to ship and contract work to
be performed as of the Time of Closing. Each Seller either possesses sufficient
inventory of parts, materials and personnel to produce the same within their
scheduled delivery dates or such parts or materials have lead times such that
such Seller can acquire such parts and materials in time to produce and ship
such backlog in accordance with its scheduled shipping date.
(ac) Accounts Receivable. The amount of all Accounts Receivable,
-------------------
unbilled invoices and other debts due or recorded in the records and books of
account of each Seller as being due to such Seller as at the Time of Closing
relating to the Business will be good and payable in full in the ordinary course
of business and consistent with past practice within 60 days after the Time of
Closing; no contest with respect to the amount or validity of any amount is
pending; and none of such Accounts Receivable or other debts is or will at the
Closing be subject to any counterclaim, return or set-off, except for those
debts set forth as "Bad Debts" in the Financial Statements. The values at which
accounts receivable are carried reflect the accounts receivable valuation policy
of each Seller, which is consistent with its past practice and in accordance
with GAAP applied on a consistent basis.
(ad) Certification of Profitability. Each Seller has performed
------------------------------
current cost-to-completion on all of its Contracts and all Contracts will be
completed profitably (after taking into account all anticipated costs and
reimbursements). Schedule 4.2(ad) contains a
18.
<PAGE>
list of all Contracts in which a loss is anticipated and such loss amount with
an explanation or analysis therein.
(ae) Interested Party Relationships. Neither Seller has any material
------------------------------
financial interest, direct or indirect, in any material supplier or customer or
other party to any contract which is material to the Business, or any
competition of the Business. For purposes of this subsection (ae) the term
"Seller" is deemed to include each Seller and any corporation which, directly or
indirectly, alone or together with others, controls, is controlled by or is in
common control with such Seller.
(af) Returns. There are no agreements or arrangements, written or
-------
oral, that expressly entitle any business partner of either Seller to return
products sold, delivered or shipped by either Seller to such Seller or any of
its successors.
(ag) Disclosure. The copies of all instruments, agreements and other
----------
documents delivered by the Sellers and the Shareholders or their respective
agents (including with respect to the transactions referred to herein) to
Optika, Optika Asia and their respective counsel and accountants are and will be
complete and correct in all respects as of the date of delivery thereof. No
representations or warranties made by Sellers or the Shareholders in this
Agreement, the Related Agreements, nor any document, written information,
statement, financial statement, certificate or exhibit prepared or furnished or
to be prepared and furnished by the Sellers or the Shareholders or their
Representatives to Optika and Optika Asia and their respective counsel and
accountants pursuant hereto or pursuant to the Related Agreements or in
connection with the transactions contemplated hereby or thereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading. There is no presently existing event, fact or
condition (other than worldwide general business economic conditions) that
materially adversely affects or could materially adversely affect the Business,
the Assets or the prospects of the Business that has not been set forth in this
Agreement or in the Schedules hereto.
ARTICLE V
COVENANTS
---------
Section 5.1 Employment Non-Competition Agreements.
----------- -------------------------------------
(a) Optika Asia shall offer employment to Callander upon the terms
set forth in that certain offer letter of even date herewith from Optika Asia to
Callander (the "Callander Offer Letter"), and Callander shall enter into a non-
competition agreement with Optika and Optika Asia in the form attached hereto as
Exhibit 5.1(a).
19.
<PAGE>
(b) Optika Asia shall offer employment to each of Paul Thomas
Johnston, Daniel Christopher Ternes and Paul William Watts (individually, an
"Key Employee" and collectively, the "Key Employees"), and each such Key
Employee shall enter into a non-competition agreement with Optika and Optika
Asia in the form attached hereto as Exhibit 5.1(a).
(c) Optika Asia shall offer Burgoyne the opportunity to provide
consulting services to Optika Asia upon the terms set forth in that certain
offer letter of even date herewith from Optika Asia to Burgoyne (the "Burgoyne
Offer Letter"), and Burgoyne shall enter into a non-competition agreement with
Optika and Optika Asia in substantially the form attached hereto as Exhibit
5.2(c).
(d) Optika Asia shall offer employment to each of Catherine Mong
Chuan, T. Parameswaram and Gerald Tang Yew Hoong (individually, an "Employee"
and collectively, the "Employees").
(e) The non-competition agreements described in this Section 5.1 are
collectively referred to herein as the "Non-Competition Agreements."
Section 5.2 Best Efforts. Each of IPRS and Intuit shall use its best
----------- ------------
efforts to assist Optika Asia in employing those employees of IPRS and Intuit
that Optika Asia deems necessary or appropriate to the operation of the
Business.
Section 5.3 Option Agreements. Optika shall enter into option
----------- -----------------
agreements with each of Callander and Burgoyne in the forms attached hereto as
Exhibits 5.3(a) and 5.3(b) (collectively, the "Option Agreements"). Callander's
Option Agreement shall provide for vesting of the options granted to him upon
the achievement of certain performance milestones, and Burgoyne's Option
Agreement shall provide for time-based vesting subject to Burgoyne's continued
service with Optika Asia.
Section 5.4 Shareholders' Agreement. Each of the parties hereto
----------- -----------------------
shall enter into the Shareholders' Agreement in the form attached as Exhibit 5.4
hereto (the "Shareholders' Agreement").
Section 5.5 Miscellaneous and Other Forms of Assistance. After the
----------- -------------------------------------------
Time of Closing, regardless of which party is responsible for a particular
claim, dispute, litigation or other proceeding relating to the Business (and
regardless of whether any such matter was pending or threatened on or before the
Time of Closing), each party agrees that it shall provide all assistance and
cooperation reasonably requested by any other party to this Agreement in
connection therewith. All out-of-pocket expenses of the non-requesting party in
connection with such assistance and cooperation shall be borne by the requesting
party. Without limiting the foregoing, to the extent that witnesses necessary
for the prosecution or defense of an action by one party to this Agreement are
in the employ of any other party, such other party shall use its reasonable
efforts to make such witnesses available to assist
20.
<PAGE>
and testify as appropriate in connection with the action. Such assistance and
cooperation shall also include the preservation and furnishing of necessary
documentation.
Section 5.6 Taxes. Each Seller and Optika Asia shall each properly
----------- -----
file all returns, statements, reports, forms or other documents (collectively,
"Tax Returns") that each is required by any applicable law to file with respect
to Taxes (i) arising in or related to periods on or prior to the Time of Closing
or the portion up to and including the Time of Closing of periods beginning
prior to the Time of Closing and ending after the Time of Closing or (ii)
related to transactions or events occurring on or prior to the Time of Closing
and shall pay all such Taxes when due (including any such Taxes relating to the
Assets); provided, however, that the ultimate liability for all such Taxes shall
be as set forth in Article II of this Agreement. For purposes of this Agreement
income and similar taxes (including any franchise or other Taxes measured by
reference to income or receipts) for any taxable period that includes the Time
of Closing shall be allocated to the period up to the Time of Closing, on the
one hand, and the period including and following the Time of Closing, on the
other hand, by utilizing the so-called closing of the books method whereby the
tax for each of such periods is separately computed as though the Time of
Closing constituted the end of a taxable period.
Section 5.7 Conduct of Business. During the period from the date
----------- -------------------
hereof and continuing until the earlier of the termination of this Agreement or
the Closing, each Seller shall carry on its business in the usual, regular and
ordinary course in substantially the same manner as conducted prior to the date
of this Agreement and, to the extent consistent with such business, to preserve
intact its present business organizations, keep available the services of its
present service providers and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, to the end that its goodwill and ongoing businesses shall be
unimpaired at the Time of Closing. Each Seller and each Shareholder shall
promptly notify Optika and Optika Asia of any event or occurrence not in the
ordinary course of business of such Seller, and any event which could have a
material adverse effect on the business of such Seller. Except as expressly
contemplated by this Agreement, neither Seller, without the prior written
consent of Optika or Optika Asia shall:
(a) Enter into any commitment or transaction not in the ordinary
course of business to be performed over a period longer than six (6) months in
duration, or, except as in accordance with its existing capital budget
previously disclosed to Optika or Optika Asia, to purchase fixed assets with an
aggregate purchase price exceeding $10,000;
(b) Grant any severance or termination pay to any service provider;
(c) Except in the ordinary course of business with prior notice to
Optika and Optika Asia, violate, amend or otherwise modify the terms of any
contract listed in Schedule 1.2(c) hereto;
21.
<PAGE>
(d) Except with prior consultation with Optika or Optika Asia,
commence a lawsuit other than for the routine collection of bills;
(e) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any shares of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of its capital stock;
(f) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of or authorization of, the purchase of any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities;
(g) Cause or permit any amendments to its charter documents;
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets;
(i) Sell, lease, license or otherwise dispose of any of its
properties or assets;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(k) Adopt or amend any plan, or enter into any employment contract,
pay any special bonus or special remuneration to any service provider, or
increase the salaries or wage rates of its employees other than pursuant to
scheduled employee reviews under such Seller's normal employee review cycle or
pursuant to such Seller's existing bonus plans, as the case may be, or in
connection with the hiring of employees in the ordinary course of business, in
all cases consistent with past practice, or otherwise increase or modify the
compensation or benefits payable or to become payable by such Seller to any of
its service providers;
(l) Revalue any of its assets, including, without limitation, writing
down the value of inventory or accounts receivable;
(m) Pay, discharge or satisfy in an amount in excess of $10,000 in
the aggregate any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary
22.
<PAGE>
course of business consistent with past practice of liabilities reflected or
reserved against in such Seller's Financial Statements;
(n) Make any Tax election other than in the ordinary course of
business and consistent with past practice, change any tax election, adopt any
Tax accounting method other than in the ordinary course of business and
consistent with past practice, change any Tax accounting method, file any Tax
return (other than any estimated tax returns, payroll tax returns or sales tax
returns) or any amendment to a Tax return, enter into any closing agreement,
settle any Tax claim or assessment or consent to any Tax claim or assessment;
(o) Engage in any activities or transactions that are outside the
ordinary course of its business consistent with past practice;
(p) Fail to pay or otherwise satisfy its material monetary
obligations as they become due or consistent with past practice, except such as
are being contested in good faith;
(q) Waive or commit to waive any rights of substantial value;
(r) Cancel, amend or, other than in the ordinary course upon
expiration of a policy term, renew any material insurance policy;
(s) Alter, or enter into any commitment to materially alter, its
interest in any corporation, association, joint venture, partnership or business
entity in which such Seller directly or indirectly holds any interest on the
date hereof; or
(t) Take, or agree (in writing or otherwise) to take, any of the
actions described in this Section 5.8 or any action which would make any of the
representations or warranties or covenants of such Seller contained in this
Agreement materially untrue or incorrect.
Section 5.8 Access to Information. From the date hereof, each Seller
----------- ---------------------
and each Shareholder will give Optika, Optika Asia and their respective
Representatives full access, to all of the properties, books, contracts,
commitments, and records relating to the Business and the Assets, and each
Seller will furnish to Optika, Optika Asia and their respective Representatives
during such period all such information concerning the Business or the Assets as
Optika or Optika Asia may reasonably request; provided, that any furnishing of
such information pursuant hereto or any investigation by Optika or Optika Asia
shall not affect such Optika's or Optika Asia's right to rely on the
representations, warranties, agreements and covenants made by Sellers and
Shareholders in this Agreement.
Section 5.9 Sales, Transfer and Other Taxes. Each Seller agrees to
----------- -------------------------------
take all actions reasonably requested by Optika and Optika Asia to minimize any
sales, use, transfer, stamp duty and other Taxes and fees incurred in connection
with the
23.
<PAGE>
assignment, conveyance, transfer and/or delivery of the Assets hereunder,
including, without limitation the transfer via means of electronic transmission
of all assets capable of being so transmitted. Each Seller further agrees to
deliver all certificates reasonably requested by Optika or Optika Asia to verify
the fact of such electronic transmissions or other actions.
Section 5.10 Tax Returns. Each Seller and each Shareholder shall
------------ -----------
properly file all returns, statements reports, forms or other documents
(collectively, "Tax Returns") that such Seller or Shareholder is required by any
applicable law to file with respect to Taxes related to the Business arising in
or related to periods on or prior to the Time of Closing or related to
transactions or events occurring prior to the Time of Closing and shall pay all
such Taxes when due. All such Taxes assessed on an annual basis shall be
prorated on the assumption that an equal amount of Tax applies to each day of
the year, regardless of how installment payments are billed or made.
Section 5.11 Delivery of Closing Date Balance Sheet. At the Time of
------------ --------------------------------------
Closing, each Seller shall deliver to Optika and Optika Asia its Closing Date
Balance Sheet. Each Closing Date Balance Sheet shall be (i) complete and correct
in all respects as of the Time of Closing, (ii) prepared on a basis consistent
with all prior balance sheets provided to Optika and Optika Asia and, (iii)
prepared in accordance with GAAP. Each Closing Date Balance Sheet shall
accurately set out and describe the assets and liabilities of each Seller at the
Time of Closing.
Section 5.12 Mail and Receivables Payments. From and after the Time
------------ -----------------------------
of Closing, each of IPRS and Intuit shall endorse any check or any other
evidence of indebtedness or payment received by IPRS or Intuit on account of any
Accounts Receivable after the Time of Closing to the order of Optika or Optika
Asia, as specified by Optika, or take other appropriate actions and shall
promptly forward such payment to Optika or Optika Asia, as appropriate, no later
than five business days after actual receipt by IPRS or Intuit. Optika, Optika
Asia and Sellers shall each provide to the other all the cooperation which the
other may reasonably request in connection with the collection of the Accounts
Receivable.
Section 5.13 Breach of Representations, Warranties, Agreements and
------------ -----------------------------------------------------
Covenants. No Seller or Shareholder shall take, or fail to take, any action
- ---------
which from the date hereof through the Closing would cause or constitute a
breach of any of its respective representations, warranties, agreements and
covenants set forth in this Agreement. In the event of, and promptly after
becoming aware of, the actual, pending or threatened occurrence of any event
which would cause or constitute such a breach or inaccuracy, each party shall
give detailed notice thereof to the other parties and shall use its best efforts
to prevent or promptly remedy such breach or inaccuracy.
24.
<PAGE>
Section 5.14 Dissolution of IPRS and Intuit. Each of IPRS and Intuit
------------ ------------------------------
shall cease to do business, liquidate and distribute the Shares to Golden King
and Gillespie as soon as practicable after the Closing.
Section 5.15 Best Efforts. Each party hereto shall use best efforts
------------ ------------
to effectuate the transactions contemplated hereby and to fulfill and cause to
be fulfilled the conditions to Closing under this Agreement.
ARTICLE VI
CLOSING
-------
Section 6.1 Time of Closing. The transactions contemplated by this
----------- ---------------
Agreement and by the Related Agreements shall be completed on November 30, 1995,
at 5:00 p.m., P.D.S.T. (the "Time of Closing"), unless otherwise agreed to in
writing by Optika, Optika Asia and each Seller. The Closing (as defined below)
shall take place at the offices of Brobeck, Phleger & Harrison, 2200 Geng Road,
Two Embarcadero Place, Palo Alto, California 94303, or at such other place or
date as may be agreed to in writing by Optika, Optika Asia and the Sellers. The
"Closing" shall mean the deliveries to be made by the parties hereto at the Time
of Closing in accordance with this Agreement.
Section 6.2 Deliveries by Seller. At the Closing, the Sellers and
----------- --------------------
the Shareholders shall deliver to Optika all duly and properly executed, the
following:
(a) A good and sufficient Bill of Sale for the Assets in the form
attached hereto as Exhibit 6.2(a) hereto, selling, delivering, transferring, and
assigning to Optika title to all of each Seller's right, title, and interest to
the Assets, free and clear of all mortgages, pledges, liens, encumbrances,
security interests, equities, charges, and restrictions of any nature
whatsoever.
(b) An itemized list of the Assets.
(c) Good and sufficient assumptions and assignments of the
Proprietary Rights and Contracts of each Seller, which shall be in form and
substance satisfactory to Optika and Optika Asia and shall include the written
consents of all parties necessary in order to transfer all of such Seller's
rights thereunder to Optika.
(d) Good and sufficient novations of the Contracts listed on Schedule
1.2(c) under the heading "Contracts to be Novated," which shall be in the form
and substance satisfactory to Optika and Optika Asia in order to transfer all of
each Seller's rights and obligations thereunder to Optika.
25.
<PAGE>
(e) An Officer's Certificate executed by the Managing Director of
each Seller and by each Shareholder certifying (i) that the representations and
warranties contained in Section 4.2 are true and correct as of the Time of
Closing with the same force and effect as if such representations and warranties
had been made as of the Time of Closing and that conditions specified in
subsections (a)-(d) of Section 7.1 have been satisfied, (ii) that there shall
have been no adverse change in the Business since the date of this Agreement,
(iii) that the Financials accurately reflect the financial condition of each
Seller as of such date, and (iv) that the Closing Date Balance Sheet is true and
correct as of the Time of Closing.
(f) The Related Agreements, each of which has been executed by each
party thereto (other than Optika and Optika Asia).
(g) An opinion of counsel to the Sellers in the form attached hereto
as Exhibit 6.2(g)(i) and a statement of the corporate secretary of Intuit in the
form attached hereto as Exhibit 6.2(g)(ii).
(h) A Secretary's Certificate executed by the corporate secretary of
each Seller in substantially the form attached hereto as Exhibit 6.2(h).
Section 6.3 Deliveries by Optika and Optika Asia. At the Closing,
----------- ------------------------------------
Optika and Optika Asia shall deliver, or cause to be delivered, to Sellers, all
duly and properly executed, the following:
(a) Stock certificates representing an aggregate of 166,485 Shares as
set forth in Section 3.2 of this Agreement;
(b) The Related Agreements, each of which has been executed by Optika
and Optika Asia, to the extent each is a party thereto.
(c) An opinion of counsel to Optika and Optika Asia in the form
attached hereto as Exhibit 6.3(c).
(d) A Secretary's Certificate executed by the corporate secretary of
each of Optika and Optika Asia in substantially the form attached hereto as
Exhibit 6.3(h).
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
-----------------------------------
Section 7.1 Conditions to Obligations of Optika and Optika Asia.
----------- ---------------------------------------------------
Each and every obligation of Optika and Optika Asia to be performed at the
Closing shall be
26.
<PAGE>
subject to the satisfaction as of or before the Time of Closing of the following
conditions (unless waived in writing by Sellers):
(a) Representations and Warranties. The representations and
------------------------------
warranties of each Seller and each Shareholder set forth in Section 4.2 of this
Agreement shall have been true and correct when made and shall be true and
correct at and as of the Time of Closing as if such representations and
warranties were made as of such date and time.
(b) Transfer of Shares in IPRS. Callander and Burgoyne shall have
--------------------------
transferred their ownership interests in IPRS to Golden King and Gillespie,
respectively, and Golden King and Gillespie shall constitute the sole
shareholders of IPRS.
(c) Transfer of Ownership of Golden King. All outstanding bearer
------------------------------------
shares in Golden King shall have been cancelled, and DT as Nominee for Callander
shall constitute the sole shareholder of Golden King.
(d) Transfer of Ownership of Gillespie. All outstanding bearer
----------------------------------
shares in Gillespie shall have been cancelled, and DT as Nominee for Burgoyne
shall constitute the sole shareholder of Gillespie.
(e) Performance of Agreement. All covenants, conditions, and other
------------------------
obligations under this Agreement which are to be performed or complied with by
the Sellers and the Shareholders shall have been fully performed and complied
with at or prior to the Time of Closing, including the delivery of the
instruments and documents in accordance with Section 6.2 hereof.
(f) No Material Adverse Change. Since October 31, 1995, there shall
--------------------------
have been no material adverse change in the financial condition, business, or
properties of either Seller which materially adversely affects the conduct of
the Business as presently being or proposed to be conducted except for
disbursements and payments for expenses and costs incurred in the ordinary
course of business, consistent with such Seller's past practices.
(g) Absence of Governmental or Other Objection. There shall be no
------------------------------------------
pending or threatened lawsuit challenging the transaction by any body or agency
of any government or by any third party, and the consummation of the transaction
shall not have been enjoined by a court of competent jurisdiction as of the Time
of Closing and any applicable waiting period under any applicable law shall have
expired.
(h) Due Diligence Review. Optika and Optika Asia shall have
--------------------
completed to their sole satisfaction their due diligence review of each Seller
and its operations, business, financial condition, and all schedules and
exhibits to this Agreement, and Optika and Optika Asia shall have received
favorable reviews from their
27.
<PAGE>
advisors of the results of their due diligence review, including a satisfactory
list of and acceptance of the Assumed Liabilities, of the Business.
(i) Evidence of Title. Optika and Optika Asia shall have received
-----------------
evidence, prior to the Time of Closing, satisfactory to them of each Seller's
title to all of the Assets and right to fully convey all Assets free and clear
of any lien, encumbrances or restrictions on transfer.
(j) Approval of Documentation. The form and substance of all
-------------------------
certificates instruments, opinions, and other documents delivered or to be
delivered to Optika and Optika Asia under this Agreement shall be satisfactory
to Optika and Optika Asia and their counsel in all respects.
(k) Licenses and Permits. Optika and Optika Asia shall have received
--------------------
all licenses and permits from all appropriate governmental agencies to operate
the Business in the same manner as Sellers operated the Business prior to the
Time of Closing, including, without limitation, approval from the appropriate
Singapore authorities to open a branch office of Optika Asia in Singapore.
(l) Assignment and Novations. Optika shall have (i) received all
------------------------
appropriate assignment of rights and (ii) been made a party to the contracts
listed on Schedule 1.2(c) under the heading "Contracts to be Novated."
(m) Acceptance of Employment. Optika Asia shall have received
------------------------
acceptances of its offers of employment from each Key Employee and each
Employee, and each Key Employee shall have entered into such a Non-Competition
Agreement with Optika and Optika Asia.
(n) Approval of Board of Directors and Shareholders of Optika.
---------------------------------------------------------
Optika shall have received the approvals of its Board of Directors and
shareholders required in order to consummate the transactions contemplated
hereby and by the Related Agreements.
Section 7.2 Conditions to Obligations of Sellers. Each and every
----------- ------------------------------------
obligation of Sellers to be performed at the Time of Closing shall be subject to
the satisfaction as of or before such time of the following conditions (unless
waived in writing by Seller):
(a) Representations and Warranties. The representations and
------------------------------
warranties of Optika and Optika Asia set forth in Section 4.1 of this Agreement
shall have been true and correct when made and shall be true and correct as of
the Time of Closing as if such representations and warranties were made as of
such date and time.
28.
<PAGE>
(b) Performance of Agreement. All covenants, conditions, and other
------------------------
obligations under this Agreement which are to be performed or complied with by
Optika and Optika Asia shall have been fully performed and complied with at or
prior to the Time of Closing.
(c) Absence of Governmental or Other Objection. There shall be no
------------------------------------------
pending or threatened lawsuit challenging the transactions contemplated hereby
and by the Related Agreements by any body or agency of any government or by any
third party, and the consummation of such transactions shall not have been
enjoined by a court of competent jurisdiction as of the Time of Closing.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 Survival of Representations, Warranties, and Agreements.
----------- -------------------------------------------------------
(a) Notwithstanding any investigation conducted at any time with
regard thereto by or on behalf of any party or the knowledge of any party, all
representations, warranties, covenants, and agreements of each Seller and each
Shareholder in this Agreement shall survive the execution, delivery, and
performance of this Agreement and the Closing until the third anniversary of the
Time of Closing; provided, however, that the Sellers' Retained Liabilities, any
liabilities of the Shareholders and any other liabilities not set forth on
Schedule 2.1 hereto shall remain the liabilities of the Sellers and/or
Shareholders in perpetuity. All representations and warranties of each Seller
and each Shareholder set forth in this Agreement shall be deemed to have been
made again by such party at and as of the Time of Closing.
(b) As used in this Article, any reference to a representation,
warranty, or covenant contained in any Section of this Agreement shall include
the Schedule relating to such Section.
Section 8.2 Indemnification. Each Seller and each Shareholder
----------- ---------------
(individually, an "Indemnitor" and collectively, the "Indemnitors") hereby
agree, jointly and severally, to indemnify and hold harmless Optika, Optika Asia
and each of their respective affiliates (individually, an "Indemnitee" and
collectively the "Indemnitees") against any and all losses, liabilities,
damages, demands, claims, suits, actions, judgments, and causes of action,
assessments, costs, and expenses, including, without limitation, interest,
penalties, attorneys' fees, any and all expenses incurred in investigating,
preparing, and defending against any litigation, commenced or threatened, and
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages") asserted against, resulting from, imposed
upon, or incurred or suffered by Indemnitees or any of their affiliates directly
or indirectly, as a result of or
29.
<PAGE>
arising from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants or agreements made by Indemnitors in this
Agreement or the Related Agreements or any facts or circumstances constituting
such an inaccuracy, breach, or nonfulfillment (all of which shall also be
referred to as "Identifiable Claims"), including, without limitation and without
limiting the foregoing, the following:
(i) Any liability of any Seller or any Shareholder imposed upon
Indemnitees (or any affiliate) as transferee of the Assets other than in respect
of the Assumed Liabilities including, without limitation, any liability arising
out of obligations incurred by such Seller or such Shareholder, directly or
indirectly, invoiced or not invoiced, liquidated or unliquidated, known or
unknown, prior to the Time of Closing;
(ii) Any Sellers' Retained Liabilities as provided in Section
2.2 hereof;
(iii) Any finders' fees due in connection with the sale of the
Assets.
Section 8.3 Procedure for Indemnification with Respect to Third-Party
----------- ---------------------------------------------------------
Claims.
- ------
(a) If either Indemnitee determines to seek indemnification under
this Article VIII with respect to Identifiable Claims resulting from the
assertion of liability by third parties, such Indemnitee shall give notice to
Indemnitors within 60 days of such Indemnitee becoming aware of any such
Identifiable Claim or of facts upon which any such Identifiable Claim, will be
based; the notice shall set forth such material information with respect thereto
as is then reasonably available to such Indemnitee. In case any such liability
is asserted against such Indemnitee, and such Indemnitee notifies Indemnitors
thereof, Indemnitors will be entitled, if they so elect by written notice
delivered to such Indemnitee within 20 days after receiving such Indemnitee's
notice, to assume the defense thereof with counsel satisfactory to such
Indemnitee. Notwithstanding the foregoing, (i) such Indemnitee shall also have
the right to employ its own counsel in any such case, but the fees and expenses
of such counsel shall be at the expense of such Indemnitee unless such
Indemnitee shall reasonably determine that there is a conflict of interest
between or among such Indemnitee or Indemnitors with respect to such
Identifiable Claim in which case the fees and expenses of such counsel will be
borne by Indemnitors, (ii) such Indemnitee shall not have any obligation to give
any notice of any assertion of liability by a third party unless such assertion
is in writing, (iii) the rights of such Indemnitee to be indemnified hereunder
in respect of Identifiable Claims resulting from the assertion of liability by
third parties shall not be adversely affected by its failure to give notice
pursuant to the foregoing unless, and, if so, only to the extent that,
Indemnitors are materially prejudiced thereby, and (iv) the Indemnitors'
obligations to such Indemnitee under Section 8.2 hereof shall not terminate
until such Indemnitee's claims have been finally satisfied to such Indemnitee's
sole satisfaction.
30.
<PAGE>
With respect to any assertion of liability by a third party that results in an
Identifiable Claim, the parties hereto shall make available to each other all
relevant information in their possession material to any such assertion.
(b) In the event that Indemnitors, within 20 days after receipt of
the aforesaid notice of Identifiable Claim, fails to assume the defense of such
Indemnitee against such Identifiable Claim, such Indemnitee shall have the right
to undertake the defense, compromise, or settlement of such action on behalf of
and for the account, expense, and risk of Indemnitors.
(c) Notwithstanding anything in this Article VIII to the contrary,
(i) if there is a reasonable probability that the Identifiable Claim may
materially adversely affect such Indemnitee, such Indemnitee shall have the
right to participate in such defense, compromise, or settlement and Indemnitors
shall not, without such Indemnitee's written consent (which consent shall not be
unreasonably withheld), settle or compromise any of such Identifiable Claim, or
consent to entry of any judgment in respect thereof unless such settlement,
compromise, or consent includes as an unconditional term thereof the giving by
the claimant or the plaintiff to such Indemnitee a release from all liability in
respect of such Identifiable Claim.
Section 8.4 Procedure For Indemnification with Respect to Non-Third
----------- -------------------------------------------------------
Party Claims. In the event that an Indemnitee asserts the existence of a claim
- ------------
giving rise to Damages (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to Indemnitors. Such
written notice shall state that it is being given pursuant to this Section 8.4,
specify the nature and amount of the claim asserted, and indicate the date on
which such assertion shall be deemed accepted and the amount of the claim deemed
a valid claim (such date to be established in accordance with the next
sentence). If Indemnitors, within 60 days after the mailing of notice by such
Indemnitee, shall not give written notice to such Indemnitee announcing its
intent to contest such assertion of such Indemnitee, such assertion shall be
deemed accepted and the amount of claim shall be deemed a valid claim. In the
event, however, that Indemnitors contest the assertion of a claim by giving such
written notice to such Indemnitee within said period, then the parties shall act
in good faith to reach agreement regarding such claim. In the event that
litigation shall arise with respect to any such claim, the prevailing party
shall be entitled to reimbursement of costs and expenses incurred in connection
with such litigation including attorney fees, if the parties hereto, acting in
good faith, cannot reach agreement with respect to such claim within ten days
after such notice.
Section 8.5 Set-off for Indemnification Claims. Optika and Optika
----------- ----------------------------------
Asia shall be entitled to set off any Damages incurred pursuant to this Article
VIII against the annual cash bonus payable to Callander pursuant to the terms of
the Callander Offer Letter and the annual consulting fee payable to Burgoyne
pursuant to the Burgoyne Offer Letter.
31.
<PAGE>
ARTICLE IX
TERMINATION
Section 9.1 Termination.
----------- -----------
(a) This Agreement may be terminated at any time prior to the Time of
Closing:
(i) by mutual agreement of the Sellers and Optika;
(ii) by Optika or Optika Asia, if there has been a breach by any
Seller or Shareholder of any representation, warranty, covenant or agreement set
forth in this Agreement resulting in a material adverse effect on the Business
of Sellers or the Assets that such Seller or Shareholder fails to cure within
five business days after notice thereof is given by Optika or Optika Asia
(except that no cure period shall be provided for a breach by a Seller or
Shareholder that by its nature cannot be cured);
(iii) by the Sellers or the Shareholders, if there has been a
breach by Optika or Optika Asia of any representation, warranty, covenant or
agreement set forth in this Agreement resulting in a material, adverse effect on
the business of Optika and its affiliates, taken as a whole, that Optika or
Optika Asia fails to cure within five business days after notice thereof is
given by Sellers or Shareholders (except that no cure period shall be provided
for a breach by a Optika or Optika Asia that by its nature cannot be cured);
(iv) by the Sellers, the Shareholders or Optika or Optika Asia,
if any court, government agency or other regulatory body shall have issued a
temporary restraining order, preliminary injunction or permanent injunction or
other order preventing the consummation of the transactions contemplated hereby
or by the Related Agreements or any litigation shall be pending, the ultimate
resolution of which is likely in Optika's or Optika Asia's reasonable opinion to
(i) result in the issuance of such an order or injunction, or the imposition
against Optika or Optika Asia of substantial damages if such transactions are
consummated, or (ii) render any of the parties hereto unable to consummate such
transactions;
(b) In the event of termination of this Agreement as provided in this
Section 9.1 or a failure to meet all of the closing conditions, this Agreement
shall forthwith become null and void, and there shall be no liability or
continuing obligations on the part of any the parties hereto or any of their
respective officers, directors, shareholders, employees, agents or other
representatives.
32.
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
------------------------
Section 10.1 Notice. All notices and other communications required
------------ ------
or permitted under this Agreement shall be delivered to the parties at the
address set forth below their respective signature blocks, or at such other
address that they designate by notice to all other parties in accordance with
this Section 10.1. Any party delivering notice to either Seller or any
Shareholder shall deliver a copy to Low Yeap Toh & Goon, 10 Anson Road #13-14,
International Plaza, Singapore 0207. Any party delivering notice to Optika or
Optika Asia shall deliver a copy to: Brobeck, Phleger & Harrison, Two
Embarcadero Place, 2200 Geng Road, Palo Alto, California, 94303, U.S.A.,
Attention: Warren T. Lazarow, Esq. All notices and communications must be sent
by one of the methods specified below and shall be deemed to have been received
unless otherwise set forth herein: (i) in the case of personal delivery, on the
date of such delivery; (ii) in the case of telex or facsimile transmission, on
the date on which the sender receives confirmation by telex or facsimile
transmission that such notice was received by the addressee, provided that a
copy of such transmission is additionally sent by mail as set forth in (iv)
below; (iii) in the case of overnight air courier, on the second business day
following the day sent, with receipt confirmed by the courier; and (iv) in the
case of mailing by first class certified or registered mail, postage prepaid,
return receipt requested, on the fifth business day following such mailing. All
notices in (i), (ii) and (iii) must be followed up by certified mail, return
receipt requested within five (5) days.
Section 10.2 Entire Agreement. This Agreement, the exhibits and
------------ ----------------
schedules hereto, and the documents referred to herein embody the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements and
understandings, oral or written, relative to said subject matter. To the extent
that there is any conflict between the provisions of this Agreement and the
provisions of any Related Agreement (and any attachment thereto), the provisions
of this Agreement shall control and be the binding agreement of the parties with
respect to the subject matter in dispute.
Section 10.3 Binding Effect; Assignment. This Agreement and the
------------ --------------------------
various rights and obligations arising hereunder shall inure to the benefit of
and be binding upon each Seller and its respective successors and permitted
assigns, and Optika and Optika Asia and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be transferred or assigned (by operation of law or
otherwise) by any of the parties hereto without the prior written consent of the
other parties.
Section 10.4 Expenses of Transaction; Taxes. Each party shall bear
------------ ------------------------------
its own costs and expenses in connection with this Agreement and the Related
Agreements and the transactions contemplated hereby and thereby.
33.
<PAGE>
Section 10.5 Waiver; Consent. This Agreement may not be changed,
------------ ---------------
amended, terminated, augmented, rescinded or discharged (other than by
performance), in whole or in part, except by a writing executed by the parties
hereto, and no waiver of any of the provisions or conditions of this Agreement
or any of the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have given or
consented thereto. Except to the extent that a party hereto may have otherwise
agreed in writing, no waiver by that party of any condition of this Agreement or
breach by the other party of any of its obligations or representations hereunder
or thereunder shall be deemed to be a waiver of any other condition or
subsequent or prior breach of the same or any other obligation or representation
by the other party, nor shall any forbearance by the first party to seek a
remedy for any noncompliance or breach by the other party be deemed to be a
waiver by the first party of its rights and remedies with respect to such
noncompliance or breach.
Section 10.6 Third-Party Beneficiaries. Except as otherwise provided
------------ -------------------------
for in this Agreement, nothing herein, expressed or implied, is intended or
shall be construed to confer upon or give to any person, firm, corporation or
legal entity, other than the parties hereto, any rights, remedies or other
benefits under or by reason of this Agreement.
Section 10.7 Survival. Except as expressly set forth herein, none of
------------ --------
the representations, warranties and covenants of the parties shall survive after
the Time of Closing.
Section 10.8 Counterparts. This Agreement may be executed
------------ ------------
simultaneously in multiple counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
Section 10.9 Severability. If one or more provisions of this
------------ ------------
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
Section 10.10 Remedies of Parties. Each Seller and each Shareholder
------------- -------------------
agrees that the Assets are unique and not otherwise readily available to Optika
and Optika Asia. Accordingly, each Seller and each Shareholder acknowledges
that, in addition to all other remedies to which Optika and Optika Asia are
entitled, Optika and Optika Asia shall have the right to enforce the terms of
this Agreement by a decree of specific performance, provided that neither Optika
nor Optika Asia is in material default hereunder. The parties also agree that
the rights and remedies of each party to this Agreement set forth in this
Agreement and in all of the exhibits and schedules attached hereto and documents
referred to herein shall be cumulative and shall inure to the benefit of each
such party.
34.
<PAGE>
Section 10.11 Governing Law. The terms of this Agreement shall be
------------- -------------
governed by the laws of the State of California, without giving effect to the
principles of conflicts of law. In the event of any dispute relating to the
interpretation or execution of this Agreement, the parties shall use all
reasonable efforts to settle the issues in good faith negotiations. If the
dispute cannot be settled amicably in this manner, all actions, claims or legal
proceedings in any way pertaining to this Agreement or such transactions shall
be commenced and maintained only in the courts of the State of Colorado or of
the United States of America located within the State of Colorado, and in no
other court or tribunal whatsoever, and (ii) the parties hereto each agree to
submit themselves to the respective jurisdictions of such courts.
Section 10.12 Attorneys' Fees. If any action at law or in equity is
------------- ---------------
necessary to enforce or interpret the terms of this Agreement or to protect the
rights obtained hereunder the prevailing party shall be entitled to its
reasonable attorneys' fees, including attorneys' fees on appeal, costs, and
disbursements in addition to any other relief to which it may be entitled.
Section 10.13 Cooperation and Records Retention. Each Seller, each
------------- ---------------------------------
Shareholder, Optika and Optika Asia shall each (i) provide the other with such
assistance as may reasonably be requested by them in connection with the
preparation of any Tax Return, or in connection with any audit or other
examination by any Taxing authority or any judicial or administrative
proceedings relating to liability for Taxes or in connection with any litigation
or financial audit involving the Business and/or Optika or Optika Asia, (ii)
retain and provide the other, with any records or other information which may be
relevant to any such Tax Return, audit or examination, suit, proceeding or
determination and (iii) provide the other with any final determination of any
such audit or examination, suit, proceeding or determination that affects any
amount required to be shown on any Tax Return of the other for any period or
otherwise. Without limiting the generality of the foregoing, Sellers, Optika
and Optika Asia shall retain, until the applicable statute of limitations
(including any extensions) have expired, copies of all Tax Returns, supporting
work schedules and other records or information which may be relevant to such
Tax Returns for all tax periods or portions thereof ending before or including
the Time of Closing or suit or audit and shall not destroy or otherwise dispose
of any such records without first providing the other party with a reasonable
opportunity to review and copy the same. Optika and Optika Asia shall keep the
original copies of the records at their facilities in Colorado Springs,
Colorado, and, at Sellers' expense, shall provide copies of the records to
Sellers upon Sellers' request. Sellers shall maintain the records of their
respective Businesses which are currently located in Singapore and Hong Kong at
such addresses and shall, at Optika's or Optika Asia's expense, provide copies
of the records to Optika and Optika Asia upon such party's request. After
liquidation of the Sellers as set forth in Section 5.14 hereof, Sellers may at
their option deliver such records to the principal offices of Optika Asia in
Singapore. Neither the furnishing of any such information pursuant to this
Section 10.13 nor any investigation by either party of the other party shall
affect either party's rights to rely on the
35.
<PAGE>
representations, warranties, agreements and covenants made by such other party
in this Agreement.
36.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be executed as of the day and year first above written.
OPTIKA IMAGING SYSTEMS, INC.,
a California corporation
By: ____________________________________
Name: __________________________________
Title:____________________________________
Address: 5755 Mark Dabling Boulevard
Suite 100
Colorado Springs, CO 80919
U.S.A.
OPTIKA ASIA, INC.,
a Delaware corporation
By: ____________________________________
Name: __________________________________
Title:____________________________________
Address: c/o Optika Imaging Systems, Inc.
5755 Mark Dabling Boulevard
Suite 100
Colorado Springs, CO 80919
U.S.A.
<PAGE>
IPRS ASIA (S) PTE LTD.,
a Singapore corporation
By: ____________________________________
Name: __________________________________
Title:____________________________________
Address: IPRS Asia (S) Pte Ltd.
51, Newton Road
#14-11/12 Goldhill Plaza
Singapore 1130
INTUIT DEVELOPMENT LIMITED,
a Hong Kong corporation
By: ____________________________________
Name: __________________________________
Title:____________________________________
Address: ________________________________
________________________________
________________________________
<PAGE>
SHAREHOLDERS
GOLDEN KING TRADING LIMITED,
a Western Samoa corporation
By: ____________________________________
Name: __________________________________
Title:____________________________________
Address: ________________________________
________________________________
________________________________
__________________________________________
Paul Callander
Address: ________________________________
________________________________
________________________________
GILLESPIE LIMITED,
a Western Samoa corporation
By: ____________________________________
Name: __________________________________
Title:____________________________________
Address: ________________________________
________________________________
________________________________
__________________________________________
Alistair Burgoyne
Address: ________________________________
________________________________
________________________________
<PAGE>
CERTIFICATE OF INCORPORATION OF
OPTIKA MERGER SUBSIDIARY, INC.
ARTICLE I
The name of this corporation is Optika Merger Subsidiary, Inc.
ARTICLE II
The address of the registered office of the corporation in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is the Corporation
Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
This Corporation is authorized to issue one class of stock to be
designated "Common Stock". The total number of shares which the Corporation is
authorized to issue is Ten Thousand (10,000) shares of the Common Stock, $0.0001
par value.
ARTICLE V
The name and mailing address of the incorporator is Michael C. Doran,
Esq., Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road,
Palo Alto, California 94303.
ARTICLE VI
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of the corporation.
ARTICLE VII
The number of directors of the corporation shall be fixed from time to
time by, or in the manner provided in, the bylaws or amendment thereof duly
adopted by the Board of Directors or by the stockholders.
ARTICLE VIII
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
<PAGE>
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE X
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporation action
further eliminating or limiting the personal liability of directors then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
X by the stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
ARTICLE XI
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned has signed this Certificate this
29th day of April, 1996.
----------------------------------
Michael C. Doran
Incorporator
2
<PAGE>
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
OPTIKA IMAGING SYSTEMS, INC.
The undersigned, Mark K. Ruport and Steven M. Johnson hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
---
respectively, of said corporation.
TWO: The Certificate of Incorporation of said corporation was
---
originally filed in the Office of the Secretary of State of the State of
Delaware on April 29, 1996.
THREE: The Certificate of Incorporation of said corporation shall be
-----
amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Optika Imaging Systems, Inc. (the
"Corporation").
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of the corporation's registered agent at such address is the
Corporation Service Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "GCL").
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two
----------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that the Corporation is authorized to issue
is Twenty-Seven Million (27,000,000). Twenty-Five Million (25,000,000) shares
shall be Common Stock, par value
<PAGE>
$0.001 per share, and Two Million (2,000,000) shares shall be Preferred Stock,
par value $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. Without
-------------------------------------------------------
further stockholder approval, the Preferred Stock authorized by this Second
Amended and Restated Certificate of Incorporation may be issued from time to
time in one or more series. The Board of Directors is hereby authorized to fix
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon additional series of Preferred Stock, and the number of shares
constituting any such series and the designation thereof, or of any of them.
Except as otherwise provided in this Second Amended and Restated Certificate of
Incorporation, the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
----------
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote), or senior to any of
those of any present or future class or series of Preferred Stock or Common
Stock. Except as otherwise provided in this Second Amended and Restated
Certificate of Incorporation, the Board of Directors is also authorized to
increase or decrease the number of shares of any series 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 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.
C. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. In the event of any voluntary or involuntary
------------------
liquidation, dissolution or winding up of the Corporation, after distribution in
full of the preferential amounts to be distributed to the holders of shares of
the Preferred Stock, the holders of shares of the Common Stock shall be entitled
to receive all of the remaining assets of the Corporation available for
distribution to its stockholders, ratably in proportion to the number of shares
of the Common Stock held by them.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
2
<PAGE>
ARTICLE V
Except as otherwise provided in this Second Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The number of directors of the Corporation shall be fixed from time to
time by, or in the manner provided in, the Bylaws or an amendment thereof duly
adopted by the Board of Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide. At each annual meeting of stockholders,
directors of the Corporation shall be elected to hold office until the
expiration of the term for which they are elected, or until their successors
have been duly elected and qualified; except that if any such election shall not
be so held, such election shall take place at a stockholders' meeting called and
held in accordance with the GCL. The directors of the Corporation shall be
divided into three (3) classes as nearly equal in size as is practicable, hereby
designated Class I, Class II and Class III. For the purposes hereof, the
initial Class I, Class II and Class III directors shall be those directors so
designated and elected at the Corporation's 1997 Annual Meeting of Stockholders.
At the first annual meeting of stockholders following the initial election and
designation of directors into classes, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three (3) years. At the second annual meeting of stockholders following the
initial election and designation of directors into classes, the term of office
of the Class II directors shall expire and Class II directors shall be elected
for a full term of three (3) years. At the third annual meeting of stockholders
following the initial election and designation of directors into classes, the
terms of office of the Class III directors shall expire and Class III directors
shall be elected for a full term of three (3) years. At each succeeding annual
meeting of stockholders, directors shall be elected for a full term of three (3)
years to succeed the directors of the class whose terms expire at such annual
meeting. If the number of directors is hereafter changed, any newly created
directorships or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of Directors,
although less than a quorum, at any meeting of the board of directors.
3
<PAGE>
ARTICLE VIII
Stockholders of the Corporation shall take action by meetings held
pursuant to this Second Amended and Restated Certificate of Incorporation and
the Bylaws and shall have no right to take any action by written consent without
a meeting. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
A director of this Corporation shall, to the full extent permitted by
the GCL as it now exists or as it may hereafter be amended, not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Neither any amendment nor repeal of this Article IX, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article IX, shall eliminate or reduce the effect of this Article IX in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article IX, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision. If the GCL is amended after approval by
the stockholders of this Article IX to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the GCL as so amended.
Any repeal or modification of the foregoing provisions of this Article
IX by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
ARTICLE X
To the full extent permitted by applicable law, this Corporation is
also authorized to provide indemnification of (and advancement of expenses to)
such agents (and any other persons to which Delaware law permits this
Corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the GCL, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to this Corporation, its stockholders, and others.
Any repeal or modification of any of the foregoing provisions of this
Article X shall not adversely affect any right or protection of a director,
officer, agent or
4
<PAGE>
other person existing at the time of, or increase the liability of any director
of this Corporation with respect to any acts or omissions of such director,
officer or agent occurring prior to such repeal or modification.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Second Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
FOUR: The foregoing amendment has been duly adopted by the
----
Corporation's Board of Directors in accordance with the applicable provisions of
Sections 241 and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate
on June , 1996.
--
------------------------------------------------
Mark K. Ruport
President and Chief Executive Officer
------------------------------------------------
Steven M. Johnson, Secretary
The undersigned certify under penalty of perjury that they have read
the foregoing Second Amended and Restated Certificate of Incorporation and know
the contents thereof, and that the statements therein are true.
Executed in Colorado Springs, Colorado, on June , 1996.
--
------------------------------------------------
Mark K. Ruport
------------------------------------------------
Steven M. Johnson
5
<PAGE>
BYLAWS
OF
OPTIKA IMAGING SYSTEMS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
----------
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
----------
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
----------
shall be held at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of Delaware
as shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting. Meetings of stockholders for any other purpose may
be held at such time and place, within or without the State of Delaware, as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual meetings of stockholders, commencing with the year 1997,
----------
shall be held at such date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which they
shall elect by a
<PAGE>
plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
----------
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
----------
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
----------
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the Board of
Directors, or at the request in writing of stockholders owning at least fifty
percent (50%) of the entire capital stock of the
2
<PAGE>
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date and
----------
hour of the meeting and the purpose or purposes for which the meeting is called,
shall be given not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
----------
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
----------
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
3
<PAGE>
Section 9. When a quorum is present at any meeting, the vote of the
----------
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of incorporation
-----------
each stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of the capital stock having voting
power held by such stockholder, but no proxy shall be voted on after three (3)
years from its date, unless the proxy provides for a longer period.
Section 11. Nominations for election to the Board of Directors must be
-----------
made by the Board of Directors or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations, other than those made by the Board of Directors of the corporation,
must be preceded by notification in writing received by the Secretary of the
corporation not less than twenty (20) days nor more than sixty (60) days prior
to any meeting of stockholders called for the election of directors. Such
notification shall contain the written consent of each proposed nominee to serve
as a director if so elected and the following information as to each proposed
nominee and as to each person, acting alone or in conjunction with one or more
other persons as a partnership, limited partnership, syndicate or other group,
who participates or is expected to participate in making such nomination or in
4
<PAGE>
organizing, directing or financing such nomination or solicitation of proxies to
vote for the nominee:
(a) the name, age, residence, address, and business address of each
proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of business and
address of the corporation or other organization in which such employment is
carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially, either
directly or indirectly, by each proposed nominee and each such person; and
(d) a description of any arrangement or understanding of each proposed
nominee and of each such person with each other or any other person regarding
future employment or any future transaction to which the corporation will or may
be a party.
The presiding officer of the meeting shall have the authority to determine
and declare to the meeting that a nomination not preceded by notification made
in accordance with the foregoing procedure shall be disregarded.
Section 12. At any meeting of the stockholders, only such business shall
-----------
be conducted as shall have been brought before the meeting (a) pursuant to the
corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
5
<PAGE>
For business to be properly brought before any meeting by a stockholder
pursuant to clause (c) of this Section 12, the stockholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than twenty (20)
days nor more than sixty (60) days prior to the date of the meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any material
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at a meeting except in accordance with the procedures set forth in
this Section 12. The presiding officer of the meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the procedures prescribed by
this Section 12, and if such person should so determine, such person shall so
declare to the meeting and any such business
6
<PAGE>
not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 12, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Section 12.
Section 13. Effective upon the closing of the corporation's initial public
-----------
offering of securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the stockholders of the Corporation may not
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting.
ARTICLE III
DIRECTORS
Section 1. The number of directors of this corporation that shall
----------
constitute the whole board shall be determined by resolution of the Board of
Directors or by the stockholders at the annual meeting of the stockholders;
provided, however, that no decrease in the number of directors shall have the
effect of shortening the term of an incumbent director. Except as provided in
Section 2 of this Article, the directors shall be elected at the annual meeting
of the stockholders, in accordance with the certificate of incorporation, and
each director elected shall hold office until his/her successor is elected and
qualified, unless he/she shall resign, become disqualified, disabled or
otherwise removed. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
----------
increase in the authorized number of directors may be filled by a majority of
the
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<PAGE>
directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and qualified or until his
earlier resignation or removal. If there are no directors in office, then an
election of directors may be held in the manner provided by statute.
Section 3. The business of the corporation shall be managed by or under
----------
the direction of its board of directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
----------
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
----------
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special
8
<PAGE>
meetings of the Board of Directors, or as shall be specified in a written waiver
signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held without
----------
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the President on
----------
four (4) days' notice to each director by mail or forty-eight (48) hours notice
to each director either personally, or by telephone, telegram or facsimile;
special meetings shall be called by the President or Secretary in like manner
and on like notice on the written request of two directors unless the board
consists of only one director, in which case special meetings shall be called by
the President or Secretary in like manner and on like notice on the written
request of the sole director. A written waiver of notice, signed by the person
entitled thereto, whether before or after the time of the meeting stated
therein, shall be deemed equivalent to notice.
Section 8. At all meetings of the board a majority of the directors shall
----------
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
9
<PAGE>
Section 9. Unless otherwise restricted by the certificate of incorporation
----------
of these bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a majority
-----------
of the whole board, designate one (1) or more committees, each committee to
consist of one (1) or more of the directors of the corporation. The board may
designate one (1) or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
10
<PAGE>
Any such committee, to the extent provided in the resolution of the Board
of Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings and
-----------
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
-----------
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall
11
<PAGE>
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
-----------
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
----------
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of these Bylaws), but
such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
----------
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
12
<PAGE>
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
----------
Board of Directors and shall be a President, Treasurer and a Secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or
more Vice-Presidents, Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless the certificate of
incorporation or these bylaws otherwise provide.
Section 2. The Board of Directors at its first meeting after each
----------
annual meeting of stockholders shall choose a President, a Treasurer, and a
Secretary and may choose Vice Presidents.
Section 3. The Board of Directors may appoint such other officers and
----------
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
----------
fixed by the Board of Directors. The salaries of agents of the corporation
shall, unless fixed by the Board of Directors, be fixed by the President or any
Vice-President of the corporation.
Section 5. The officers of the corporation shall hold office until
----------
their successors are chosen and qualify. Any officer elected or appointed by
the Board of
13
<PAGE>
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the corporation
shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
----------
meetings of the Board of Directors and of the stockholders at which he shall be
present. He/she shall have and may exercise such powers as are, from time to
time, assigned to him by the Board and as may be provided by law.
Section 7. In the absence of the Chairman of the Board, the Vice
----------
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which he shall be present. He shall have
and may exercise such powers as are, from time to time, assigned to him by the
Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The President shall be the chief executive officer of the
----------
corporation; and in the absence of the Chairman and Vice Chairman of the Board
he/she shall preside at all meetings of the stockholders and the Board of
Directors; he/she shall have general and active management of the business of
the corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 9. The President or any Vice President shall execute bonds,
----------
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except
14
<PAGE>
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent of the corporation.
Section 10. In the absence of the President or in the event of his
-----------
inability or refusal to act, the Vice-President, if any, (or in the event there
be more than one Vice-President, the Vice-Presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Vice-Presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The Secretary shall attend all meetings of the Board of
-----------
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he/she shall be. He/she shall have custody
of the corporate seal of the corporation and he/she, or an Assistant Secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his signature or by the signature of such
Assistant Secretary. The Board of Directors may give general authority to any
15
<PAGE>
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 12. The Assistant Secretary, or if there be more than one,
-----------
the Assistant secretaries in the order determined by the Board of Directors (or
if there be no such determination, then in the order of their election) shall,
in the absence of the Secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 13. The Treasurer shall be the chief financial officer of the
-----------
corporation, shall have the custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the Board of Directors.
Section 14. He/she shall disburse the funds of the corporation as may
-----------
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 15. If required by the Board of Directors, he/she shall give
-----------
the corporation a bond (which shall be renewed every six years) in such sum and
with such
16
<PAGE>
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his/her office and for the restoration to
the corporation, in case of his/her death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his/her control belonging to the
corporation.
Section 16. The Assistant Treasurer, or if there shall be more than
-----------
one, the Assistant Treasurers in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the Treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the Treasurer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
----------
to have a certificate, signed by, or in the name of the corporation by, the
Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice-
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the corporation, certifying the number of shares owned by
him/her in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
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<PAGE>
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
----------
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he/she
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
----------
certificates to be issued in place of any certificate or certificates
theretofore issued by the
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<PAGE>
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his/her legal representative, to
advertise the same in such manner as it shall require and/or to give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
----------
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in
19
<PAGE>
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
----------
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
----------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
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<PAGE>
Section 2. Before payment of any dividend, there may be set aside out
----------
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
----------
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
----------
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
----------
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
----------
under the laws of the State of Delaware, as those laws may be amended and
supplemented from
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<PAGE>
time to time, indemnify any director made, or threatened to be made, a party to
an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of being a director of the corporation or a predecessor
corporation or, at the corporation's request, a director or officer of another
corporation, provided, however, that the corporation shall indemnify any such
agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Section 6 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (ii) continue as to a person who has
ceased to be a director, and (iii) inure to the benefit of the heirs, executors
and administrators of such a person. The corporation's obligation to provide
indemnification under this Section 6 shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General
22
<PAGE>
Corporation Law of Delaware. Notwithstanding the foregoing, the corporation
shall not be required to advance such expenses to an agent who is a party to an
action, suit or proceeding brought by the corporation and approved by a majority
of the Board of Directors of the corporation which alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to
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<PAGE>
include such an employee benefit plan, including without limitation, any plan of
the corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
----------
bylaws may be adopted by the stockholders or by the Board of Directors, when
----
such power is conferred upon the Board of Directors by the certificate of
- -------------------------------------------------------------------------
incorporation, at any regular meeting of the stockholders or of the Board of
- -------------
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
certificate or incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
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<PAGE>
CERTIFICATE OF ADOPTION BY THE
ASSISTANT SECRETARY OF
OPTIKA IMAGING SYSTEMS, INC.
The undersigned, Warren T. Lazarow, hereby certifies that he is the
duly elected and acting Assistant Secretary of Optika Imaging Systems, Inc., a
Delaware corporation (the "Corporation"), and that the Bylaws attached hereto
constitute the Bylaws of said Corporation as duly adopted by Unanimous Written
Consent of the Board of Directors on May , 1996.
--
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this th day of May, 1996.
---
------------------------------------------------
Warren T. Lazarow
Assistant Secretary
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<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
----------------------------
AMENDED AND RESTATED
--------------------
SHAREHOLDERS' AGREEMENT
-----------------------
THIS AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT (this "Agreement"), dated
as of November 22, 1995, is by and among Optika Imaging Systems, Inc., a
California corporation (the "Corporation"), LMC Purchase Limited Partnership
("LMC"), Frontenac VI Limited Partnership ("Frontenac"), JMI Equity Fund, L.P.
("JMI," and, together with LMC and Frontenac, the "Investors") and the persons
set forth on Schedule 1 attached hereto or any person who becomes a party hereto
pursuant to Section 14 hereof (collectively, the "Management Stockholders").
RECITALS
--------
A. Frontenac and JMI have agreed to purchase shares of Series C Preferred
Stock of the Corporation (the "Series C Preferred Shares") pursuant to that
certain Series C Preferred Stock Purchase Agreement dated as of November 22,
1995 (the "Series C Purchase Agreement"), provided that the parties hereto enter
into this Agreement.
B. The Corporation, LMC, Frontenac, JMI and the Management Stockholders
are parties to that certain Shareholders' Agreement dated as of December 21,
1993, as amended on October 10, 1994, and April 16, 1995, and as supplemented on
March 18, 1994 (collectively, the "Prior Agreement").
C. The Corporation, LMC, Frontenac, JMI and the Management Stockholders
deem it desirable to terminate the Prior Agreement and to enter into this
Agreement in order to induce Frontenac and JMI to purchase the Series C
Preferred Shares pursuant to the Series C Purchase Agreement.
AGREEMENTS
----------
In consideration of the recitals and the mutual promises, covenants and
agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions.
-----------
(a) As used herein, "Affiliate" as applied to any Person, means any
other Person directly or indirectly controlling, controlled by, or under common
control with, that Person. The term "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of 10% or more of the voting power (or in the case of a Person which is not a
corporation, 10% or more of the ownership interest, beneficial or otherwise) of
such Person, or the ability to otherwise direct or cause the direction of the
management and policies of that Person, whether through voting power, by
contract or otherwise. A Person will not be deemed to be an Affiliate of any
other Person solely because such Person was designated by that Person to be
elected a director of the Corporation pursuant to Section 8(a) hereof or the
Restated Articles. For purposes of this paragraph, "voting power" of any Person
means the total number of votes which may be cast by the holders of the total
number of outstanding shares of stock of any class or classes of such Person in
any election of directors of such Person.
<PAGE>
(b) As used herein, "Commission" means the Securities and Exchange
Commission.
(c) As used herein, "Common Shares" means the shares of Common Stock
which have not been sold to the public (i) pursuant to a registration statement
declared effective by the Commission, or (ii) pursuant to Rule 144 promulgated
by the Commission under the Securities Act. For the purposes of this Agreement,
any Holder will be deemed to own, in addition to any Common Shares such Holder
actually owns, any Common Shares which would then be directly or indirectly
issuable upon the conversion or exercise (whether or not then convertible or
exercisable) of any other Securities owned by such Holder and such other
Securities shall be deemed to represent such Common Shares.
(d) As used herein, "Common Stock" means the Common Stock of the
Corporation.
(e) As used herein, "Executives" means Harvey L. Jeane, Paul Carter,
Malcolm Thomson and Mark Ruport.
(f) As used herein, "Frontenac VI" means Frontenac VI Limited
Partnership and its Affiliates.
(g) As used herein, "GAAP" means generally accepted accounting
principles, consistently applied.
(h) As used herein, a "Holder" is any holder (or deemed holder) of
Securities who is a party to this Agreement (or becomes a party hereto pursuant
to Section 14) or is a successor or assign or subsequent holder contemplated by
Section 20 hereof.
(i) As used herein, "JMI Equity" means JMI Equity Fund, L.P. and its
Affiliates.
(j) As used herein, "Management Securities" means, at any time, (i)
Securities then held by Management Stockholders, (ii) Securities that were at
one time held by a Management Stockholder but are then held by (A) a successor
or assign of such Management Stockholder (other than an Investor) or (B) a
subsequent Holder (other than an Investor), and (iii) Securities that were
issued as, or upon conversion or exercise of other Securities issued as, a
dividend or other distribution with respect to or in replacement of other
Management Securities and are then held by (1) a Management Stockholder, (2) a
successor or assign of such Management Stockholder (other than an Investor) or
(3) a subsequent Holder (other than an Investor); provided, however, that
Management Securities shall not include any securities which have been sold (i)
to the public pursuant to a registration statement declared effective by the
Commission or pursuant to Rule 144 promulgated by the Commission under the
Securities Act or (ii) to a transferee who purchases such shares as part of a
transaction in which a pro rata portion (as defined in Section 4) of the
--- ----
aggregate number of Common Shares being purchased by such transferee is being
purchased from each Holder of Preferred Securities who chooses to participate in
such transaction pursuant to Section 4 of this Agreement. For purposes of this
Agreement, the calculation of the number of Management Securities shall be
determined on an as-converted basis into Common Shares.
(k) As used herein, "New Securities" means (i) any capital stock of
the Corporation or any other securities or other obligations of the Corporation,
including any equity or profit participation rights, whether now authorized or
not, (ii) any rights, options, or warrants to purchase any such capital stock or
rights, or to purchase any securities of any type whatsoever that are, or may
become, convertible into any such capital stock, and (iii) any securities of any
type whatsoever that are, or may become convertible into any such capital stock;
provided, however, that "New Securities" will not include (A) securities offered
to the public pursuant to a registration statement under the Securities Act, (B)
options or securities issued or issuable to, or securities issued upon exercise
of options issued (or assumed in a merger or other reorganization) to officers,
directors,
2.
<PAGE>
consultants or employees of the Corporation, or any subsidiary of the
Corporation, including TEAMWorks Technologies, Inc., a Massachusetts
corporation, Optika Imaging Systems Europe Limited, a United Kingdom
corporation, Optika Imaging Systems Ltd., a United Kingdom corporation, and
Optika Asia, Inc., a Delaware corporation, pursuant to stock option plans or
agreements approved by the Board of Directors of the Corporation, (C) securities
issued upon conversion of the Series C Preferred Stock, Series B Preferred Stock
or Series A Preferred Stock of the Corporation, (D) securities issued pursuant
to the Series C Purchase Agreement or the agreements covering the issuance and
sale of the Series A Preferred Shares and Series B Preferred Shares, (E)
securities issued or assumed in connection with the acquisition of another
corporation by the Corporation or a subsidiary of the Corporation by merger,
purchase of all or substantially all of such other corporation's assets, or by
other reorganization whereby the Corporation ends up owning, directly or
indirectly, greater than 50% of the voting power of such corporation, (F) Common
Stock issued upon exercise of options outstanding on the date hereof, (G)
warrants to purchase shares of Common Stock, and the Common Stock issued upon
exercise thereof, issued to the lessors of equipment leased by the Corporation
and (H) warrants to purchase shares of Common Stock, and the Common Stock issued
upon exercise thereof, issued to Lynne Leahy and Judy Citarrella in connection
with the settlement of certain litigation initiated by such parties against the
Corporation.
(l) As used herein, "Person" means a natural person, a partnership, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or other entity, or a governmental entity or any
department, agency or political subdivision thereof.
(m) As used herein, "Preferred Securities" means Series A Preferred
Securities, Series B Preferred Securities and Series C Preferred Securities.
(n) As used herein, "Qualified Public Offering" has the meaning
ascribed to it in Section 4.5 of Article FOURTH of the Amended and Restated
Articles of Incorporation of the Corporation, as in effect on the date hereof,
or the Certificate of Incorporation of the surviving corporation to the
Reincorporation Merger (as hereinafter defined), as supplemented by the letter
agreement dated December 17, 1993, among the Corporation, Frontenac and JMI.
(o) As used herein, "Securities" means Common Shares or shares of
capital stock or other securities directly or indirectly exercisable for or
convertible into Common Shares; provided, however, that Securities shall not
include (i) any securities which have been sold to the public pursuant to a
registration statement declared effective by the Commission or pursuant to Rule
144 promulgated by the Commission under the Securities Act or (ii) Excluded
Securities (as defined in Section 4(b)) which have been sold to a transferee
(other than an Investor) in accordance with the terms of Section 4(b).
(p) As used herein, "Securities Act" means the Securities Act of
1933, as amended.
(q) As used herein, "Series A Preferred Securities" means, at any
time, (i) Series A Preferred Shares, (ii) Common Shares issued upon conversion
of Series A Preferred Shares and (iii) Common Shares or other securities issued
as, or upon the conversion or exercise of other securities issued as, a dividend
or other distribution with respect to or in replacement of other Series A
Preferred Securities. For purposes of this Agreement, the calculation of the
number of Series A Preferred Securities shall be determined on an as-converted
basis into Common Shares.
(r) As used herein, "Series A Preferred Shares" means those shares of
Series A Preferred Stock sold to LMC pursuant to the Series A Purchase
Agreement.
(s) As used herein, "Series A Purchase Agreement" means that certain
Stock Purchase Agreement dated February 20, 1992 among the Corporation, LMC and
each Executive other than Mark Ruport.
3.
<PAGE>
(t) As used herein, "Series A Preferred Stock" means Series A
Participating Convertible Preferred Stock of the Corporation.
(u) As used herein, "Series B Preferred Securities" means, at any
time, (i) Series B Preferred Shares, (ii) Common Shares issued upon conversion
of Series B Preferred Shares and (iii) Common Shares or other securities issued
as, or upon the conversion or exercise of other securities issued as, a dividend
or other distribution with respect to or in replacement of other Series B
Preferred Securities. For purposes of this Agreement, the calculation of the
number of Series B Preferred Securities shall be determined on an as-converted
basis into Common Shares.
(v) As used herein, "Series B Preferred Shares" means those shares of
Series B Preferred Stock sold to Frontenac and JMI pursuant to the Series B
Purchase Agreement.
(w) As used herein, "Series B Purchase Agreement" means that certain
Stock Purchase Agreement dated December 17, 1993, among the Corporation,
Frontenac and JMI.
(x) As used herein, "Series C Preferred Securities" means, at any
time, (i) Series C Preferred Shares, (ii) Common Shares issued upon conversion
of Series C Preferred Shares and (iii) Common Shares or other securities issued
as, or upon the conversion or exercise of other securities issued as, a dividend
or other distribution with respect to or in replacement of other Series C
Preferred Securities. For purposes of this Agreement, the calculation of the
number of Series C Preferred Securities shall be determined on an as-converted
basis into Common Shares.
(y) As used herein, "Series C Preferred Shares" means those shares of
Series C Preferred Stock sold to Frontenac and JMI pursuant to the Series C
Purchase Agreement.
(z) As used herein, "Series C Preferred Stock" means Series C
Participating Convertible Preferred Stock of the Corporation.
(aa) As used herein, "Subsidiary" means, with respect to any
corporation, any Person of which securities or other ownership interests
representing more than 50% of the ordinary voting power are, at the time as of
which any determination is being made, owned or controlled by such corporation
or one or more Subsidiaries of such corporation or by such corporation and one
or more Subsidiaries of such corporation.
2. Disposition of Securities. No Holder of Management Securities will
-------------------------
transfer, sell, convey, exchange or otherwise dispose of (herein referred to as
a "disposition" or "to dispose of") such Management Securities, except (i) in a
registered public offering under the Securities Act or in a public sale pursuant
to Rule 144 promulgated by the Commission under the Securities Act or (ii) in
compliance with Section 3 and Section 4 of this Agreement or (iii) as permitted
by Section 5 of this Agreement.
3. Right of First Refusal -- Outstanding Management Securities.
-----------------------------------------------------------
(a) If any Holder of Management Securities (the "Selling Management
Holder") desires to dispose of any Management Securities, such Selling
Management Holder will first give written notice (the "Offer Notice") to the
Corporation which will, within five (5) days of the date of receipt of such
notice (the "Offer Date"), send or deliver a copy of the Offer Notice to each
Holder of Preferred Securities, to the effect that such Selling Management
Holder wishes to dispose of such Management Securities (the "Offered
Securities"), stating the price at and other material terms upon which such
Selling Management Holder wishes to dispose of such Management Securities and
offering to sell such Management Securities, in whole or in part (the "Offer"),
first to the Corporation, and then to the Holders of Preferred Securities
pursuant to this Section, at the price and on the other material terms described
in the Offer Notice.
4.
<PAGE>
(b) The Corporation may accept the Offer in whole or in part by
giving written notice thereof to the Selling Management Holder within twenty
(20) days of the Offer Date.
(c) In the event the Corporation does not accept the Offer or does
not accept the Offer in its entirety as provided in subsection (b) of this
Section, the Corporation will promptly notify in writing the Holders of
Preferred Securities, and such Holders may elect to purchase, pro rata according
--- ----
to the number of Preferred Securities held by each such Holder, or in
such other proportions as they may agree upon, the Offered Securities the Offer
with respect to which has not then been accepted by the Corporation, by giving
written notice to the Corporation and the Selling Management Holder within forty
(40) days of the Offer Date.
(d) In the event that the Offer has not been accepted in its entirety
by either the Corporation or the Holders of Preferred Securities or both in
accordance with this Section, the Selling Management Holder may dispose of the
Offered Securities, subject to the provisions of Section 4 of this Agreement, to
a purchaser, who agrees in writing to be bound by the terms of this Agreement as
a Holder of Securities (but not Management Securities), on substantially the
same terms stated in the Offer Notice, at any time up to one hundred thirty
(130) days after the Offer Date. Thereafter the provisions of this Section will
again apply.
4. Take-along.
----------
(a) No Management Stockholder (the "Disposing Management
Stockholder") will sell or transfer at any time or from time to time any Take-
along Securities (as defined below), except (i) to the Corporation, or the
Holders of Preferred Securities, or both, in accordance with Section 3 of this
Agreement, or (ii) as permitted by Section 5 of this Agreement, or (iii) in a
registered public offering under the Securities Act, or (iv) in a public sale
pursuant to Rule 144 promulgated by the Commission under the Securities Act, or
(v) to a transferee who purchases such Take-along Securities as part of a
transaction in which a pro rata portion (as hereinafter defined) of the
--- ----
aggregate number of Securities being purchased by such transferee is being
purchased from each Holder of Preferred Securities who chooses to participate in
such transaction. For purposes of the preceding sentence, "pro rata portion"
--- ----
means, with respect to any Holder of Preferred Securities, the proportion
equal to (a) the number of Preferred Securities held by such Holder of Preferred
Securities divided by (b) the sum of (1) the number of Preferred Securities held
by all Holders of Preferred Securities who choose to participate in such
transaction and (2) the number of Management Securities held by the Disposing
Management Stockholder.
(b) "Take-along Securities" means, with respect to any Management
Stockholder, those Management Securities owned by such Management Stockholder on
the date hereof or acquired by such Management Stockholder on any date hereafter
regardless of the manner in which such Management Securities were acquired by
such Management Stockholder, to the extent such Management Securities exceed
such Management Stockholder's Excluded Securities. (For example, if a Management
Stockholder who owns 100 Common Shares on the date hereof at some date in the
future wishes to sell 20 of such Common Shares, such Management Stockholder may
dispose of such Common Shares in one or more transactions to one or more
purchasers without complying with the provisions of this Section 4 for such
Common Shares are not Take-along Securities. However, if at a later date such
Management Stockholder wishes to dispose of an additional five Common Shares,
those Common Shares will be Take-along Securities and are subject to the
provisions of this Section 4. If such Management Stockholder acquires 20
additional Common Shares after disposing of 20 of his initial 100 Common Shares,
such Management Stockholder may dispose of an additional four Common Shares in
one or more transactions to one or more purchasers without complying with the
provisions of this Section 4.) "Excluded Securities" means 20% of the Management
Securities owned by such Management Stockholder on the date hereof plus any
Management Securities acquired by such Management Stockholder on any date
hereafter; provided, however, the aggregate number of Excluded Securities for
any Management Stockholder and his or its Permitted Transferees will not exceed
20% of the aggregate number of Management Securities owned by such
5.
<PAGE>
Management Stockholder on the date hereof plus 20% of the aggregate number of
Management Securities issued to or acquired by such Management Stockholder and
his or its Permitted Transferees hereafter (not treating for the purposes of
this sentence any Management Securities acquired by such Management
Stockholder's Permitted Transferees from such Management Stockholder or other
Permitted Transferees of such Management Stockholder as additional acquired
Management Securities so as to prevent double-counting).
(c) Before the Disposing Management Stockholder accepts any offer for
the sale of any Take-along Securities to which Section 4(a)(v) applies, such
Disposing Management Stockholder will give written notice (the "Take-along
Notice") to the Corporation (which will, within five (5) days of the date of
receipt of such notice (the "Take-along Notice Date"), send or deliver a copy of
the Take-along Notice to each Holder of Preferred Securities), stating the
material terms of the offer. If a Holder of Preferred Securities wishes to
participate in such sale, such Holder of Preferred Securities will give the
Corporation and the Disposing Management Stockholder notice to such effect
within twenty (20) days of the Take-along Notice Date.
5. Permitted Transfers. Any Holder of Management Securities may transfer
-------------------
such Management Securities, without complying with Section 3 or Section 4, to
Permitted Transferees who consent in a writing delivered to the Corporation to
be bound by the terms of this Agreement as a Management Stockholder. With
respect to any Holder of Management Securities, "Permitted Transferees" means
the spouse or lineal descendants of such Holder, any trust for the benefit of
such Holder or the benefit of the spouse or lineal descendants of such Holder,
any corporation or partnership in which such Holder, the spouse and the lineal
descendants of such Holder are the direct and beneficial owners of all of the
equity interests (provided such Holder, spouse and lineal descendants agree in
writing to remain the direct and beneficial owners of all such equity
interests), and the personal representative of such Holder upon such Holder's
death for purposes of administration of such Holder's estate or upon such
Holder's incompetency for purposes of the protection and management of the
assets of such Holder.
6. Pledges. No Holder of Management Securities will pledge or otherwise
-------
grant a security interest in any Management Securities without the prior consent
of the Holders or Holders of a majority of the Series B Preferred Securities and
the Series C Preferred Securities, voting together as a single class.
7. Confidentiality. Each Holder agrees to at all times hold in confidence
---------------
and keep secret and inviolate all of the Corporation's confidential information,
including, without limitation, all unpublished matters relating to the business,
property, accounts, books, records, customers and contracts of the Corporation
which such Holder may or hereafter come to know; provided, however, that any
-------- -------
Holder may disclose any such information which has otherwise entered the public
domain or which it is required to disclose to any governmental authority by law
or subpoena or judicial process or in connection with a registered public
offering under the Securities Act or a sale to the public pursuant to Rule 144
promulgated by the Commission under the Securities Act or in a private sale
which is permitted or not prohibited hereunder so long as the potential
purchaser in such private sale executes a confidential ity agreement in a form
reasonably acceptable to the Corporation; provided, further, however, that the
-------- ------- -------
Investors, may disclose summary financial information and descriptive
information pertaining to the Corporation to each of its partners or investors
in its routine reports.
8. Board of Directors.
------------------
(a) Each of the Holders agrees to take all action necessary
including, without limitation, the voting of their shares of stock of the
Corporation, the execution of written consents, the calling of special meetings,
the removal of directors, the filling of vacancies on the Board of Directors,
the waiving of notice and the attending of meetings, so as to cause (i) the
number of members of the Board of Directors to be ten (10) and (ii) the Board of
Directors of the Corporation to be at all times comprised of the following
persons:
6.
<PAGE>
(A) three persons designated by the Holder or Holders of a majority
of the Securities held by Management Stockholders (who initially
shall be Malcolm Thomson, Paul Carter and Richard Bass);
(B) one person designated by the Holder or Holders of a majority of
the Series A Preferred Securities (who initially shall be
Lawrence Lepard);
(C) one person designated by Frontenac VI (who initially shall be
James E. Crawford, III);
(D) one person designated by JMI Equity (who initially shall be John
E. Moores);
(E) three persons, none of whom is an employee or officer of the
Corporation or any of its Subsidiaries, designated by the Holder
or Holders of a majority of the Securities held by Management
Stockholders, which persons are reasonably acceptable to the
Holder or Holders of a majority of the Preferred Securities (one
of which persons initially shall be Harvey Jeane); and
(F) the then existing president and chief executive officer of the
Corporation, if not selected pursuant to clause (A), (B), (C) or
(D) of this Section 8(a) (who initially shall be Mark Ruport).
(b) Each of the Holders agrees to take all actions necessary
including, without limitation, the voting of their shares of stock of the
Corporation, the execution of written consents, the calling of special meetings,
the removal of directors, the filling of vacancies on the Board of Directors,
the waiving of notice and the attending of meetings, so that, if the Board of
Directors establishes a compensation, stock award, audit or similar committee,
such committee shall include at least the person designated pursuant to Section
8(a)(ii)(B) and the person designated pursuant to Section 8(a)(ii)(C).
(c) Each of the Holders agrees to take all actions necessary
including, without limitation, the voting of their shares of stock of the
Corporation, the execution of written consents, the calling of special meetings,
the removal of directors, the filling of vacancies on the Board of Directors,
the waiving of notice and the attending of meetings, so as to cause the Board of
Directors (i) not to establish or maintain an executive or similar committee
without the prior consent of (A) the Holder or Holders of a majority of the
Series A Preferred Securities and (B) the Holder or Holders of a majority of the
Series B Preferred Securities and the Series C Preferred Securities, voting
together as a single class, and (ii) if such Holders consent to the
establishment of such a committee, to cause such committee to include at least
the person designated pursuant to Section 8(a)(ii)(B) and the person designated
pursuant to Section 8(a)(ii)(C).
(d) Notwithstanding the provisions of paragraph (a) of this Section,
the Holders of Series B Preferred Stock and the Holders of Series C Preferred
Securities shall possess all of the rights provided for in Sections 4.3.6 and
4.4.6, respectively, of Article FOURTH of the Amended and Restated Articles of
Incorporation of the Corporation, as in effect on the date hereof, or the
Certificate of Incorporation of the surviving corporation to the Reincorporation
Merger (as hereinafter defined) upon the occurrence of an Event of Noncompliance
(as defined therein) and the exercise of such rights shall not violate the
provisions of this Section 8.
(e) The Corporation shall hold meetings of the Board of Directors
periodically but not less often than quarterly.
7.
<PAGE>
9. Right of First Refusal - New Securities.
---------------------------------------
(a) Each Holder of Preferred Securities shall have the right of first
refusal to purchase his or its proportionate number, or any lesser number, of
any New Securities which the Corporation may, from time to time, propose to sell
and issue. For purposes of this Section 9, each such Holder's "proportionate
number" means the product obtained by multiplying the number of New Securities
proposed to be sold and issued by a fraction, the numerator of which will be the
number of Common Shares owned (or deemed owned) by such Holder and the
denominator of which will be the total number of Common Shares owned (or deemed
owned) by all holders of Securities.
(b) In the event the Corporation proposes to undertake an issuance of
New Securities, it will give each Holder of Preferred Securities written notice
of its intention to do so, describing the New Securities and the price and terms
upon which the Corporation proposes to issue the same, and setting forth the
number of shares which such Holder of Preferred Securities is entitled to
purchase and the aggregate purchase price therefor. Each such Holder of
Preferred Securities will have 20 days from the date of receipt of any notice to
agree to purchase up to his or its proportionate number of such New Securities,
for the price and upon the terms specified in the notice by giving written
notice to the Corporation and stating therein the quantity of New Securities to
be purchased.
(c) In the event any such Holder of Preferred Securities fails to
exercise such right of first refusal within said 20-day period the Corporation
will have 90 days thereafter to sell or enter into a binding and unconditional
agreement (pursuant to which the sale of New Securities covered thereby will be,
and is, consummated within 90 days from the date of said agreement) to sell the
New Securities as to which such Holder's right was not exercised, at a price and
upon such other terms no more favorable to the purchasers thereof than those
specified in the Corporation's notice. In the event the Corporation has not sold
such New Securities within said 90-day period (or sold and issued New Securities
in accordance with the foregoing within 90 days from the date of said
agreement), the Corporation will not thereafter issue or sell any New Securities
without first offering such New Securities to the Holder of Preferred Securities
in the manner provided above.
10. Negative Covenants. Without the approval, by vote or written consent,
------------------
of the Holders of not less than 60% of the Preferred Securities, the Corporation
will not:
(a) authorize, issue, or enter into any agreement providing for the
issuance (contingent or otherwise) of, or permit any Subsidiary of the
Corporation to authorize, issue or enter into any agreement providing for the
issuance (contingent or otherwise) of, (x) any notes or debt securities
containing equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable for equity securities, issued in
connection with the issuance of equity securities or containing capital
appreciation or profit participation rights or features), (y) any equity
securities (or any securities convertible into or exchangeable for any equity
securities or (z) any capital appreciation or profit participation right, except
for:
(i) the issuance of shares of Common Stock upon the conversion
of Series A Preferred Shares, Series B Preferred Shares or Series C Preferred
Shares;
(ii) the issuance of securities to the public in a Qualified
Public Offering;
(iii) the issuance of Series A Preferred Shares pursuant to the
Series A Purchase Agreement, Series B Preferred Shares pursuant to the Series B
Purchase Agreement and Series C Preferred Shares pursuant to the Series C
Purchase Agreement ;
(iv) the issuance of shares of Common Stock pursuant to options
to purchase shares of Common Stock outstanding on the date hereof; and
8.
<PAGE>
(v) the issuance of shares of Common Stock, or options or
warrants to purchase shares of Common Stock to employees, officers, directors or
consultants of the Corporation or any Subsidiary of the Corporation pursuant to
the Optika Imaging Systems, Inc. 1992 Stock Plan, the Optika Imaging Systems,
Inc. Amended and Restated 1994 Stock Option/Stock Issuance Plan, any successor,
predecessor or amended plan or otherwise (including, without limitation, any
options or warrants issued to employees, officers, directors or consultants of a
corporation being merged into the Corporation or any Subsidiary of the
Corporation which are assumed in connection with such merger), provided (A) that
the issuance of such shares or options or warrants has been approved by a
majority of the entire Board of Directors of the Corporation or by the members
of a committee of the Board of Directors duly authorized by the Board of
Directors to grant such options or warrants and (B) that the number of shares of
Common Stock issued pursuant to this clause (v) and the number of shares of
Common Stock issuable upon exercise of such options or warrants issued pursuant
to this clause (v) does not exceed, in the aggregate, 2,040,000 (such number to
be proportionately adjusted in the event the Common Stock is subdivided (whether
by stock split, stock dividend or otherwise) into a greater number or combined
(whether by reverse stock split or otherwise) into a lesser number), net of
options or warrants which expire or terminate, or are cancelled, prior to
exercise without the payment of consideration, directly or indirectly, to the
holder or holders thereof by or on behalf of the Corporation or any Subsidiary
of the Corporation;
(b) merge or consolidate, with any Person or permit any Subsidiary of
the Corporation to merge or consolidate with any Person (other than, in the case
of a Subsidiary of the Corporation, with or into the Corporation or any wholly-
owned Subsidiary of the Corporation) except for a merger of the Corporation into
a newly-formed corporation organized under the General Corporation Law of the
State of Delaware that does not have any material liabilities or obligations in
which the certificate of incorporation of the surviving corporation immediately
after such merger is identical in all material respects to the articles of
incorporation of the Corporation immediately prior to such merger and, after
giving effect to such merger, the holders of the Corporation's outstanding
capital stock immediately prior to such merger shall own all of the surviving
corporation's outstanding capital stock possessing voting power after such
merger (the "Reincorporation Merger");
(c) sell, lease or otherwise dispose of, or permit any Subsidiary of
the Corporation to sell, lease or otherwise dispose of, all or substantially all
of the consolidated assets of the Corporation in a transaction or series of
related transactions;
(d) liquidate, dissolve or effect a recapitalization, combination of
shares or reorganization of the Corporation in any form of transaction;
(e) acquire, or permit any Subsidiary of the Corporation to acquire,
any interest in any business (whether by a purchase of assets, purchase of
stock, merger or otherwise), other than (i) the acquisition or acquisitions
during any twelve (12) month period of interests in one or more businesses for
amounts which do not exceed $250,000 in the aggregate, provided that any such
acquisition or acquisitions have been approved by a majority of the entire Board
of Directors of the Corporation, or (ii) the acquisition of assets in the
ordinary course of the Corporation's business, or enter into any joint venture
with any other Person; or
(f) make any amendment to the Corporation's articles (or certificate)
of incorporation or by-laws, or file any resolution of the Board of Directors
with the California Secretary of State or the Delaware Secretary of State (after
the Reincorporation Merger).
11. Non-Competition Covenant. Unless waived by a majority of the
------------------------
disinterested directors of the Corporation and provided, with respect to the
one-year period following the termination of such Executive's employment with
the Corporation or any Subsidiary of the Corporation, that the Corporation pays
the applicable Executive the severance payments, if any, payable to the
Executive pursuant to such Executive's employment agreement with the Corporation
at such time and in such amount as provided therein, each
9.
<PAGE>
Executive agrees that he will not, during the period of such Executive's
employment by the Corporation or any Subsidiary of the Corporation, and for one
year following the termination of such employment for any reason whatsoever, (i)
directly or indirectly engage in a Competitive Business (as hereinafter
defined), whether such engagement shall be as an employer, officer, director,
owner, employee, consultant, stockholder, partner or other participant in such
Competitive Business, (ii) assist others in engaging in any Competitive Business
in the manner described in the foregoing clause (i), (iii) induce any employee
of the Corporation or its Subsidiaries to terminate his employment with the
Corporation or Subsidiary or to engage in any Competitive Business or (iv)
employ, or solicit for employment, any employee of the Corporation or its
Subsidiaries in any entity affiliated or associated with the Executive. The term
"Competitive Business" means and includes any business or activity in which the
Corporation or any of its Subsidiaries is, or has been, actively engaged within
any geographic area at the time of such termination or during such employment;
provided, however, that the ownership of no more than 2% of the outstanding
- -------- -------
capital stock of a corporation traded on a national securities exchange or
listed on NASDAQ shall not be deemed engaging in a Competitive Business. Except
as expressly set forth herein, to the extent the provisions of this Section 11
are inconsistent with the provisions of such Executive's employment agreement,
this Section 11 shall be controlling and such Executive's employment agreement
shall be deemed amended in all respects necessary to make it consistent
herewith.
12. Board Attendance. In addition to the rights set forth in Section 8 of
----------------
this Agreement, the Corporation will give each of Frontenac VI and JMI Equity
notice of each meeting of its Board of Directors at the same time and in the
same manner as notice is given to the directors, and the Corporation will permit
a representative of each of Frontenac VI and JMI Equity to attend as observers
all meetings of its Board of Directors; provided that in the case of telephonic
meetings conducted in accordance with the Corporation's by laws and applicable
law, Frontenac VI and JMI Equity need receive only actual notice thereof at the
same time and in the same manner such notice is given to the directors and such
representative will be given the opportunity to listen to such telephonic
meetings. Frontenac VI's representative and JMI Equity's representative will be
entitled to receive all written materials and other information (including,
without limitation, copies of meeting minutes) given to directors in connection
with such meetings at the same time such materials and information are given to
the directors. If the Corporation proposes to take any action by written
consent in lieu of a meeting of the Board of Directors, the Corporation will
give written notice thereof to each such representative prior to the effective
date of such consent and a copy of all written materials and other materials
given to the directors in connection with such action. Notwithstanding the
foregoing, the Corporation may exclude either representative from any meeting or
portion thereof (and decline to deliver to such representative materials for
such meeting or portion thereof) to the extent that the participation of such
representative in such meeting or portion thereof (or the receipt by such
representative of such materials or portion thereof) would, in the opinion of
counsel to the Corporation, cause the Corporation to waive its attorney-client
privilege with respect to any information which is material to any pending or
potential material dispute between the Corporation and a third party.
13. Execution. This Agreement may be executed in any number of
---------
counterparts, each of which when so executed and delivered will be deemed an
original, and such counterparts together will constitute one instrument.
14. Subsequent Management Stockholders. The Corporation will not issue or
----------------------------------
sell any Securities, including, without limitation, any options to purchase
shares of Common Stock, to any employee or officer of the Corporation who, after
giving effect to such issuance or sale, owns, directly or indirectly, two
percent (2%) or more of the outstanding Securities of the Corporation (on a
fully diluted basis), unless such employee or officer agrees by a written
consent to be bound by the terms of this Agreement in the capacity of a
Management Stockholder and a Holder of Management Securities as though he or she
were an original signatory hereto. Upon the delivery to the Corporation of such
written consent, such officer or employee shall be bound by and entitled to the
benefits of this Agreement in such capacity.
10.
<PAGE>
15. Legend. The Corporation will stamp or imprint each certificate or
------
other instrument representing Securities, throughout the term of this Agreement,
with a legend in substantially the following form:
"The securities represented by this certificate are subject to certain
provisions, including, among others, restrictions on voting and
transfer, set forth in a certain Amended and Restated Shareholders'
Agreement, a copy of which is available at the principal office of
Optika Imaging Systems, Inc."
16. Remedies. Each of the parties to this Agreement will be entitled to
--------
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion apply
to any court of law or equity of competent jurisdiction for specific performance
or injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement.
17. Termination of Prior Agreement; Waiver of Rights of First Refusal.
-----------------------------------------------------------------
Each of the Corporation, LMC, Frontenac VI and JMI Equity and each Management
Stockholder hereby agrees that, as of the date of this Agreement, the Prior
Agreement is hereby terminated in its entirety and shall be void and of no force
or effect. LMC, Frontenac VI and JMI Equity hereby waive any and all of their
rights of first refusal and preemptive rights triggered by, arising out of, or
in connection with, the sale of the Series C Preferred Shares pursuant to the
Series C Purchase Agreement.
18. Notices. Any notices desired, required or permitted to be given
-------
hereunder shall be delivered personally or mailed, certified or registered mail,
return receipt requested, or delivered by overnight courier service, to the
following addresses, or such other addresses as shall be given by notice
delivered hereunder, and shall be deemed to have been given upon delivery, if
delivered personally, five days after mailing, if mailed, or one business day
after delivery to the overnight courier service, if delivered by overnight
courier service:
If to the Corporation, to:
Optika Imaging Systems, Inc.
5755 Mark Dabling Blvd., #100
Colorado Springs, Colorado 80919
Attention: President and Chief Financial Officer
With a copy to:
Warren Lazarow
Brobeck, Phleger & Harrison
Two Embarcadero Place
Palo Alto, California 94303
If to the Holders of Management Securities, to the addresses set forth on
the stock record books of the Corporation.
If to the Holders of Preferred Securities, to the addresses set forth on
the stock record books of the Corporation.
11.
<PAGE>
With a copy to:
Stanford J. Goldblatt
Hopkins & Sutter
Three First National Plaza
Suite 3800
Chicago, Illinois 60602
and
Thomas C. Chase
Hill & Barlow, P.C.
One International Plaza
Boston, Massachusetts 02110
19. Amendments and Waivers. The provisions of this Agreement may be
----------------------
amended upon the written agreement of the Corporation and the Holder or Holders
of a majority of the Series A Preferred Securities, the Holder or Holders of a
majority of the Series B Preferred Securities and the Series C Preferred
Securities, voting together as a single class, and the Holder or Holders of a
majority of the Management Securities. Any waiver, permit, consent or approval
of any kind or character on the part of any Holders of any provision or
condition of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in writing.
20. Successors and Assigns. All covenants and agreements in this
----------------------
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto, and
each transferee of all or any portion of the Securities held by the parties
hereto, whether so expressed or not.
21. Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement. If for any reason Section 11 is held to cover an area or to be
for a length of time which is unreasonable, or in any other way is construed to
be too broad or to any extent invalid, the provisions of Section 11 will not be
determined to be null, void and of no effect, but to the extent the same is or
would be valid or enforceable under applicable law, any court of competent
jurisdiction will construe and interpret or reform Section 11 to provide for a
covenant or restriction having the maximum enforceable area, time period, and/or
other provisions (not greater than those contained therein) as will be valid and
enforceable under such applicable law.
22. Representations and Warranties. Each party to this Agreement
------------------------------
represents and warrants to each other party to this Agreement that: (i) all
action on the part of such party necessary for the authorization, execution,
delivery and performance of this Agreement has been taken, and (ii) this
Agreement is a legal, valid and binding obligation of such party, enforceable
against such party in accordance with its terms, including, without limitation,
Sections 8, 10 and 16.
23. Governing Law. Prior to the consummation of the Reincorporation
-------------
Merger, all questions concerning the relative rights of the Corporation and its
shareholders shall be governed by the laws of the State of California.
Thereafter, all questions concerning the relative rights of the Corporation and
its shareholders shall be governed by the corporate law of the State of
Delaware. All other questions concerning the construction, validity and
interpretation of, and the performance of the obligations imposed by, this
Agreement (other than Section 11) shall be governed by and construed in
accordance with the laws of the State of California
12.
<PAGE>
applicable to contracts made and wholly to be performed in that state, and all
other questions concerning the construction, validity and interpretation of, and
the performance of the obligations imposed by, Section 11 shall be governed by
and construed in accordance with the laws of the State of Colorado applicable to
contracts made and wholly to be performed in that state.
24. Final Agreement. This Agreement constitutes the final agreement of
---------------
the parties and supersedes all prior agreements and understandings concerning
the matters referred to herein.
25. Termination of this Agreement. Except as otherwise provided herein,
-----------------------------
this Agreement shall terminate upon the closing of a Qualified Public Offering;
provided, however, that Section 8 shall terminate ten (10) years after the date
hereof, if not terminated prior to such date pursuant to this Section.
13.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Shareholders' Agreement as of the date first set forth above.
OPTIKA IMAGING SYSTEMS, INC.
By:_________________________________________
Title:______________________________________
LMC PURCHASE LIMITED PARTNERSHIP
By:________________________________________
a General Partner
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company, its General Partner
By:________________________________________
a General Partner
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P., its General Partner
By:________________________________________
a General Partner
___________________________________________
Malcolm Thomson
___________________________________________
Paul Carter
____________________________________________
Harvey L. Jeane
14.
<PAGE>
___________________________________________
Steven M. Johnson
____________________________________________
Mark K. Ruport
15.
<PAGE>
SCHEDULE 1
Paul Carter
Harvey L. Jeane
Malcolm Thomson
Steven M. Johnson
Mark K. Ruport
16.
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
AMENDED AND RESTATED
REGISTRATION AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION AGREEMENT (this "AGREEMENT"), dated
November 22, 1995 is by and among Optika Imaging Systems, Inc., a California
corporation (the "CORPORATION"), the persons and entities identified on Schedule
--------
1 hereto (the "SERIES B AND C INVESTORS"), the persons and entities identified
- -
on Schedule 2 hereto (the "SERIES A INVESTORS") and the persons identified on
----------
Schedule 3 hereto and any person that becomes a party hereto pursuant to Section
- ----------
23 hereof (collectively the "FOUNDERS").
RECITALS
A. The Series B and C Investors have agreed to purchase shares of Series
C Participating Convertible Preferred Stock of the Corporation ("SERIES C
SHARES") pursuant to that certain Series C Preferred Stock Purchase Agreement,
dated as of November 22, 1995, as amended from time to time (the "PURCHASE
AGREEMENT"), provided that certain securities registration rights are granted to
the Series B and C Investors.
B. The Corporation, the Series B and C Investors, the Series A Investors
and the Founders deem it desirable to enter into this Agreement in order to
induce the Series B and C Investors to purchase Series C Shares and, in
connection therewith, pursuant to Section 16 hereto, to terminate all prior
securities registration rights of the parties hereto.
AGREEMENTS
In consideration of the recitals and the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. DEFINITIONS. As used in this Agreement:
-----------
(A) "CHIOCCHI" means William Chiocchi and the Chiocchi 1991
Children's Trust.
(B) "CHIOCCHI SHARES" means any shares of Common Stock outstanding
and held by Chiocchi on the date hereof.
(C) "COMMISSION" means the Securities and Exchange Commission.
(D) "COMMON STOCK" means the Common Stock of the Corporation.
(E) "EXECUTIVES" means Harvey L. Jeane, Paul Carter and Malcolm
Thomson.
(F) "EXISTING REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement dated as of December 21, 1993, and amended as of
January 31, 1994, and supplemented as of March 18, 1994, among the Corporation,
the Series B and C Investors, the Series A Investors and certain of the
Founders.
(G) "FOUNDERS' SHARES" means at any time (i) any shares of Common
Stock then outstanding and held by any Founder or, with respect to shares of
Common Stock previously held by a Founder, a transferee of such Founder who
consents to be bound by this Agreement; (ii) any shares of Common Stock
<PAGE>
then outstanding that were issued upon exercise of the Options; (iii) any shares
of Common Stock then issuable upon exercise of the Options; (iv) any shares of
Common Stock then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of other
Founders' Shares; (v) any shares of Common Stock issued or issuable upon the
exercise of existing options to the securityholders of TEAMWorks Technologies,
Inc., a Massachusetts corporation ("TEAMWorks"), in connection with the merger
of Optika Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of the Corporation, with and into TEAMWorks; (vi) any shares of
Common Stock then issuable directly or indirectly upon the conversion or
exercise of other securities issued as a dividend or other distribution with
respect to or in replacement of the securities issued or issuable to the
TEAMWorks securityholders; and (vii) any shares of Common Stock then issuable
directly or indirectly upon the conversion or exercise of other securities which
were issued as a dividend or other distribution with respect to or in
replacement of other Founders' Shares; provided, that Founders' Shares shall not
include any shares the sale of which has been registered pursuant to the
Securities Act or sold to the public pursuant to Rule 144 promulgated by the
Commission under the Securities Act. For purposes of this Agreement, a Person
will be deemed to be a Holder of Founders' Shares whenever such Person holds a
security exercisable for or convertible into such Founders' Shares, whether or
not such exercise or conversion has actually been effected."
(H) "HOLDER" is any holder of Registrable Shares who is a party to
this Agreement (or becomes a party hereto pursuant to Section 23 hereof) or is a
successor or assign or subsequent holder contemplated by Section 14 hereof.
(I) "INVESTORS' SHARES" means at any time (i) any shares of Common
Stock then outstanding that were issued upon conversion of the Series C Shares,
Series B Shares or Series A Shares; (ii) any shares of Common Stock then
issuable upon conversion of the Series C Shares, Series B Shares or Series A
Shares; (iii) any shares of Common Stock then outstanding which were issued as,
or were issued directly or indirectly upon the conversion or exercise of other
securities issued as, a dividend or other distribution with respect to or in
replacement of other Investors' Shares; and (iv) any shares of Common Stock then
issuable directly or indirectly upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with respect to
or in replacement of other Investors' Shares; provided, that Investors' Shares
shall not include any shares the sale of which has been registered pursuant to
the Securities Act or sold to the public pursuant to Rule 144 promulgated by the
Commission under the Securities Act. For purposes of this Agreement, a Person
will be deemed to be a Holder of Investors' Shares whenever such Person holds a
security exercisable for or convertible into such Investors' Shares, whether or
not such exercise or conversion has actually been effected.
(J) "IPO" means the Corporation's first underwritten public offering
of shares of Common Stock pursuant to a registration statement filed with the
Commission.
(K) "OPTIONS" means options for the purchase of shares of Common
Stock issued from time to time by the Corporation to any Founder.
(L) "PERSON" means a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
(M) "REGISTRABLE SHARES" means the Investors' Shares and the
Founders' Shares.
(N) "REGISTRATION EXPENSES" has the meaning ascribed to it in Section
6 of this Agreement.
(O) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(P) "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
-2-
<PAGE>
(Q) "SERIES A SHARES" means the shares of Series A Participating
Convertible Preferred Stock of the Corporation issued pursuant to that certain
Stock Purchase Agreement, dated as of February 20, 1992, among the Corporation,
the Series A Investors and the Executives.
(R) "SERIES B SHARES" means the shares of Series B Participating
Convertible Preferred Stock of the Corporation issued pursuant to that certain
Stock Purchase Agreement, dated as of December 17, 1993, among the Corporation
and the Series B and C Investors.
2. DEMAND REGISTRATIONS.
--------------------
(A) REQUESTS FOR REGISTRATION. (i) The Holders of at least seventy
-------------------------
percent (70%) of the then outstanding Investors' Shares at any time may request
registration under the Securities Act of all or part of their Registrable Shares
on Form S-1 or any similar long-form registration statement ("LONG-FORM
REGISTRATION") by delivering a written request to the Corporation to that
effect, provided that, in the case of any such Long-Form Registration, the
aggregate offering value of all Registrable Shares requested to be included in
such registration pursuant to paragraph 2(a), including without limitation
subparagraph 2(a)(iii), must be reasonably expected to equal at least $750,000.
(ii) Any Holder of then outstanding Investors' Shares at any
time may request registration under the Securities Act of all or part of their
Registrable Shares on Form S-2 or S-3 or any similar short-form registration
statement ("SHORT-FORM REGISTRATION"), if available, by delivering a written
request to the Corporation to that effect, provided that, in the case of any
such Short-Form Registration, (i) the aggregate offering value of the
Registrable Shares requested to be included in such registration pursuant to
paragraph 2(a), including without limitation subparagraph 2(a)(iii), must be
reasonably expected to equal at least $250,000 or (ii) if such aggregate
offering value is not reasonably expected to equal at least $250,000, the
Holders requesting such Short-Form Registration must be requesting the
registration of all Investors' Shares then held by them.
(iii) If the Holders initiating a registration pursuant to
paragraph 2(a) intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Corporation in their written notice.
Within ten days after receipt of any such written request, the Corporation will
give written notice of such request to all other Holders of Registrable Shares
and will include, subject to the terms of paragraph (d) of this Section 2, in
any such registration that constitutes a Demand Registration (as hereinafter
defined) all Registrable Shares with respect to which the Corporation has
received written requests for inclusion therein within 15 days after the
Corporation's notice has been given. Any Long-Form Registration and Short-Form
Registration requested pursuant to this paragraph (a), other than a registration
in which the Corporation sells any of its securities in a primary offering, are
referred to herein, respectively, as a "LONG-FORM DEMAND REGISTRATION" and a
"SHORT-FORM DEMAND REGISTRATION." All Long-Form Demand Registrations and Short-
Form Demand Registrations shall collectively be referred to herein as "DEMAND
REGISTRATIONS." The Corporation may elect to include its securities in a primary
offering in any registration requested pursuant to this paragraph (a), and such
registrations requested pursuant to this paragraph (a) in which the Corporation
sells any of its securities in a primary offering shall not be deemed to be
Demand Registrations and shall be considered Piggyback Registrations and will be
governed by Section 3.
(B) LONG-FORM DEMAND REGISTRATIONS.
------------------------------
(i) The Holders of Investors' Shares may request two Long-Form
Demand Registrations pursuant to paragraph 2(a)(i) for which the Corporation
will pay all Registration Expenses. A registration will not count as a Long-Form
Demand Registration under this paragraph (i) until it has become effective and
will not count as a Long-Form Demand Registration under this paragraph (i)
unless the Holders of Investors' Shares initially requesting such registration
are able to register and sell at least 50% of the Registerable Shares requested
to be included in such registration; provided that in any event the Corporation
-3-
<PAGE>
will pay all Registration Expenses in connection with any such registration
initiated as a Long-Form Demand Registration.
(ii) In addition to the rights provided by paragraph (i) of
this Section 2(b), if the number of prior Long-Form Demand Registrations
pursuant to such paragraph (i) equals two, the Holders of Investors' Shares
shall be entitled to request pursuant to paragraph 2(a)(i) an unlimited number
of additional Long-Form Demand Registrations provided that the holders of
securities to be registered thereunder agree to pay their pro rata share (as
determined in accordance with the number of shares requested to be registered in
such Registration) of all associated Registration Expenses in connection with
such registration, whether or not such registration becomes effective.
Notwithstanding the terms of the preceding sentence, if the failure of a
registration initiated pursuant to this paragraph (ii) to become effective is
the result of a breach by the Corporation of any of its obligations under this
Agreement, the Corporation shall pay all Registration Expenses in connection
with such registration .
(C) SHORT-FORM DEMAND REGISTRATIONS. In addition to the Long-Form
-------------------------------
Demand Registrations that may be requested pursuant to this Section 2, the
Holders of Investors' Shares will be entitled to request pursuant to paragraph
2(a)(ii) an unlimited number of Short-Form Demand Registrations. The
Corporation will pay all Registration Expenses incurred in connection with such
registration if the aggregate offering value of all Registrable Shares requested
to be registered in such registration pursuant to Section 2(a) is reasonably
expected to equal at least $750,000, whether or not such registration becomes
effective. If the aggregate offering value of all Registrable Shares requested
to be registered in such registration pursuant to Section 2(a) is not reasonably
expected to equal at least $750,000, the holders of securities to be registered
thereunder shall pay their pro rata share (as determined in accordance with the
percentage of shares requested to be registered in such registration) of all
associated Registration Expenses in connection with such registration, whether
or not such registration becomes effective. Notwithstanding the terms of the
preceding sentence, if the failure of such registration to become effective is
the result of a breach by the Corporation of any of its obligations under this
Agreement, the Corporation shall pay all Registration Expenses in connection
with such registration.
(D) PRIORITY ON DEMAND REGISTRATIONS.
--------------------------------
(i) If a Demand Registration is an underwritten public offering,
other than the IPO, and the managing underwriters advise the Corporation in
writing that in their opinion the number of Registrable Shares and other
securities requested to be included exceeds the number of Registrable Shares and
other securities which can be sold in such offering without having a material
adverse effect on the offering, the Corporation will include in such
registration, (A) first, the number of Investors' Shares requested to be
-----
included therein, which in the opinion of such underwriters can be sold without
having a material adverse effect on the offering, allocated pro rata among the
--- ----
Holders of such Investors' Shares on the basis of the number of Investors'
Shares owned by such Holders, with further successive pro rata allocations among
--- ----
the Holders of Investors' Shares if any such Holder of Investors' Shares has
requested the registration of fewer than all such Investors' Shares it is
entitled to register, (B) second, the number of Founders' Shares requested to be
------
included therein, which in the opinion of such underwriters (after taking into
account the number of Investors' Shares to be sold pursuant to clause (A)) can
be sold without having a material adverse effect on the offering, allocated pro
---
rata among the Holders of such Founders' Shares on the basis of the number of
- ----
Founders' Shares owned by such Holders, with further successive pro rata
--- ----
allocations among the Holders of Founders' Shares if any such Holder of
Founders' Shares has requested the registration of fewer than all such Founders'
Shares he is entitled to register, and (C) third, other securities requested to
-----
be included in such registration which in the opinion of such underwriters can
be sold (after taking into account the Registrable Shares to be sold pursuant to
clauses (A) and (B)) without having a material adverse effect on the offering.
(ii) If a Demand Registration is an underwritten public offering
which is the IPO and the managing underwriters advise the Corporation in writing
that in their opinion the number of Registrable
-4-
<PAGE>
Shares and other securities requested to be included exceeds the number of
Registrable Shares and other securities which can be sold in such offering
without having a material adverse effect on the offering, the Corporation will
include in such registration, (A) first, the number of Registrable Shares
-----
requested to be included therein, which in the opinion of such underwriters can
be sold without having a material adverse effect on the offering, provided that
if fewer than all such Registrable Shares requested to be included can, in the
opinion of such underwriters, be sold without having a material adverse effect
on the offering, then three-fourths of the Registrable Shares included shall be
Investors' Shares and one-fourth of the Registrable Shares included shall be
Founders' Shares, in each case pro rata among the respective Holders on the
--- ----
basis of the number of Investors' Shares or Founders' Shares, as the case may
be, owned by such Holders, with further successive pro rata allocations among
--- ----
the Holders of Investors's Shares or Founders' Shares, as the case may be, if
any such Holder has requested the registration of fewer than all such
Registrable Shares he or it is entitled to register, (B) second, other
------
securities requested to be included in such registration which in the opinion of
such underwriters can be sold (after taking into account the Registrable Shares
to be sold pursuant to clause (A)) without having a material adverse effect on
the offering.
(E) RESTRICTIONS ON REGISTRATIONS. The Corporation may postpone for a
-----------------------------
reasonable period, not to exceed 120 days, the filing or the effectiveness of a
registration statement for a Demand Registration, if the Corporation has been
advised by legal counsel that such filing would require disclosure of a material
fact that the Corporation determines reasonably and in good faith would have a
material adverse effect on any proposal or plan by the Corporation or any of its
subsidiaries to engage in any significant transaction. In addition, the
Corporation shall not be required to effect any registration in accordance with
the terms of this Agreement (other than on Form S-3 or any successor form
relating to secondary offerings) within 180 days after the effective date of any
other registration statement of the Corporation for the IPO or a primary
offering of its securities (other than a registration statement on Form S-8, or
any successor forms).
3. PIGGYBACK REGISTRATIONS.
-----------------------
(A) RIGHT TO PIGGYBACK. Whenever (i) the Corporation intends to sell
------------------
its securities in a primary offering pursuant to a registration statement filed
with the Commission or whenever the securities of the Corporation then issued
and outstanding are to be registered under the Securities Act (other than
pursuant to a Demand Registration in the latter case, and, in either case, other
than pursuant to a registration statement on Form S-8 or Form S-4, or their
successors) and (ii) the registration form to be used may be used for the
registration of Investors' Shares or Founders' Shares (a "PIGGYBACK
REGISTRATION"), the Corporation will give prompt written notice (in any event
within ten business days after its receipt of notice of any exercise of demand
registration rights by holders of the Corporation's securities other than the
Registrable Shares) to all Holders of Registrable Shares of its intention to
effect such a registration and will include in such registration, subject to the
terms of paragraphs (b) and (c) of this Section 3, all Registrable Shares with
respect to which the Corporation has received written requests for inclusion
therein within 30 days after the Corporation's notice has been given. The
Corporation shall have the right to postpone or withdraw any Piggyback
Registration without obligation or liability to any Holder of Registrable
Shares.
(B) PRIORITY ON PRIMARY REGISTRATIONS.
---------------------------------
(i) If a Piggyback Registration is an underwritten primary
registration, other than the IPO, on behalf of the Corporation, and the managing
underwriters advise the Corporation in writing that in their opinion the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering without having a material adverse effect on
the offering, the Corporation will include in such registration (A) first, the
-----
Chiocchi Shares requested to be included therein, (B) second, the securities the
------
Corporation proposes to sell, (C) third, the Investors' Shares requested to be
-----
included therein which in the opinion of such underwriters (after taking into
account the securities to be sold pursuant to clauses (A) and (B)) can be sold
without having a material adverse effect on the offering, pro rata among the
--- ----
Holders of such Investors' Shares on the basis of the number of Investors'
Shares owned by such Holders, with further successive
-5-
<PAGE>
pro rata allocations among the Holders of Investors' Shares if any such Holder
- --- ----
of Investors' Shares has requested the registration of fewer than all such
Investors' Shares it is entitled to register, (D) fourth, the number of
------
Founders' Shares requested to be included therein, which in the opinion of such
underwriters (after taking into account the securities to be sold pursuant to
clauses (A), (B) and (C)) can be sold without having a material adverse effect
on the offering, pro rata among the Holders of such Founders' Shares on the
--- ----
basis of the number of Founders' Shares owned by such Holders, with further
successive pro rata allocations among the Holders of Founders' Shares if any
--- ----
such Holder of Founders' Shares has requested the registration of fewer than all
such Founders' Shares he or it is entitled to register, and (E) fifth, other
-----
securities requested to be included in such registration which in the opinion of
such underwriters can be sold (after taking into account the securities to be
sold pursuant to clauses (A), (B), (C) and (D)) without having a material
adverse effect on the offering.
(ii) If a Piggyback Registration is an underwritten primary
registration on behalf of the Corporation which is the IPO and the managing
underwriters advise the Corporation in writing that in their opinion the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering without having a material adverse effect on
the offering, the Corporation will include in such registration, (A) first, the
-----
Chiocchi Shares requested to be included therein, (B) second, the securities the
------
Corporation proposes to sell, (C) third, the Registrable Shares requested to be
-----
included therein which in the opinion of such underwriters (after taking into
account the securities to be sold pursuant to clauses (A) and (B)) can be sold
without having a material adverse effect on the offering, provided that if fewer
than all such Registrable Shares requested to be included can, in the opinion of
such underwriters, be sold without having a material adverse effect on the
offering, then three-fourths of the Registrable Shares included shall be
Investors' Shares and one-fourth of the Registrable Shares included shall be
Founders' Shares, in each case pro rata among the respective Holders on the
--- ----
basis of the number of Investors' Shares or Founders' Shares, as the case may
be, owned by such Holders, with further successive pro rata allocations among
--- ----
the Holders of Investors's Shares or Founders' Shares, as the case may be, if
any such Holder has requested the registration of fewer than all such
Registrable Shares he or it is entitled to register, and (D) fourth, other
------
securities requested to be included in such registration which in the opinion of
such underwriters can be sold (after taking into account the securities to be
sold pursuant to clauses (A), (B) and (C)) without having a material adverse
effect on the offering.
(C) PRIORITY ON SECONDARY REGISTRATIONS.
-----------------------------------
(i) If a Piggyback Registration is not an underwritten primary
registration on behalf of the Corporation and is an underwritten secondary
registration on behalf of holders of the Corporation's securities, other than
the IPO, and the managing underwriters advise the Corporation in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
having a material adverse effect on the offering, the Corporation will include
in such registration (A) first, the Chiocchi Shares requested to be included
-----
therein, (B) second, the securities requested to be included therein by the
------
holders requesting such registration which in the opinion of such underwriters
can be sold (after taking into account the shares to be sold pursuant to clause
(A)) without having a material adverse effect on the offering, (C) third, the
-----
Investors' Shares requested to be included therein which in the opinion of such
underwriters can be sold (after taking into account the shares to be sold
pursuant to clauses (A) and (B)) without having a material adverse effect on the
offering, pro rata among the Holders of such Investors' Shares on the basis of
--- ----
the number of Investors' Shares owned by such Holders, with further successive
pro rata allocations among the Holders of Investors' Shares if any such Holder
- --- ----
of Investors' Shares has requested the registration of fewer than all such
Investors' Shares it is entitled to register, (D) fourth, the number of
------
Founders' Shares requested to be included therein which in the opinion of such
underwriters (after taking into account the securities to be sold pursuant to
clauses (A), (B) and (C)) can be sold without having a material adverse effect
on the offering, pro rata among the Holders of such Founders' Shares on the
--- ----
basis of the number of Founders' Shares owned by such Holders, with further
successive pro rata allocations among the Holders of Founders' Shares if any
--- ----
such Holder of Founders' Shares has requested the registration of fewer than all
such Founders' Shares he or it is entitled to register, and (E) fifth, other
-----
securities requested to be included
-6-
<PAGE>
in such registration which in the opinion of such underwriters can be sold
(after taking into account the securities to be sold pursuant to clauses (A),
(B), (C) and (D)) without having a material adverse effect on the offering.
(ii) If a Piggyback Registration is not an underwritten primary
registration on behalf of the Corporation and is an underwritten secondary
registration on behalf of holders of the Corporation's securities which is the
IPO and the managing underwriters advise the Corporation in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
having a material adverse effect on the offering, the Corporation will include
in such registration, (A) first, the Chiocchi Shares requested to be included
-----
therein, (B) second, the securities requested to be included therein by the
------
holders requesting such registration which in the opinion of such underwriters
can be sold (after taking into account the shares to be sold pursuant to clause
(A)) without having a material adverse effect on the offering, (C) third, the
-----
Registrable Shares requested to be included therein which in the opinion of such
underwriters (after taking into account the securities to be sold pursuant to
clauses (A) and (B)) can be sold without having a material adverse effect on the
offering, provided that if fewer than all such Registrable Shares requested to
be included may, in the opinion of such underwriters, be sold without having a
material adverse effect on the offering, then three-fourths of the Registrable
Shares included shall be Investors' Shares and one-fourth of the Registrable
Shares included shall be Founders' Shares, in each case pro rata among the
--- ----
respective Holders on the basis of the number of Investors' Shares or Founders'
Shares, as the case may be, owned by such Holders, with further successive pro
---
rata allocations among the Holders of Investors's Shares or Founders' Shares, as
- ----
the case may be, if any such Holder has requested the registration of fewer than
all such Registrable Shares he or it is entitled to register, and (D) fourth,
------
other securities requested to be included in such registration which in the
opinion of such underwriters can be sold (after taking into account the
securities to be sold pursuant to clauses (A), (B) and (C)) without having a
material adverse effect on the offering.
(D) OTHER REGISTRATIONS. If the Corporation has previously filed a
-------------------
registration statement with respect to an underwritten registration of
Registrable Shares pursuant to paragraph 2 or a registration statement which is
not an underwritten primary registration on behalf of the Corporation and which
is an underwritten secondary registration on behalf of holders of the
Corporation's securities pursuant to this paragraph 3, and if such previous
registration has not been withdrawn or abandoned, the Corporation will not file
or cause to be effected any other registration of any of its equity securities
or securities convertible or exchangeable into or exercisable for its equity
securities under the Securities Act (except on Form S-4 or S-8, or any successor
forms), whether on its own behalf or at the request of any holder or holders of
such securities, until a period of 180 days has elapsed from the effective date
of such previous registration, unless the underwriters managing the registered
public offering otherwise agree.
4. HOLDBACK AGREEMENTS.
-------------------
(A) Each of the Holders of Registrable Shares agrees not to effect
any public sale or distribution of equity securities of the Corporation,
including any public sale pursuant to Rule 144 under the Securities Act, or any
securities convertible into or exchangeable or exercisable for such securities,
during the period (i) commencing seven days prior to and ending 120 days after
the effective date of the IPO (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree or (ii) commencing seven days prior to and ending 120 days after
the effective date of any underwritten Demand Registration or underwritten
Piggyback Registration in which such Holder sells Registrable Shares (except as
part of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
(B) The Corporation agrees (i) not to effect any public sale or
distribution of its equity securities including any public sale pursuant to Rule
144 under the Securities Act, or any securities convertible into or exchangeable
or exercisable for such securities, during the period commencing seven days
prior to and ending 120 days after the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
-7-
<PAGE>
successor form), unless the underwriters managing the offering otherwise agree,
and (ii) to cause each holder of at least 1% (on a fully-diluted basis) of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, purchased from the Corporation at any time
after the date of this Agreement (other than in a registered public offering) to
agree not to effect any public sale or distribution of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the offering otherwise
agree.
5. REGISTRATION PROCEDURES. Whenever the Holders of Registrable Shares
-----------------------
have requested that any Registrable Shares be registered pursuant to the terms
of this Agreement, the Corporation will use its best efforts to effect the
registration of such Registrable Shares under the Securities Act in accordance
with the intended method of disposition thereof and pursuant thereto the
Corporation will as expeditiously as possible:
(A) prepare and file with the Commission a registration statement
with respect to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to exceed nine
months;
(B) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed nine months, and otherwise as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(C) furnish to each seller of such Registrable Shares and the
underwriters of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such seller or underwriters may reasonably request
in order to facilitate the disposition of the Registrable Shares owned by such
seller or the sale of such securities by such underwriters;
(D) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Shares owned by such seller
(provided, however, that the Corporation will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph, (ii) subject itself to taxation
in any such jurisdiction or (iii) consent to general service of process in any
such jurisdiction);
(E) cause all such Registrable Shares to be listed on each securities
exchange on which similar securities issued by the Corporation are then listed;
(F) provide a transfer agent and registrar for all such Registrable
Shares not later than the effective date of such registration statement;
(G) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Holders of
at least a majority of the Registrable Shares being sold or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Shares (including, without limitation, effecting a stock split
or a combination of shares);
(H) make available for inspection by the seller of such Registrable
Shares, any managing underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter, all financial and other records,
pertinent corporate
-8-
<PAGE>
documents and properties of the Corporation, and cause the Corporation's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(I) notify each seller of such Registrable Shares, promptly after it
shall receive notice thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(J) notify each seller of such Registrable Shares of any request by
the Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;
(K) prepare and file with the Commission, promptly upon the request
of any seller of such Registrable Shares, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel selected
by the Holders of a majority of the Investors' Shares being registered, is
required under the Securities Act or the rules and regulations thereunder in
connection with the distribution of Registrable Shares by such seller;
(L) prepare and promptly file with the Commission and promptly notify
each seller of such Registrable Shares of the filing of such amendment or
supplement to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading;
(M) advise each seller of such Registrable Shares, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use all reasonable efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such stop order should be issued;
(N) at least forty-eight hours prior to the filing of any
registration statement or prospectus or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to each seller of
such Registrable Shares and refrain from filing any such registration statement,
prospectus, amendment or supplement to which counsel selected by the Holders of
at least a majority of the Registrable Shares being registered shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, unless, in the case of an amendment or
supplement, in the opinion of counsel for the Corporation the filing of such
amendment or supplement is reasonably necessary to protect the Corporation from
any liabilities under any applicable federal or state law and such filing will
not violate applicable laws; and
(O) at the request of any seller of such Registrable Shares in
connection with an underwritten offering, furnish on the date or dates provided
for in the underwriting agreement: (i) an opinion of counsel, addressed to the
underwriters and the sellers of Registrable Shares, covering such matters as
such underwriters and sellers may reasonably request, including, without
limiting the generality of the foregoing, opinions to the effect that (A) such
registration statement has become effective under the Securities Act; (B) to the
best of such counsel's knowledge no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been instituted
or are pending or contemplated under the Securities Act; (C) the registration
statement, the prospectus, and each amendment or supplement thereto comply as to
form in all material respects with the requirements of the Securities Act and
the then applicable rules and regulations of the Commission thereunder (except
that such counsel need express no opinion as to financial statements, any
related schedules, or other financial or statistical data contained therein);
(D) while such counsel has not verified
-9-
<PAGE>
the accuracy, completeness, or fairness of the statements contained in any
registration statement or prospectus, as either may be amended or supplemented,
such counsel has no reason to believe that the registration statement, the
prospectus, or any amendment or supplement thereto contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (except that
such counsel need express no opinion as to financial statements or any related
schedules, or other financial or statistical data contained therein); (E) the
descriptions in the registration statement, the prospectus, or any amendment or
supplement thereto of all legal and governmental proceedings and all contracts
and other legal documents or instruments are accurate in all material respects;
and (F) while such counsel has not verified the accuracy, completeness, or
fairness of the statements contained in any registration statement or
prospectus, as either may be amended or supplemented, such counsel does not know
of any legal or governmental proceedings, pending or threatened, required to be
described in the registration statement, the prospectus, or any amendment or
supplement thereto which are not described as required nor of any contracts or
documents or instruments of the character required to be described in the
registration statement, the prospectus, or any amendment or supplement thereto
or to be filed as described or filed as required; and (ii) a letter or letters
from the independent certified public accountants of the Corporation addressed
to the underwriters and the sellers of such Registrable Shares, covering such
matters as such underwriters and sellers may reasonably request, in which
letters such accountants shall state, without limiting the generality of the
foregoing, that they are independent certified public accountants within the
meaning of the Securities Act and that in the opinion of such accountants the
financial statements and other financial data of the Corporation included in the
registration statement, the prospectus, or any amendment or supplement thereto
comply in all material respects with the applicable accounting requirements of
the Securities Act.
6. REGISTRATION EXPENSES.
---------------------
(A) Except with respect to Long-Form Demand Registrations for which
the Corporation is not obligated to pay Registration Expenses pursuant to
Section 2(b)(ii) and Short-Form Demand Registrations for which the Corporation
is not obligated to pay Registration Expenses pursuant to Section 2(c), all
expenses incident to the Corporation's performance of or compliance with this
Agreement, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, the expenses and fees for listing the
securities to be registered on each securities exchange or other market on which
any shares of Common Stock are then listed, and fees and disbursements of
counsel for the Corporation and its independent certified public accountants,
underwriters (excluding discounts and commissions attributable to the
Registrable Shares included in such registration) and other Persons retained by
the Corporation (all such expenses being herein called "REGISTRATION EXPENSES"),
will be borne by the Corporation. In addition, the Corporation will pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit or quarterly review and the expense of any liability
insurance obtained by the Corporation.
(B) In connection with any registration, including Piggyback
Registrations, effected pursuant to this Agreement, other than a Long-Form
Demand Registration for which the Corporation is not obligated to pay
Registration Expenses pursuant to Section 2(b)(ii) and Short-Form Demand
Registrations for which the Corporation is not obligated to pay Registration
Expenses pursuant to Section 2(c), the Corporation will reimburse the Holders of
Registrable Shares covered by such registration for the reasonable costs and
expenses incurred by such Holders in connection with such registration,
including, without limitation, the reasonable fees and disbursements of one
counsel chosen by the Holders of a majority of the Investors' Shares requested
to be registered in such registration.
7. INDEMNIFICATION.
---------------
(A) The Corporation agrees to indemnify, to the fullest extent
permitted by law, each seller of Registrable Shares, its officers and directors
and each Person who controls such seller (within the meaning
-10-
<PAGE>
of the Securities Act or the Exchange Act) against all losses, claims, damages,
liabilities and expenses (including without limitation attorneys' fees except as
limited by paragraph 7(c)) caused by any untrue or alleged untrue statement of a
material fact contained in any registration statement, any prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Corporation by such seller expressly for use therein or by such seller's failure
to deliver a copy of the registration statement or prospectus or preliminary
prospectus or any amendments or supplements thereto after the Corporation has
furnished such seller with a sufficient number of copies of the same. In
connection with an underwritten offering, the Corporation will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the sellers of Registrable
Shares. The reimbursements required by this paragraph 7(a) will be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.
(B) In connection with any registration statement in which a seller
of Registrable Shares is participating, each such seller will furnish to the
Corporation in writing such information and affidavits as the Corporation
reasonably requests for use in connection with any such registration statement
or prospectus and, to the fullest extent permitted by law, will indemnify the
Corporation, its directors and officers and each underwriter (if any) and each
Person who controls the Corporation or such underwriter (within the meaning of
the Securities Act or the Exchange Act) against any losses, claims, damages,
liabilities and expenses (including without limitation attorneys' fees except as
limited by paragraph 7(c)) resulting from any untrue statement of a material
fact contained in the registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto or any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in any information or affidavit so furnished in writing by
such seller expressly for use therein; provided that the obligation to indemnify
will be several, not joint and several, among such sellers of Registrable
Shares, and the liability of each such seller of Registrable Shares will be in
proportion to, and provided further that such liability will be limited to, the
net amount received by such seller from the sale of Registrable Shares pursuant
to such registration statement.
(C) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (which consent will not be
unreasonably withheld). The indemnified party will not settle any claim or
liability without first providing the indemnifying party a reasonable
opportunity to assume the defense. An indemnifying party who is not entitled
to, or elects not to, assume the defense of a claim will not be obligated to pay
the fees and expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(D) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Corporation
also agrees to make such provisions as are reasonably requested by any
indemnified party for contribution to such party in the event the Corporation's
indemnification is unavailable for any reason.
8. CURRENT PUBLIC INFORMATION. At all times after the Corporation has
--------------------------
filed a registration statement with the Commission pursuant to the requirements
of either the Securities Act or the Securities Exchange Act, the Corporation
will file in a timely manner all reports and other documents required to be
filed
-11-
<PAGE>
by it under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Commission thereunder and will take such further
action as any holder or holders of Investors' Shares may reasonably request, all
to the extent required to enable such holders to sell Investors' Shares pursuant
to (i) Rule 144 adopted by the Commission under the Securities Act (as such rule
may be amended from time to time) or any similar rule or regulation hereafter
adopted by the Commission or (ii) a registration statement on Form S-2 or S-3 or
any similar registration form hereafter adopted by the Commission. Upon
request, the Corporation shall deliver to any holder of Investors' Shares a
written statement as to whether it has complied with such requirements.
9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
-------------------------------------------
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements. The Holders of a
majority of the Investors' Shares requested to be registered will have the right
to select the managing underwriters to administer any Demand Registration and
any Piggyback Registration in which the Corporation does not participate, which
managing underwriter shall be reasonably acceptable to the Corporation. The
Corporation will have such right in any offering in which it participates,
provided, however, that in any such case the managing underwriters shall be
nationally recognized underwriters approved by a majority of the Board of
Directors of the Corporation.
10. NO INCONSISTENT AGREEMENTS. The Corporation will not hereafter enter
--------------------------
into any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders of Registrable Shares in this Agreement.
11. ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Corporation will not
----------------------------------------
take any action, or permit any change to occur, with respect to its securities
which would adversely affect the ability of the Holders of Registrable Shares to
include such Registrable Shares in a registration undertaken pursuant to this
Agreement or which would adversely affect the marketability of such Registrable
Shares in any such registration (including, without limitation, effecting a
stock split or a combination of shares), but will at all times in good faith
assist in carrying out all of the provisions of this Agreement and in the taking
of all such action as may be necessary or appropriate in order to protect the
registration rights pursuant to this Agreement of the Holders of Registrable
Shares against impairment.
12. REMEDIES. Any Person having rights under any provision of this
--------
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
13. AMENDMENTS AND WAIVERS. Except as otherwise expressly provided
----------------------
herein, the provisions of this Agreement may be amended or waived at any time
only by the written agreement of the Corporation, the Holders of at least
seventy percent (70%) of the Investors' Shares and the Holders of a majority of
the Founders' Shares; provided, that this Agreement may not be amended or waived
with the consent of the Holders of less than all Investors' Shares if such
amendment or waiver adversely affects a portion of the Investors' Shares but
does not so adversely affect all of the Investors' Shares. Any waiver, permit,
consent or approval of any kind or character on the part of any such Holders of
any provision or condition of this Agreement must be made in writing and shall
be effective only to the extent specifically set forth in writing.
14. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
----------------------
herein, the provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors, assigns, heirs, executors and
administrators of the parties hereto, whether so expressed or not. In addition
and whether or not any express assignment has been made, the provisions of this
Agreement which are for the benefit of Holders of
-12-
<PAGE>
Registrable Shares are also for the benefit of, and enforceable by, any
subsequent Holder of Registrable Shares who consent to be bound by this
Agreement.
15. OTHER REGISTRATION RIGHTS. Except for the registration rights granted
-------------------------
hereunder, the Corporation will not grant to any Persons the right to request
the Corporation to register any equity securities of the Corporation, or any
securities convertible or exchangeable into or exercisable for such securities,
without the written consent of the Holders of at least seventy percent (70%) of
the Investors' Shares, and except for registrations pursuant to registration
rights granted to the Holders of Registrable Shares hereunder or granted to
Chiocchi with respect to the Chiocchi Shares pursuant to the Settlement
Agreement (as defined in the Purchase Agreement) or granted to other Persons
pursuant to this paragraph 15 or primary registrations of securities by the
Corporation, the Corporation shall not register any equity securities of the
Corporation, or any securities convertible or exchangeable into or exercisable
for such securities, without the written consent of the Holders of at least
seventy percent (70%) of the Investors' Shares. The Corporation will not
include in any Demand Registration any securities which are not Registrable
Shares without the written consent of the Holders of at least seventy percent
(70%) of the Investors' Shares requesting such registration.
16. TERMINATION OF OTHER REGISTRATION RIGHTS. Each of the Corporation,
----------------------------------------
the Series B and C Investors, the Series A Investors and the Founders hereby
agrees that, as of the date of this Agreement, the Existing Registration Rights
Agreement is hereby terminated in its entirety and such agreement shall be void
and of no force and effect. Each of the Corporation, the Series A Investors and
the Executives hereby acknowledges and affirms that that certain Registration
Rights Agreement dated as of February 20, 1992, has previously been terminated
and is of no force or effect as of the date hereof. Except for the rights
granted to a Founder pursuant to this Agreement, each Founder hereby irrevocably
waives any registration rights of any type or character whatsoever granted to
such Founder prior to the date hereof.
17. FINAL AGREEMENT. This Agreement constitutes the final agreement of
---------------
the parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
18. SEVERABILITY. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
19. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
--------------------
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
20. NOTICES. Any notices required or permitted to be sent hereunder shall
-------
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service to the following addresses, or such
other addresses as shall be given by notice delivered hereunder, and shall be
deemed to have been given upon delivery, if delivered personally, three business
days after mailing, if mailed, or one business day after delivery to the
courier, if delivered by overnight courier service:
If to the Holders of Investors' Shares, to the addresses set forth on the
stock record books of the Corporation;
-13-
<PAGE>
With a copy to:
Stanford J. Goldblatt
Hopkins & Sutter
Three First National Plaza
Suite 3800
Chicago, Illinois 60602
and
Thomas C. Chase
Hill & Barlow, P.C.
One International Plaza
Boston, Massachusetts 02110
If to the Holders of Founders' Shares, to the addresses set forth on the
stock record books of the Corporation.
If to the Corporation, to:
Optika Imaging Systems, Inc.
5575 Mark Dabling Blvd., #100
Colorado Springs, Colorado 80919
Attn: President and Chief Financial Officer
With a copy to:
Warren T. Lazarow
Brobeck, Phleger & Harrison
Two Embarcadero Place
Palo Alto, California 94303
21. GOVERNING LAW. Prior to the consummation of the Reincorporation
-------------
Merger (as defined in the Restated Shareholders' Agreement of even date herewith
by and among the Corporation, the Series B and C Investors, the Series A
Investors and the Founders), all questions concerning the relative rights of the
Corporation and its shareholders shall be governed by the laws of the State of
California. Thereafter, all questions concerning the relative rights of the
Corporation and its shareholders shall be governed by the corporate law of the
State of Delaware. All other questions concerning the construction, validity
and interpretation of, and the performance of the obligations imposed by, this
Agreement shall be governed by and construed in accordance with the laws of the
State of California.
22. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument.
23. SUBSEQUENT PARTIES. The Corporation may permit any employee,
------------------
officer or director of the Corporation who hereafter owns, directly or
indirectly, two percent (2%) or more of the outstanding securities of the
Corporation (on a fully diluted basis) to become a party to this Agreement as a
Founder and a Holder of Founders' Shares provided such employee, officer or
director agrees by written consent to be bound by the terms of this Agreement in
such capacity as though he or she were an original signatory hereto. For
purposes of this Agreement, a Person will be deemed to be a holder of securities
whenever such Person holds a security exercisable for a convertible into Common
Stock, whether or not such exercise or conversion has actually been
-14-
<PAGE>
effected and whether or not such security is then exercisable. Upon the
delivery to the Corporation of such written consent, such officer or employee
shall be bound by and entitled to the benefits of this Agreement in such
capacity.
-15-
<PAGE>
This Registration Agreement was executed on the date first set forth above.
OPTIKA IMAGING SYSTEMS, INC.
By:____________________________________________
Title:_________________________________________
LMC PURCHASE LIMITED PARTNERSHIP
By:___________________________________________
a General Partner
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company, its General Partner
By:____________________________________________
a General Partner
JMI EQUITY FUND, L.P.
By: JMI Partners, L.P., its General Partner
By:____________________________________________
a General Partner
_______________________________________________
PAUL CARTER
_______________________________________________
HARVEY L. JEANE
_______________________________________________
MALCOLM D. THOMSON
_______________________________________________
STEVEN JOHNSON
_______________________________________________
MARK RUPORT
<PAGE>
_______________________________________________
LINDA E. BOGUSLAV
_______________________________________________
LISA M. HARDIMAN
_______________________________________________
RUSSELL A. JOHNSON
_______________________________________________
JAMES T. SCHUSTER
_______________________________________________
DAVID HOLZMAN
_______________________________________________
RICHARD HOLZMAN
_______________________________________________
KEVIN ILSEN
_______________________________________________
ERIC BROWN
IPRS ASIA (S) PTE LTD
By:____________________________________________
Title:_________________________________________
INTUIT DEVELOPMENT LIMITED
By:____________________________________________
Title:_________________________________________
GILLESPIE LIMITED
By:____________________________________________
Title:_________________________________________
<PAGE>
SCHEDULE 1
SCHEDULE OF SERIES B AND C INVESTORS
Frontenac VI Limited Partnership
JMI Equity Fund, L.P.
<PAGE>
SCHEDULE 2
SCHEDULE OF SERIES A INVESTORS
LMC Purchase Limited Partnership
<PAGE>
SCHEDULE 3
SCHEDULE OF FOUNDERS
Paul Carter
Harvey Jeane
Malcolm Thomson
Steven Johnson
Mark Ruport
Linda E. Boguslav
Lisa M. Hardiman
Russell A. Johnson
James T. Schuster
David Holzman
Richard Holzman
Kevin Ilsen
Eric Brown
IPRS Asia (s) Pte Ltd
Intuit Development Limited
Gillespie Limited
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
FIRST AMENDMENT
TO THE
AMENDED AND RESTATED
REGISTRATION AGREEMENT DATED NOVEMBER 22, 1995
This First Amendment ("First Amendment") to the Amended and Restated
Registration Agreement dated November 22, 1995 is dated as of this 6th day of
May 1996, by and among Optika Imaging Systems, Inc. (the "Company"), the
undersigned Holders of Investors' Shares (the "Investors") and the undersigned
Holders of Founders' Shares.
WHEREAS, the Company and the holders of Investors' Shares and
Founders' Shares are parties to that certain Amended and Restated Registration
Agreement dated as of November 22, 1995 (the "Registration Agreement");
WHEREAS, Section 13 of the Registration Agreement provides that in
certain circumstances the Registration Agreement may be amended by the written
consent of the Company, the holders of at least seventy percent (70%) of the
Investors' Shares and holders of a majority of the Founders' Shares then
outstanding;
WHEREAS, in connection with the Company's initial public offering of
shares of its Common Stock (the "Offering"), the undersigned deem it desirable
to enter into this First Amendment.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual premises and covenants contained in this First Amendment, the parties
hereto agree as follows:
1. Section 1(g) of the Registration Agreement is hereby amended and
restated in its entirety to read as follows:
"(g) "Founders' Shares" means (unless otherwise set forth in the
underlying transfer documentation) at any time (i) any shares of Common Stock
then outstanding and held by any Founder or, with respect to shares of Common
Stock previously held by a Founder, a transferee of such Founder who consents to
be bound by this Agreement; (ii) any shares of Common Stock then outstanding
that were issued upon exercise of the Options; (iii) any shares of Common Stock
then issuable upon exercise of the Options; (iv) any shares of Common Stock then
outstanding which were issued as, or were issued directly or indirectly upon the
conversion or exercise of other securities issued as, a dividend or other
distribution with respect to or in replacement of other Founders' Shares; (v)
any shares of Common Stock issued or issuable upon the exercise of existing
options to the securityholders of TEAMWorks Technologies, Inc., a Massachusetts
corporation ("TEAMWorks"), in connection with the merger of Optika Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of the Corporation,
with and into TEAMWorks;
1
<PAGE>
(vi) any shares of Common Stock then issuable directly or indirectly upon the
conversion or exercise of other securities issued as a dividend or other
distribution with respect to or in replacement of the securities issued or
issuable to the TEAMWorks securityholders; (vii) any shares of Common Stock
issued or issuable to the Affiliate Companies (as herein defined) or to
individuals providing services to such Affiliate Companies pursuant to direct
issuances or upon the exercise of Common Stock Options; (viii) any shares of
Common Stock then issuable directly or indirectly upon the conversion or
exercise of other securities issued as a dividend or other distribution with
respect to or in replacement of the securities issued or issuable to the
Affiliate Companies or to individuals providing services to such Affiliate
Companies and (ix) any shares of Common Stock then issuable directly or
indirectly upon the conversion or exercise of other securities which were issued
as a dividend or other distribution with respect to or in replacement of other
Founders' Shares; provided, that Founders' Shares shall not include any shares
the sale of which has been registered pursuant to the Securities Act or sold to
the public pursuant to Rule 144 promulgated by the Commission under the
Securities Act. For purposes of this Agreement, a Person will be deemed to be a
Holder of Founders' Shares whenever such Person holds a security exercisable for
or convertible into such Founders' Shares, whether or not such exercise or
conversion has actually been effected. For purposes of this Agreement,
"Affiliate Companies" shall include companies or persons with which the
Corporation has agreed to provide Common Stock pursuant to the affiliate company
partnership program approved by the Board of Directors of the Corporation."
2. Section 1(i) of the Registration Agreement is hereby amended and
restated in its entirety to read as follows:
"(i) "Investors' Shares" means (unless otherwise set forth in the
underlying transfer documentation) at any time (i) any shares of Common Stock
then outstanding that were issued upon conversion of the Series C Shares, Series
B Shares or Series A Shares; (ii) any shares of Common Stock then issuable upon
conversion of the Series C Shares, Series B Shares or Series A Shares; (iii)
shares of Common Stock acquired by an Investor from a Founder; (iv) any shares
of Common Stock then outstanding which were issued as, or were issued directly
or indirectly upon the conversion or exercise of other securities issued as, a
dividend or other distribution with respect to or in replacement of other
Investors' Shares; and (v) any shares of Common Stock then issuable directly or
indirectly upon the conversion or exercise of other securities which were issued
as a dividend or other distribution with respect to or in replacement of other
Investors' Shares; provided, that Investors' Shares shall not include any shares
the sale of which has been registered pursuant to the Securities Act or sold to
the public pursuant to Rule 144 promulgated by the Commission under the
Securities Act. For purposes of this Agreement, a person will be deemed to be a
Holder of Investors' Shares whenever such Person holds a security exercisable
for or convertible into such Investors' Shares, whether or not such exercise or
conversion has actually been effected."
3. Section 3(b)(ii) of the Registration Agreement is hereby amended
and restated in its entirety to read as follows:
2
<PAGE>
"(ii) If a Piggyback Registration is an underwritten registration on
behalf of the Corporation which is the IPO and the managing underwriters advise
the Corporation in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without having a material adverse effect on the offering,
the Corporation will include in such registration only that number of such
Registrable Shares which the underwriters determine in their sole discretion
will not jeopardize the success of the offering (the securities so included to
be apportioned pro rata among the selling shareholders according to the total
amount of securities entitled to be included therein owned by each selling
shareholder or, if a majority of the disinterested members of the Board of
Directors of the Corporation, excluding any directors who may be selling
shareholders or affiliated with any selling shareholders, determine in good
faith after consultation with the underwriters that an allocation of the selling
shareholders' securities otherwise than as previously set forth in this Section
3(b)(ii) is appropriate, then the securities so included shall be apportioned
among such selling shareholders in the manner approved by a majority of the
disinterested members of the Board of Directors, excluding any directors who may
be selling shareholders or affiliated with any selling shareholder); provided,
however, that the Chiocchi Shares shall have a priority in registration pursuant
to this Section 3(b)(ii) for any or all of such shares requested to be
registered in such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling shareholder which is a holder of
Registrable Shares and which is a partnership or corporation, the partners,
retired partners and shareholders of such holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling
shareholder," and any pro rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence."
4. Section 4 of the Registration Agreement is hereby amended and
restated in its entirety to read as follows:
"(a) Each of the Holders of Registrable Shares agrees not to effect
any public sale or distribution of equity securities of the Corporation,
including any public sale pursuant to Rule 144 under the Securities Act, or any
securities convertible into or exchangeable or exercisable for such securities,
during the period (i) commencing seven days prior to and ending one hundred
eighty days after the effective date of the IPO (except as part of such
underwritten registration), unless the underwriters managing the registered
public offering otherwise agree or (ii) commencing thirty days prior to and
ending ninety days after the effective date of any underwritten Demand
Registration or underwritten Piggyback Registration effective after the IPO
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering otherwise agree.
(b) The Corporation agrees (i) not to effect any public sale of its
equity securities including any public sale pursuant to Rule 144 under the
Securities Act, or any securities convertible into or exchangeable or
exercisable for such securities, during the period commencing thirty days prior
to and ending ninety days after the effective date of
3
<PAGE>
any underwritten Demand Registration or any underwritten Piggyback Registration
effective after the IPO (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the offering otherwise agree, and (ii) to use its best
efforts to cause each holder of at least 5% (on a fully-diluted basis) of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, purchased from the Corporation at any time
after the date of this Agreement but prior to the IPO to agree not to effect any
public sale of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the offering otherwise agree."
5. Except as expressly set forth herein, all of the terms and
provisions of the Registration Agreement shall remain unmodified and in full
force and effect, and the Registration Agreement shall be read together and
construed with the applicable sections of this First Amendment.
6. The undersigned Holder hereby waives any and all rights to anti-
dilution price protection that may arise under the Company's Amended and
Restated Articles of Incorporation as a result of the grant of options for the
purchase of Common Stock (and related issuances of Common Stock) between the
closing of the Company's Series C financing and the Offering at an exercise
price of less than $3.99. The undersigned also consents to the grant of such
options (and related issuances) notwithstanding Section 10(a)(vi) of the
Shareholder's Agreement.
7. This First Amendment may be executed in several counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
8. Capitalized terms used but not otherwise defined herein shall have
the meaning ascribed to them in the Registration Agreement.
9. Each signatory to this First Amendment shall be bound by all of
the provisions of the Registration Agreement as well as all of the provisions of
this First Amendment.
10. Each signatory to this First Amendment agrees that the only
registration rights legally effective and binding upon the Holders and the
Company are as set forth in the Registration Agreement as modified by the First
Amendment.
11. This Amendment shall be governed by and construed under the laws
of the State of California.
12. Each signatory consents to the creation of a subsidiary of the
Corporation to effect the Delaware reincorporation.
4
<PAGE>
13. The undersigned also acknowledge and agree that the Offering does
not constitute a "Change in Ownership" or a "Fundamental Change" as such terms
are defined in the Corporation's Amended and Restated Articles of Incorporation.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
as of the day and year first above written.
OPTIKA IMAGING SYSTEMS, INC.
By:
-----------------------------------------
Steven M. Johnson
Vice President and Chief Financial Officer
HOLDER:
--------------------------------------------
(Print Name of Holder)
--------------------------------------------
(Signature)
By:
-----------------------------------------
(Name and title of signatory, if non-natural person)
6
<PAGE>
NEITHER THIS WARRANT NOR THE UNDERLYING SHARES OF COMMON STOCK HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION
OF COUNSEL TO THE HOLDER SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
No. WCS-2 Date: November 1, 1995
NON-NEGOTIABLE WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
OPTIKA IMAGING SYSTEMS, INC.
This warrant (this "Warrant") certifies that, for value received,
Lynne Leahy ("Holder") is entitled, subject to the terms set forth below, to
purchase from OPTIKA IMAGING SYSTEMS, INC., a California corporation (the
"Company"), Forty-seven Thousand Five Hundred (47,500) shares of Common Stock of
the Company, upon surrender hereof at the principal office of the Company
together with the Restricted Stock Purchase Agreement attached as Exhibit A
---------
hereto, duly executed by Holder and Holder's spouse, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price (as defined in Section 2 hereof). The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below.
1. Term of Warrant. Subject to the terms and conditions set forth
---------------
herein, this Warrant shall become exercisable on the date hereof and shall
remain exercisable until 5:00 p.m. P.S.T. on the date that is five years after
the date hereof, unless sooner exercised.
2. Exercise Price. The exercise price at which this Warrant may be
--------------
exercised shall be $1.875 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof (the "Exercise Price").
3. Exercise of Warrant.
-------------------
(a) Subject to the terms of this Warrant, the purchase rights
represented by this Warrant are exercisable by Holder but not for fewer than One
Thousand (1,000)
<PAGE>
shares at a time (or such lesser number of shares which may then constitute the
maximum number purchasable; such number being subject to adjustment as provided
in Section 11 below), during the Warrant Term and period of exercisability by
surrender of the original executed Warrant and the Restricted Stock Purchase
Agreement attached as Exhibit A hereto, duly completed and executed on behalf of
---------
Holder and Holder's spouse, at the principal office of the Company, upon payment
(i) in cash or by check acceptable to the Company, (ii) by cancellation by
Holder of indebtedness of the Company to Holder, (iii) by a combination of (i)
and (ii) above or (iv) in shares as set forth in Section 3(b) below, of the
purchase price of the shares to be purchased.
(b) In lieu of exercising this Warrant by paying the purchase price of
the shares to be purchased in cash, by check or by cancellation of indebtedness
as set forth in Sections 3(a)(i), 3(a)(ii) and 3(a)(iii) above, the Holder may
elect to receive shares equal to the value of this Warrant (or the portion
thereof being cancelled) by surrender of this Warrant and the attached Notice of
Exercise, duly completed and executed on behalf of the Holder, at the principal
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common Stock to be issued to
Holder pursuant to this Section 3(b);
Y = The number of shares of Common Stock purchasable under this
Warrant;
A = The fair market value of one share of Common Stock; and
B = The Exercise Price per share (as adjusted to the date of such
calculations).
For purposes of this Section 3(b), the fair market value per
share shall be determined as follows:
(i) While the Company is privately held, the fair market value
of one share of the Company's Common Stock shall be the fair market value of
such share as determined in good faith by the Board of Directors of the
Company; and
2
<PAGE>
(ii) If the Company's Common Stock is traded on a securities
exchange or through the Nasdaq National Market, the fair market value of one
share of the Company's Common Stock shall be deemed to be the closing price
for one share of Common Stock on such exchange on the date of exercise;
provided, however, that if the date of exercise is not a trading day, then the
fair market value of one share of Common Stock shall be deemed to be the
closing price for one share of Common Stock on such exchange on the immediately
succeeding trading day.
(c) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and Holder shall be treated for all purposes as holder of record
of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten days thereafter,
the Company at its expense shall issue and deliver to Holder a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will execute
and deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company shall, at Holder's expense, execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
6. Rights of Shareholders. Subject to the terms of this Warrant, Holder
----------------------
shall not be entitled to vote or receive dividends or be deemed Holder of Common
Stock or any other securities of the Company that may at any time be issuable on
the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon Holder, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, conveyance or otherwise) or to receive notice
of meetings or to receive dividends or subscription rights or otherwise until
the Warrant shall have been exercised and the shares of Common Stock purchasable
upon the exercise hereof shall have been issued, as provided herein.
3
<PAGE>
7. Transfer of Warrant.
-------------------
(a) Warrant Register. The Company will maintain a register (the
----------------
"Warrant Register") containing the name and address of Holder. Holder may
change Holder's address as shown on the Warrant Register by written notice to
the Company requesting such change. Any notice or written communication
required or permitted to be given to Holder may be delivered or given by mail to
such Holder as shown on the Warrant Register and at the address shown on the
Warrant Register. The Company may treat Holder as shown on the Warrant Register
as the absolute owner of this Warrant for all purposes, notwithstanding any
notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to Holder,
-------------
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange or replacement shall be made at the office of such agent.
(c) Non-Negotiability of Warrant. This Warrant may not be transferred
----------------------------
or assigned by Holder, in whole or in part, directly or indirectly, by operation
of law, and any such purported transfer or assignment shall be null and void.
8. Compliance with Securities Laws; Representations of Holder.
----------------------------------------------------------
(a) Holder has the full right, power and authority to execute this
Warrant and to perform Holder's obligations hereunder. This Warrant has been
duly and validly executed and delivered by Holder and constitutes a valid and
binding obligation of Holder, enforceable against such Holder in accordance with
its terms.
(b) This Warrant and the issuance and sale of the Common Stock upon
exercise hereof (the "Securities") are made in reliance upon Holder's
representation to the Company, evidenced by Holder's execution of this Warrant,
that Holder is acquiring the Securities for investment for Holder's own account,
not as nominee or agent, and not with a view to, or for resale in connection
with any distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "Act).
(c) Holder understands and acknowledges that the offering of the
Securities pursuant to this Warrant will not be registered under the Act on the
grounds that the offering and sale of Securities are exempt from registration
under the Act pursuant to Section 4(2) or Regulation D thereof and exempt from
registration under the applicable state securities or blue sky laws, and that
the Company's reliance upon such exemptions is predicated upon Holder's
representations set forth in this Warrant. Holder acknowledges and understands
that the Securities must be held indefinitely unless the Securities are
subsequently registered under the Act and qualified under the
4
<PAGE>
applicable state securities or blue sky law or an exemption from such
registration and such qualification is available.
(d) Holder covenants that in no event will Holder dispose of any of
the Securities (other than in conjunction with an effective registration
statement for the Securities under the Act or in compliance with Rule 144
promulgated under the Act) unless and until (i) Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition and the
Company shall have consented to such transfer, and (ii) Holder shall have
furnished the Company, at Holder's expense, with an opinion of counsel
reasonably satisfactory in form and substance to the Company to the effect that
(x) such disposition will not require registration under the Act and (y)
appropriate action necessary for compliance with the Act and any other
applicable state, local or foreign law has been taken.
(e) Holder (i) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of Holder's
prospective investment in the Securities and of protecting Holder's own
interests in connection with such investment; (ii) has the ability to bear the
economic risks of Holder's prospective investment; (iii) has been furnished with
by the Company and has had access to such information of the Company as Holder
has considered necessary to make a determination as to the purchase of the
Securities together with such additional information of the Company as Holder
has deemed necessary to verify the accuracy of the information supplied by the
Company; (iv) has had all questions which have been asked by Holder answered by
the Company; (v) has a preexisting personal or business relationship with the
Company or one or more of its officers, directors or controlling persons such
that Holder is aware of the character, business acumen and general business and
financial circumstances of the person with whom such relationship exists; and
(vi) has not been offered the Securities by any form of advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any such media. Holder is an "accredited
investor" and understands the meaning of such term as it is defined under the
Act. Holder has not relied upon any information of the Company in evaluating an
investment in the Company except such information that has been provided in
writing by the Company directly to Holder about the business of the Company.
(f) Holder understands that if the Company does not (i) register its
Common Stock with the Securities and Exchange Commission ("SEC") pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (ii) become subject to Section 15(d) of the Exchange Act or (iii) supply
information pursuant to Rule 15c2-11 thereunder, Holder may be required to hold
the Securities for an indeterminate period. Holder also understands that any
sale of the Securities that might
5
<PAGE>
be made by Holder in reliance upon Rule 144 under the Act may be made only in
limited amounts in accordance with the terms and conditions of that rule.
9. Reservation of Stock. The Company covenants at all times that during
--------------------
the Warrant Term, the Company will reserve from its authorized and unissued
shares of Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its articles of incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of this
Warrant.
10. Amendments. This Warrant may be amended only with the written consent
----------
of the Company and Holder. No waivers of or exceptions to any term, condition
or provision of this Warrant, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
11. Adjustments. The Exercise Price and the number of shares purchasable
-----------
hereunder are subject to adjustment from time to time as follows:
(a) Reclassification, etc. If the Company at any time while this
---------------------
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided herein.
(b) Split, Subdivision or Combination of Shares. If the Company at
-------------------------------------------
any time while this Warrant, or any portion hereof, remains outstanding and
unexpired shall split (including a stock split effected by way of a stock
dividend), subdivide or combine the securities as to which purchase rights under
this Warrant exist, into a different number of securities of the same class, the
Exercise Price for such securities shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination.
(c) Certificate as to Adjustments. The Company shall, upon the
-----------------------------
written request, at any time, of Holder, furnish or cause to be furnished to
Holder a certificate setting forth: (i) such adjustments and readjustments; (ii)
the Exercise Price at the time in effect; and (iii) the number of shares and the
amount, if any, of other property which at the time would be received upon the
exercise of the Warrant.
6
<PAGE>
(d) Notice. If the Company at any time while this Warrant, or any
------
portion hereof, remains outstanding and unexpired shall enter into a
consolidation or merger with or into any other corporation or corporations or a
sale, conveyance or disposition of all or substantially all of the assets of the
Company, then the Company shall furnish to Holder notification of such impending
consolidation, merger or sale of assets at least thirty (30) days prior to the
consummation of such consolidation, merger or sale of assets.
12. Miscellaneous.
-------------
(a) This Warrant shall be governed by the laws of the State of
California (other than the law of conflicts) as applied to agreements among
California residents made and to be performed entirely within the State of
California.
(b) The terms and provisions of this Warrant shall inure to the
benefit of, and be binding upon, the Company and its successors and assigns.
This Warrant may not be transferred to any third party without the prior written
consent of the Company.
(c) Each party hereto agrees, as a material inducement to every other
party, that any action to enforce this Warrant, or any dispute, claim or
controversy hereunder, must be brought before and determined by the Judicial
Arbitration and Mediation Services ("JAMS") having its situs within the County
of Los Angeles, State of California, and no other tribunal. A single arbitrator
shall be chosen by the parties from the panel of retired California Superior
Court Judges then maintained by JAMS. The chosen arbitrator shall be
knowledgeable and experienced in matters involving business litigation. If the
parties cannot mutually agree on the retired Judge who will hear the matter, the
retired Judge shall be appointed by random selection by a representative of JAMS
from its panel of retired Judges. The appointed arbitrator shall have all legal
and equitable powers including, but not limited to, the ability to issue
injunctive relief. The arbitrator shall decide any such dispute in accordance
with the then applicable commercial rules of JAMS. The decision, ruling and/or
award of the arbitrator shall be final and shall not be subject to judicial
review, except as provided in California Code of Civil Procedure (S)1286.2 and
----------------------------------
provided, however, that any award, ruling or determination rendered by the
arbitrator may be enforced in any court of competent jurisdiction in accordance
with California Code of Civil Procedure (S)1285 et. seq. The prevailing party
----------------------------------
in such arbitration shall be entitled to recover its attorneys' fees and costs
of suit. The costs of arbitration shall be made a part of the arbitrator's
award.
(d) Holder agrees to keep all information about the Company and its
affiliates confidential and understands and acknowledges that all information
about the Company and its affiliates is confidential and proprietary to the
Company.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Warrant as of
the day and year first above written.
COMPANY:
OPTIKA IMAGING SYSTEMS, INC.
By:
----------------------------------------------
Title:
-------------------------------------------
ACCEPTED AND AGREED:
HOLDER
- -----------------------------------
Lynne Leahy
Address: --------------------------
--------------------------
---------------------------
8
<PAGE>
EXHIBIT A
RESTRICTED STOCK PURCHASE AGREEMENT
<PAGE>
NEITHER THIS WARRANT NOR THE UNDERLYING SHARES OF COMMON STOCK HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION
OF COUNSEL TO THE HOLDER SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
No. WCS-1 Date: November 1, 1995
NON-NEGOTIABLE WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
OPTIKA IMAGING SYSTEMS, INC.
This warrant (this "Warrant") certifies that, for value received, Judy
Citarrella ("Holder") is entitled, subject to the terms set forth below, to
purchase from OPTIKA IMAGING SYSTEMS, INC., a California corporation (the
"Company"), Forty-seven Thousand Five Hundred (47,500) shares of Common Stock of
the Company, upon surrender hereof at the principal office of the Company
together with the Restricted Stock Purchase Agreement attached as Exhibit A
---------
hereto, duly executed by Holder and Holder's spouse, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price (as defined in Section 2 hereof). The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below.
1. Term of Warrant. Subject to the terms and conditions set forth
---------------
herein, this Warrant shall become exercisable on the date hereof and shall
remain exercisable until 5:00 p.m. P.S.T. on the date that is five years after
the date hereof, unless sooner exercised.
2. Exercise Price. The exercise price at which this Warrant may be
--------------
exercised shall be $1.875 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof (the "Exercise Price").
3. Exercise of Warrant.
-------------------
(a) Subject to the terms of this Warrant, the purchase rights
represented by this Warrant are exercisable by Holder but not for fewer than One
Thousand (1,000)
<PAGE>
shares at a time (or such lesser number of shares which may then constitute the
maximum number purchasable; such number being subject to adjustment as provided
in Section 11 below), during the Warrant Term and period of exercisability by
surrender of the original executed Warrant and the Restricted Stock Purchase
Agreement attached as Exhibit A hereto, duly completed and executed on behalf of
---------
Holder and Holder's spouse, at the principal office of the Company, upon payment
(i) in cash or by check acceptable to the Company, (ii) by cancellation by
Holder of indebtedness of the Company to Holder, (iii) by a combination of (i)
and (ii) above or (iv) in shares as set forth in Section 3(b) below, of the
purchase price of the shares to be purchased.
(b) In lieu of exercising this Warrant by paying the purchase price of
the shares to be purchased in cash, by check or by cancellation of indebtedness
as set forth in Sections 3(a)(i), 3(a)(ii) and 3(a)(iii) above, the Holder may
elect to receive shares equal to the value of this Warrant (or the portion
thereof being cancelled) by surrender of this Warrant and the attached Notice of
Exercise, duly completed and executed on behalf of the Holder, at the principal
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:
Y (A - B)
---------
X = A
Where: X = The number of shares of Common Stock to be issued to
Holder pursuant to this Section 3(b);
Y = The number of shares of Common Stock purchasable under this
Warrant;
A = The fair market value of one share of Common Stock; and
B = The Exercise Price per share (as adjusted to the date of such
calculations).
For purposes of this Section 3(b), the fair market value per
share shall be determined as follows:
(i) While the Company is privately held, the fair market value
of one share of the Company's Common Stock shall be the fair market value of
such share as determined in good faith by the Board of Directors of the
Company; and
2
<PAGE>
(ii) If the Company's Common Stock is traded on a securities
exchange or through the Nasdaq National Market, the fair market value of one
share of the Company's Common Stock shall be deemed to be the closing price
for one share of Common Stock on such exchange on the date of exercise;
provided, however, that if the date of exercise is not a trading day, then the
fair market value of one share of Common Stock shall be deemed to be the
closing price for one share of Common Stock on such exchange on the immediately
succeeding trading day.
(c) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and Holder shall be treated for all purposes as holder of record
of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten days thereafter,
the Company at its expense shall issue and deliver to Holder a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will execute
and deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company shall, at Holder's expense, execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
6. Rights of Shareholders. Subject to the terms of this Warrant, Holder
----------------------
shall not be entitled to vote or receive dividends or be deemed Holder of Common
Stock or any other securities of the Company that may at any time be issuable on
the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon Holder, as such, any of the rights of a shareholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, conveyance or otherwise) or to receive notice
of meetings or to receive dividends or subscription rights or otherwise until
the Warrant shall have been exercised and the shares of Common Stock purchasable
upon the exercise hereof shall have been issued, as provided herein.
3
<PAGE>
7. Transfer of Warrant.
-------------------
(a) Warrant Register. The Company will maintain a register (the
----------------
"Warrant Register") containing the name and address of Holder. Holder may
change Holder's address as shown on the Warrant Register by written notice to
the Company requesting such change. Any notice or written communication
required or permitted to be given to Holder may be delivered or given by mail to
such Holder as shown on the Warrant Register and at the address shown on the
Warrant Register. The Company may treat Holder as shown on the Warrant Register
as the absolute owner of this Warrant for all purposes, notwithstanding any
notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to Holder,
-------------
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange or replacement shall be made at the office of such agent.
(c) Non-Negotiability of Warrant. This Warrant may not be transferred
----------------------------
or assigned by Holder, in whole or in part, directly or indirectly, by operation
of law, and any such purported transfer or assignment shall be null and void.
8. Compliance with Securities Laws; Representations of Holder.
----------------------------------------------------------
(a) Holder has the full right, power and authority to execute this
Warrant and to perform Holder's obligations hereunder. This Warrant has been
duly and validly executed and delivered by Holder and constitutes a valid and
binding obligation of Holder, enforceable against such Holder in accordance with
its terms.
(b) This Warrant and the issuance and sale of the Common Stock upon
exercise hereof (the "Securities") are made in reliance upon Holder's
representation to the Company, evidenced by Holder's execution of this Warrant,
that Holder is acquiring the Securities for investment for Holder's own account,
not as nominee or agent, and not with a view to, or for resale in connection
with any distribution or public offering thereof within the meaning of the
Securities Act of 1933, as amended (the "Act).
(c) Holder understands and acknowledges that the offering of the
Securities pursuant to this Warrant will not be registered under the Act on the
grounds that the offering and sale of Securities are exempt from registration
under the Act pursuant to Section 4(2) or Regulation D thereof and exempt from
registration under the applicable state securities or blue sky laws, and that
the Company's reliance upon such exemptions is predicated upon Holder's
representations set forth in this Warrant. Holder acknowledges and understands
that the Securities must be held indefinitely unless the Securities are
subsequently registered under the Act and qualified under the
4
<PAGE>
applicable state securities or blue sky law or an exemption from such
registration and such qualification is available.
(d) Holder covenants that in no event will Holder dispose of any of
the Securities (other than in conjunction with an effective registration
statement for the Securities under the Act or in compliance with Rule 144
promulgated under the Act) unless and until (i) Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the proposed disposition and the
Company shall have consented to such transfer, and (ii) Holder shall have
furnished the Company, at Holder's expense, with an opinion of counsel
reasonably satisfactory in form and substance to the Company to the effect that
(x) such disposition will not require registration under the Act and (y)
appropriate action necessary for compliance with the Act and any other
applicable state, local or foreign law has been taken.
(e) Holder (i) has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of Holder's
prospective investment in the Securities and of protecting Holder's own
interests in connection with such investment; (ii) has the ability to bear the
economic risks of Holder's prospective investment; (iii) has been furnished with
by the Company and has had access to such information of the Company as Holder
has considered necessary to make a determination as to the purchase of the
Securities together with such additional information of the Company as Holder
has deemed necessary to verify the accuracy of the information supplied by the
Company; (iv) has had all questions which have been asked by Holder answered by
the Company; (v) has a preexisting personal or business relationship with the
Company or one or more of its officers, directors or controlling persons such
that Holder is aware of the character, business acumen and general business and
financial circumstances of the person with whom such relationship exists; and
(vi) has not been offered the Securities by any form of advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any such media. Holder is an "accredited
investor" and understands the meaning of such term as it is defined under the
Act. Holder has not relied upon any information of the Company in evaluating an
investment in the Company except such information that has been provided in
writing by the Company directly to Holder about the business of the Company.
(f) Holder understands that if the Company does not (i) register its
Common Stock with the Securities and Exchange Commission ("SEC") pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (ii) become subject to Section 15(d) of the Exchange Act or (iii) supply
information pursuant to Rule 15c2-11 thereunder, Holder may be required to hold
the Securities for an indeterminate period. Holder also understands that any
sale of the Securities that might
5
<PAGE>
be made by Holder in reliance upon Rule 144 under the Act may be made only in
limited amounts in accordance with the terms and conditions of that rule.
9. Reservation of Stock. The Company covenants at all times that during
--------------------
the Warrant Term, the Company will reserve from its authorized and unissued
shares of Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its articles of incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of this
Warrant.
10. Amendments. This Warrant may be amended only with the written consent
----------
of the Company and Holder. No waivers of or exceptions to any term, condition
or provision of this Warrant, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
11. Adjustments. The Exercise Price and the number of shares purchasable
-----------
hereunder are subject to adjustment from time to time as follows:
(a) Reclassification, etc. If the Company at any time while this
---------------------
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided herein.
(b) Split, Subdivision or Combination of Shares. If the Company at
-------------------------------------------
any time while this Warrant, or any portion hereof, remains outstanding and
unexpired shall split (including a stock split effected by way of a stock
dividend), subdivide or combine the securities as to which purchase rights under
this Warrant exist, into a different number of securities of the same class, the
Exercise Price for such securities shall be proportionately decreased in the
case of a split or subdivision or proportionately increased in the case of a
combination.
(c) Certificate as to Adjustments. The Company shall, upon the
-----------------------------
written request, at any time, of Holder, furnish or cause to be furnished to
Holder a certificate setting forth: (i) such adjustments and readjustments; (ii)
the Exercise Price at the time in effect; and (iii) the number of shares and the
amount, if any, of other property which at the time would be received upon the
exercise of the Warrant.
6
<PAGE>
(d) Notice. If the Company at any time while this Warrant, or any
------
portion hereof, remains outstanding and unexpired shall enter into a
consolidation or merger with or into any other corporation or corporations or a
sale, conveyance or disposition of all or substantially all of the assets of the
Company, then the Company shall furnish to Holder notification of such impending
consolidation, merger or sale of assets at least thirty (30) days prior to the
consummation of such consolidation, merger or sale of assets.
12. Miscellaneous.
-------------
(a) This Warrant shall be governed by the laws of the State of
California (other than the law of conflicts) as applied to agreements among
California residents made and to be performed entirely within the State of
California.
(b) The terms and provisions of this Warrant shall inure to the
benefit of, and be binding upon, the Company and its successors and assigns.
This Warrant may not be transferred to any third party without the prior written
consent of the Company.
(c) Each party hereto agrees, as a material inducement to every other
party, that any action to enforce this Warrant, or any dispute, claim or
controversy hereunder, must be brought before and determined by the Judicial
Arbitration and Mediation Services ("JAMS") having its situs within the County
of Los Angeles, State of California, and no other tribunal. A single arbitrator
shall be chosen by the parties from the panel of retired California Superior
Court Judges then maintained by JAMS. The chosen arbitrator shall be
knowledgeable and experienced in matters involving business litigation. If the
parties cannot mutually agree on the retired Judge who will hear the matter, the
retired Judge shall be appointed by random selection by a representative of JAMS
from its panel of retired Judges. The appointed arbitrator shall have all legal
and equitable powers including, but not limited to, the ability to issue
injunctive relief. The arbitrator shall decide any such dispute in accordance
with the then applicable commercial rules of JAMS. The decision, ruling and/or
award of the arbitrator shall be final and shall not be subject to judicial
review, except as provided in California Code of Civil Procedure (S)1286.2 and
----------------------------------
provided, however, that any award, ruling or determination rendered by the
arbitrator may be enforced in any court of competent jurisdiction in accordance
with California Code of Civil Procedure (S)1285 et. seq. The prevailing party
----------------------------------
in such arbitration shall be entitled to recover its attorneys' fees and costs
of suit. The costs of arbitration shall be made a part of the arbitrator's
award.
(d) Holder agrees to keep all information about the Company and its
affiliates confidential and understands and acknowledges that all information
about the Company and its affiliates is confidential and proprietary to the
Company.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Warrant as of
the day and year first above written.
COMPANY:
OPTIKA IMAGING SYSTEMS, INC.
By:
---------------------------------------------
Title:
-------------------------------------------
ACCEPTED AND AGREED:
HOLDER
- -----------------------------------
Judy Citarrella
Address:
---------------------------
---------------------------
---------------------------
8
<PAGE>
EXHIBIT A
RESTRICTED STOCK PURCHASE AGREEMENT
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of
this ___ day of ________________, 1996 by and between Optika Imaging Systems,
Inc., a Delaware corporation (the "Company"), and ______________________ (the
"Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees,
controlling persons, agents and fiduciaries, the significant increases in the
cost of such insurance and the general reductions in the coverage of such
insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, controlling persons, agents and fiduciaries to expensive litigation
risks at the same time as the availability and coverage of liability insurance
has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, controlling persons, agents and fiduciaries of the Company
may not be willing to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain the involvement of
highly qualified individuals, such as Indemnitee, to serve the Company and, in
part, in order to induce Indemnitee to be involved with the Company and (ii)
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as
follows:
1. Indemnification.
---------------
a. Indemnification of Expenses. The Company shall indemnify
---------------------------
and hold harmless Indemnitee (including its respective directors, officers,
partners,
<PAGE>
employees, agents and spouses) and each person who controls any of them or who
may be liable within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "Securities Act"), or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") to the fullest extent permitted by law if
Indemnitee was or is or becomes a party to or witness or other participant in,
or is threatened to be made a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
believes might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, controlling person, agent or
fiduciary of the Company, or any subsidiary of the Company, or is or was serving
at the request of the Company as a director, officer, employee, controlling
person, agent or fiduciary of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity including, without limitation, any and
all losses, claims, damages, expenses and liabilities, joint or several
(including any investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit, proceeding or any
claim asserted) under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise, which relate
directly or indirectly to the registration, purchase, sale or ownership of any
securities of the Company or to any fiduciary obligation owed with respect
thereto (hereinafter an "Indemnification Event") against any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurred in connection with investigating, defending a witness in or
participating in (including on appeal), or preparing to defend, be a witness in
or participate in, any such action, suit, proceeding, alternative dispute
resolution mechanism, hearing, inquiry or investigation), judgments, fines,
penalties and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than five days after written demand by the Indemnitee
therefor is presented to the Company.
b. Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) and Indemnitee
acknowledges and agrees that
2.
<PAGE>
the obligation of the Company to make an advance payment of Expenses to
Indemnitee pursuant to Section 2(a) (an "Expense Advance") shall be subject to
the condition that, if, when and to the extent that the Reviewing Party
determines that Indemnitee would not be permitted to be so indemnified under
applicable law, the Company shall be entitled to be reimbursed by Indemnitee
(who hereby agrees to reimburse the Company) for all such amounts theretofore
paid; provided, however, that if Indemnitee has commenced or thereafter
commences legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be permitted
to be indemnified under applicable law shall not be binding and Indemnitee shall
not be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed). Indemnitee's obligation to
reimburse the Company for any Expense Advance shall be unsecured and no interest
shall be charged thereon. If there has not been a Change in Control (as defined
in Section 10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel referred to in Section
1(c) hereof. If there has been no determination by the Reviewing Party or if
the Reviewing Party determines that Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by the Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and the Company
hereby consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
c. Contribution. If the indemnification provided for in Section 1(a)
------------
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
Indemnitee thereunder, shall contribute to the amount paid or payable by
Indemnitee as a result of such losses, claims, damages, expenses or liabilities
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Indemnitee, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Indemnitee in
connection with the action or inaction which resulted in such losses, claims,
damages, expenses or liabilities, as well as any other relevant equitable
considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitee
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the
3.
<PAGE>
table on the cover page of the applicable prospectus, bear to the aggregate
public offering price of the securities so offered. The relative fault of the
Company and the Indemnitee shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Indemnitee and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Indemnitee agree that it would not be just and
equitable if contribution pursuant to this Section 1(c) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall an Indemnitee be required to contribute any amount
under this Section 1(c) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal
to the proportion of the total securities sold under such registration statement
which is being sold by Indemnitee or (ii) the proceeds received by Indemnitee
from its sale of securities under such registration statement. No person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not found guilty of such fraudulent misrepresentation.
d. Survival Regardless of Investigation. The indemnification and
------------------------------------
contribution provided for in this Section 1 will remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnitee or any
officer, director, employee, agent or controlling person of the Indemnitee.
e. Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
under this Agreement or any other agreement or under the Company's Certificate
of Incorporation or Bylaws as now or hereafter in effect, Independent Legal
Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to abide
by such opinion and to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
4.
<PAGE>
f. Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement, to the extent that Indemnitee have been successful
on the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in the defense of any action, suit, proceeding,
inquiry or investigation referred to in Section 1(a) hereof or in the defense of
any claim, issue or matter therein, Indemnitee shall be indemnified against all
Expenses incurred by Indemnitee in connection herewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
a. Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
b. Notice/Cooperation by Indemnitee. Indemnitee shall give the
--------------------------------
Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee).
c. No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in each of the policies. The Company shall
thereafter take all
5.
<PAGE>
necessary or desirable action to cause such insurers to pay, on behalf of
Indemnitee, all amounts payable as a result of such action, suit, proceeding,
inquiry or investigation in accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim, with counsel approved by the applicable
Indemnitee, upon the delivery to Indemnitee of written notice of its election to
do so. After delivery of such notice, approval of such counsel by the Indemnitee
and the retention of such counsel by the Company, the Company will not be liable
to Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee
shall have the right to employ Indemnitee's counsel in any such Claim at the
Indemnitee's expense and (ii) if (A) the employment of counsel by the Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there is a conflict of interest between the Company
and Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of the Indemnitee's counsel shall be at the expense of the Company. The Company
shall have the right to conduct such defense as it sees fit in its sole
discretion, including the right to settle any claim against Indemnitee without
the consent of Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
a. Scope. The Company hereby agrees to indemnify Indemnitee to the
-----
fullest extent permitted by law, even if such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change after the date of this Agreement in any applicable law, statute or
rule which expands the right of a Delaware corporation to indemnify a member of
its Board of Directors or an officer, employee, controlling person, agent or
fiduciary, it is the intent of the parties hereto that Indemnitee shall enjoy by
this Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
b. Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Amended and Restated Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification
provided under this
6.
<PAGE>
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though the Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Amended and Restated Certificate of Incorporation,
Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for any portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
6. Mutual Acknowledgement. The Company and Indemnitee acknowledge
----------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, controlling
persons, agents or fiduciaries under this Agreement or otherwise. Indemnitee
understands and acknowledges that the Company has undertaken or may be required
in the future to undertake with the Securities and Exchange Commission to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's rights under public policy to indemnify the
Indemnitee.
7. Liability Insurance. To the extent the Company maintains
-------------------
liability insurance applicable to directors, officers, employees, control
persons, agents or fiduciaries, Indemnitee shall be covered by such policies in
such a manner as to provide Indemnitee the same rights and benefits as are
accorded to the most favorably insured of the Company's directors, if Indemnitee
is a director, or of the Company's officers, if Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, controlling
persons, agents or fiduciaries, if Indemnitee is not an officer or director but
is a key employee, agent, control person, or fiduciary.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
a. Claims Initiated by Indemnitee. To indemnify or advance
------------------------------
expenses to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings to establish or enforce a right to indemnify under this Agreement or
any other agreement or insurance policy or under the Company's Amended and
Restated Certificate of Incorporation or Bylaws now or hereafter in effect
relating to Claims for
7.
<PAGE>
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) as otherwise
required under Section 145 of the Delaware General Corporation Law, regardless
of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be; or
b. Claims Under Section 16(b). To indemnify Indemnitee for
--------------------------
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or
any similar successor statute; or
c. Claims Excluded Under Section 145 of the Delaware General
---------------------------------------------------------
Corporation Law. To indemnify Indemnitee if (i) he or she did not act in good
- ---------------
faith and in a manner reasonably believed to be in or not opposed to the best
interests of the Company, or (ii) with respect to any criminal action or
proceeding, the Indemnitee had reasonable cause to believe his or her conduct
was unlawful, or (iii) the Indemnitee shall have been adjudged to be liable to
the Company unless and only to the extent the court in which such action was
brought shall permit indemnification as provided in Section 145(b) of the
Delaware General Corporation Law.
9. Period of Limitations. No legal action shall be brought and no
---------------------
cause of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of five years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such five-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
a. For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees,
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent, control person, or fiduciary of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee, control person, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, Indemnitee shall stand in the same position under the provisions of
this Agreement with respect to the resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation if its
separate existence had continued.
8.
<PAGE>
b. For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
c. For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
(A) who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his or her
beneficial ownership of such securities by 5% or more over the percentage so
owned by such person, or (B) becomes the "beneficial owner" (as defined in Rule
13d-3 under said Exchange Act), directly or indirectly, of securities of the
Company representing more than 20% of the total voting power represented by the
Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
d. For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
9.
<PAGE>
provisions of Section 1(d) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the right of Indemnitee under this Agreement,
or of other indemnitees under similar indemnity agreements).
e. For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee is
seeking indemnification, or Independent Legal Counsel.
f. For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent, controlling person, or fiduciary of the Company or of any other
enterprise, including subsidiaries of the Company, at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by an
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid all
Expenses incurred by
10.
<PAGE>
Indemnitee in defense of such action (including costs and expenses incurred with
respect to Indemnitee counterclaims and cross-claims made in such action), and
shall be entitled to the advancement of Expenses with respect to such action,
unless, as a part of such action, a court having jurisdiction over such action
determines that Indemnitee's material defenses to such action was made in bad
faith or was frivolous.
14. Notice. All notices and other communications required or
------
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand,
(c) one (1) business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid, or (d) one day after the
business day of delivery by facsimile transmission, if deliverable by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to Indemnitee, at Indemnitee's address as set forth beneath the
Indemnitee's signature to this Agreement and if to the Company at the address of
its principal corporate offices (attention: Secretary) or at such other address
as such party may designate by ten (10) days' advance written notice to the
other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be
------------
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable, and the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including, without limitations, each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement shall be governed by and its
-------------
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
11.
<PAGE>
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by all parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in
---------------------------------------
this Agreement shall be construed as giving Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
22. Corporate Authority. The Board of Directors of the Company and
-------------------
its stockholders have approved the terms of this Agreement.
12.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
OPTIKA IMAGING SYSTEMS, INC.
a Delaware corporation
By:
--------------------------------------------
Title:
-----------------------------------------
Address:
---------------------------------------
INDEMNITEE:
-----------------------------------------------
13.
<PAGE>
================================================================================
OPTIKA IMAGING SYSTEMS, INC.
LOAN AND SECURITY AGREEMENT
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS AND CONSTRUCTION.......................................... 1
1.1 Definitions...................................................... 1
1.2 Accounting Terms................................................. 6
2. LOAN AND TERMS OF PAYMENT............................................. 6
2.1 Advances......................................................... 6
2.2 Overadvances..................................................... 7
2.3 Interest Rates, Payments, and Calculations....................... 8
2.4 Crediting Payments............................................... 8
2.5 Fees............................................................. 8
2.6 Additional Costs................................................. 9
2.7 Term............................................................. 9
3. CONDITIONS OF LOANS................................................... 9
3.1 Conditions Precedent to Initial Advance and Equipment Advance.... 9
3.2 Conditions Precedent to all Advances............................. 10
4. CREATION OF SECURITY INTEREST......................................... 10
4.1 Grant of Security Interest....................................... 10
4.2 Delivery of Additional Documentation Required.................... 10
4.3 Right to Inspect................................................. 10
5. REPRESENTATIONS AND WARRANTIES........................................ 10
5.1 Due Organization and Qualification............................... 10
5.2 Due Authorization; No Conflict................................... 10
5.3 No Prior Encumbrances............................................ 11
5.4 Bona Fide Eligible Accounts...................................... 11
5.5 Merchantable Inventory........................................... 11
5.6 Name; Location of Chief Executive Office......................... 11
5.7 Litigation....................................................... 11
5.8 No Material Adverse Change in Financial Statements............... 11
5.9 Solvency...................................................... .. 11
5.10 Regulatory Compliance............................................ 11
5.11 Environmental Condition.......................................... 11
5.12 Taxes............................................................ 12
5.13 Subsidiaries..................................................... 12
5.14 Government Consents.............................................. 12
5.15 Full Disclosure.................................................. 12
6. AFFIRMATIVE COVENANTS................................................. 12
6.1 Good Standing.................................................... 12
6.2 Government Compliance............................................ 12
6.3 Financial Statements, Reports, Certificates...................... 12
6.4 Right to Inspect/Labeling........................................ 13
6.5 Maintenance of Equipment......................................... 13
6.6 Inventory; Returns............................................... 13
6.7 Taxes............................................................ 14
6.8 Insurance........................................................ 14
6.9 Principal Depository............................................. 14
6.10 Quick Ratio...................................................... 14
i
<PAGE>
6.11 Minimum Debt Service............................................. 14
6.12 Profitability.................................................... 14
6.13 Debt-Net Worth Ratio............................................. 14
6.14 Tangible Net Worth............................................... 14
6.15 Liability........................................................ 15
6.16 Further Assurances............................................... 15
7. NEGATIVE COVENANTS.................................................... 15
7.1 Dispositions..................................................... 15
7.2 Change in Business............................................... 15
7.3 Mergers or Acquisitions.......................................... 15
7.4 Indebtedness..................................................... 15
7.5 Encumbrances..................................................... 15
7.6 Distributions.................................................... 15
7.7 Investments...................................................... 15
7.8 Transactions with Affiliates..................................... 15
7.9 Subordinated Debt................................................ 16
7.10 Inventory........................................................ 16
7.11 Compliance....................................................... 16
8. EVENTS OF DEFAULT..................................................... 16
8.1 Payment Default.................................................. 16
8.2 Covenant Default................................................. 16
8.3 Material Adverse Change.......................................... 16
8.4 Attachment....................................................... 16
8.5 Insolvency....................................................... 17
8.6 Other Agreements................................................. 17
8.7 Subordinated Debt................................................ 17
8.8 Judgments........................................................ 17
8.9 Misrepresentations............................................... 17
9. BANK'S RIGHTS AND REMEDIES............................................ 17
9.1 Rights and Remedies.............................................. 17
9.2 Power of Attorney................................................ 18
9.3 Accounts Collection.............................................. 18
9.4 Bank Expenses.................................................... 19
9.5 Bank's Liability for Collateral.................................. 19
9.6 Remedies Cumulative.............................................. 19
9.7 Demand; Protest.................................................. 19
10. NOTICES............................................................... 19
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................ 20
12. GENERAL PROVISIONS.................................................... 20
12.1 Successors and Assigns........................................... 20
12.2 Indemnification.................................................. 20
12.3 Time of Essence.................................................. 20
12.4 Severability of Provisions....................................... 21
12.5 Amendments in Writing, Integration............................... 21
12.6 Counterparts..................................................... 21
12.7 Survival......................................................... 21
ii
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of June ____, 1995, by
and between SILICON VALLEY BANK ("Bank") and OPTIKA IMAGING SYSTEMS, INC.
("Borrower").
RECITALS
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Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
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The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
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1.1 Definitions. As used in this Agreement, the following terms
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shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means an Advance under the Revolving Facility.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1 hereof.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
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hereto.
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"Committed Line" means (a) with respect to the Revolving Facility, One
Million Five Hundred Thousand Dollars ($1,500,000) and (b) with respect to the
Term Facility, Three Hundred Thousand Dollars ($300,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Revolving
Facility Advances made under this Agreement, including all Indebtedness that is
payable upon demand or within one year from the date of determination thereof
unless such Indebtedness is renewable or extendable at the option of Borrower or
any Subsidiary to a date more than one year from the date of determination.
"Daily Balance" means the amount of the Obligations owed at the end of
a given day.
"Debt Service" means net income plus depreciation annualized for the
preceding six-month period, divided by the current portion of long-term
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Indebtedness.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply in all material respects with all of
Borrower's material representations and material warranties to Bank and that are
and at all times shall continue to be reasonably acceptable to Bank in all
material respects, together with Accounts of a like character acquired by
Borrower from other entities; provided, that standards of eligibility may be
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fixed and revised from time to time by Bank in Bank's reasonable judgment and
upon thirty (30) days notification thereof in writing to Borrower in accordance
with the provisions hereof. Unless otherwise agreed to by Bank, Eligible
Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within ninety
(90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent (50%) of
whose Accounts the account debtor has failed to pay within ninety (90) days of
invoice date;
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be conditional;
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(d) Accounts with respect to which the account debtor is an Affiliate
of Borrower;
(e) Accounts with respect to which the account debtor does not have
its principal place of business in the United States; except for Eligible
Foreign Accounts;
(f) Accounts with respect to which the account debtor is the United
States or any department, agency, or instrumentality of the United States;
(g) Accounts with respect to which Borrower is liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower,
but only to the extent of any amounts owing to the account debtor against
amounts owed to Borrower;
(h) Accounts with respect to an account debtor, including Subsidiaries
and Affiliates, whose total obligations to Borrower exceed twenty-five percent
(25%) of all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank, which approval will not be
unreasonably withheld;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole but reasonable discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or is insolvent, or goes out of business;
and
(j) Accounts the collection of which Bank reasonably determines to be
doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a
case-by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies, packing
and shipping materials, work in process and finished products intended for sale
or lease or to be furnished under a contract of service, of every kind and
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description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower's Books relating to any of
the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, security interest or
other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means forty-two months after the date of this
Agreement.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower's Books relating
to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to the Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Existing Indebtedness disclosed on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Equipment leases entered into in the normal course of Borrower's
business.
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"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing as of the date hereof and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Bank's security
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interests;
(c) Liens (i) upon or in any equipment acquired or held by Borrower
or any of its Subsidiaries to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment, or (ii) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
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acquired and improvements thereon, and the proceeds of such equipment; and
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
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replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof shall
be determined, the consolidated cash, cash-equivalents, marketable securities,
accounts receivable and investments with maturities not to exceed 90 days, of
Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
Chief Financial Officer and the Controller of Borrower.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"Revolving Maturity Date" means the first anniversary of the date of
this Agreement.
"Schedule" means the schedule delivered to the Bank as of the date
hereof.
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"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity shall, at the time as of which any determination is being
made, is owned by Borrower, either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof
shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
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to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
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"Term Facility" means the facility under which Borrower may request
Equipment Advances, as specified in Section 2.1.1.
"Total Liabilities" means at any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
1.2 Accounting Terms. All accounting terms not specifically defined
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herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
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2.1 Advances. Subject to and upon the terms and conditions of this
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Agreement, Bank agrees to make Advances (each a "Revolving Advance" and
collectively, "Revolving Advances"} to Borrower in an aggregate amount not to
exceed the lesser of (i) the Committed Line with respect to the Revolving
Facility or (ii) the Borrowing Base; provided that the aggregate of the
Revolving Advances plus the Equipment Advances shall at no time exceed
Borrower's Tangible Net Worth. For purposes of this Agreement, "Borrowing Base"
shall mean an amount equal to seventy-five percent (75%) of Eligible Accounts.
Subject to the terms and conditions of this Agreement, amounts borrowed pursuant
to this Section 2.1 may be repaid and reborrowed at any time during the term of
this Agreement.
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. California time, on
the Business Day that the Advance is to be made. Each such notification shall
be promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
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based upon instructions received from a Responsible Officer, or without
instructions if in Bank's discretion such Advances are necessary to meet
Obligations which have become due and remain unpaid. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer, and Borrower shall indemnify and hold Bank harmless
for any damages or loss suffered by Bank as a result of such reliance. Bank
will credit the amount of Advances made under this Section 2.1 to Borrower's
deposit account.
The Revolving Facility shall terminate on the Revolving Maturity Date, at
which time all Advances under this Section 2.1 shall be immediately due and
payable.
2.1.1 Equipment Advances.
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(a) At any time from the date hereof through the first
anniversary of the date of this Agreement (the "Equipment Availability Date"),
Borrower may from time to time request advances
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(each an "Equipment Advance" and, collectively, the "Equipment Advances") from
Bank in an aggregate principal amount of up to Three Hundred Thousand Dollars
($300,000); provided that Equipment Advances for the acquisition of tooling,
software and other property that Bank reasonably determines to be non-standard
shall not exceed, in the aggregate, One Hundred Thousand Dollars ($100,000). The
Equipment Advances shall be used to purchase Equipment approved from time to
time by Bank (which Equipment shall have been invoiced to Borrower in any case
within ninety (90) days of the date of the requested Equipment Advance), and
shall not exceed eighty percent (80%) of the cost of such Equipment excluding
installation expense, freight discounts, warranty charges and taxes.
(b) Interest shall accrue and be payable on each Equipment
Advance on the twentieth day of each calendar month, beginning the calendar
month in which such Equipment Advance was made, through the Equipment
Availability Date. The Equipment Advance or Equipment Advances that are
outstanding on the Equipment Availability Date will be payable in thirty (30)
equal monthly installments of principal, plus accrued interest, beginning on the
20th day of the month following the Equipment Availability Date.
(c) When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission received no later than 3:00 p.m. California time one (1) Business
Day before the day on which the Equipment Advance is to be made. Such notice
shall be in substantially the form of Exhibit B. The notice shall be signed by a
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Responsible Officer and include a copy of the invoice for the Equipment to be
financed.
2.2 Overadvances. If, at any time or for any reason, the amount of
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Obligations owed by Borrower to Bank pursuant to Section 2.1 of this Agreement
is greater than the lesser of (i) the Revolving Facility portion of the
Committed Line or (ii) the Borrowing Base, Borrower shall immediately pay to
Bank, in cash, the amount of such excess. If, at any time or for any reason,
the amount of Obligations owed by Borrower to Bank pursuant to Sections 2.1 and
2.1.1 is greater than Borrower's Tangible Net Worth, Borrower shall immediately
pay to Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
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(a) Interest Rate. Except as set forth in Section 2.3(b), any
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Advances shall bear interest, on the average Daily Balance, at a floating rate
equal to one and one half (1.5) percentage points above the Prime Rate, and any
Equipment Advances shall bear interest on the outstanding balance at a [floating
rate equal to two (2) percentage points above the Prime Rate] [at a fixed rate
equal to 12.42 percent per annum.] [Must select by Closing Date]
(b) Default Rate. All Obligations shall bear interest, from
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and after the occurrence of an Event of Default, at a rate equal to three (3)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
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the twentieth calendar day of each month during the term hereof. Bank shall, at
its option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
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time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
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2.4 Crediting Payments. Prior to the occurrence of an Event of
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Default under Article 8, Bank shall credit a wire transfer of funds, check or
other item of payment to such deposit account or Obligation as Borrower
specifies. After the occurrence of an Event of Default, the receipt by Bank of
any wire transfer of funds, check, or other item of payment shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment on account unless such payment is of immediately available federal funds
or unless and until such check or other item of payment is honored when
presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon
California time shall be deemed to have been received by Bank as of the opening
of business on the immediately following Business Day. Whenever any payment to
Bank under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
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(a) Facility Fee. A facility fee equal to Twelve Thousand
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Dollars ($12,000) with respect to the Revolving Facility, and a facility fee
equal to Two Thousand, Four Hundred Dollars ($2,400) with respect to the Term
Facility, one half of which fees bank received prior to the date of this
Agreement, and the balance of which fees shall be due upon the date of this
Agreement and shall be fully earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
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fees and reasonable out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
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incurred through the date hereof, including reasonable attorneys' fees and
expenses.
2.6 Additional Costs. In case any law, regulation, treaty or
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official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank in connection with this
Agreement; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement, and the result of any of the foregoing is to
increase the cost to Bank, reduce the income receivable by Bank or impose any
expense upon Bank with respect to any loans, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7 Term. This Agreement shall become effective upon the date hereof
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and shall continue in full force and effect for a term ending on the Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Advances or Equipment Advances under this Agreement
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immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
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3.1 Conditions Precedent to Initial Advance and Equipment Advance.
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The obligation of Bank to make the initial Advance and Equipment Advance is
subject to the condition precedent that Bank shall have received, in form and
substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a collateral assignment and patent mortgage;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof; and
(g) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank to
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make each Advance and Equipment Advance, including the initial Advance, is
further subject to the following conditions:
(a) timely receipt by Bank of the Borrowing Certificate as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Borrowing Certificate and on the effective date of each Advance or Equipment
Advance as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Advance or
Equipment Advance.
The making of each Advance and Equipment Advance shall be deemed to be a
representation and warranty by Borrower on the date of such Advance or Equipment
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
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4.1 Grant of Security Interest. Borrower grants to Bank a continuing
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security interest in all presently existing and hereafter acquired or arising
Collateral in order to secure prompt repayment of any and all Obligations and in
order to secure prompt performance by Borrower of each of its covenants and
duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof.
4.2 Delivery of Additional Documentation Required. Borrower shall
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from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected
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Bank's security interests in the Collateral and in order to fully consummate all
of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
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Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower is a corporation
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duly existing and in good standing under the laws of its state of incorporation
and qualified and licensed to do business in, and is in good standing in, any
state in which the conduct of its business or its ownership of property requires
that it be so qualified, except where the failure to qualify would not have a
Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
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performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
---------------------
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
---------------------------
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and acceptance by the account debtor. Borrower has not
received notice of actual or imminent Insolvency Proceeding of any account
debtor that is included in any Borrowing Base Certificate as an Eligible
Account.
5.5 Merchantable Inventory. All Inventory is in all material
----------------------
respects of good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in
----------------------------------------
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
10
<PAGE>
5.9 Solvency. Borrower is solvent and able to pay its debts
--------
(including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
---------------------
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
-----------------------
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be
-----
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained
-------------------
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted,
except where a failure to do so would not have a Material Adverse Effect.
5.15 Full Disclosure. No representation, warranty or other statement
---------------
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates
or statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
an Advance or an Equipment Advance hereunder, Borrower shall do all of the
following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
11
<PAGE>
6.2 Government Compliance. Borrower shall meet, and shall cause each
---------------------
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
-------------------------------------------
deliver to Bank: (a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, certified by an officer of Borrower reasonably acceptable to Bank; (b)
as soon as available, but in any event within ninety (90) days after the end of
Borrower's fiscal year, audited consolidated financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) within five (5) days
upon becoming available, copies of all statements, reports and notices sent or
made available generally by Borrower to its security holders or to any holders
of Subordinated Debt and all reports on Forms 8-K, 10-K and 10-Q, Annual Report
to Shareholders, Proxy Statement and Registration Statement filed with the
Securities and Exchange Commission; (d) promptly upon receipt of notice thereof,
a report of any material legal actions threatened against Borrower or any
Subsidiary and (e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
---------
accounts receivable and accounts payable.
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit D hereto.
---------
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred and
is continuing.
6.4 Right to Inspect/Labeling. Bank (through any of its officers,
-------------------------
employees or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
At Bank's request at any time during the term of this Agreement (including
any extension thereof), Borrower shall place in a conspicuous location on each
item of Equipment that is not the subject of clause (c) "Permitted Lien" or any
extension, renewal or refinancing thereof, a plaque or other marking to be
supplied by Bank which reads substantially as follows:
Silicon Valley Bank has a first priority security interest in this
item of equipment.
Such plaque or other marking shall not be removed (or if removed or damaged such
plaque or other marking shall be replaced) until the security interest in favor
of Bank in such item of Collateral is terminated pursuant to this Agreement.
6.5 Maintenance of Equipment. Borrower, at its expense, shall make
------------------------
all necessary site preparations and cause the Equipment to be operated in
accordance with any applicable manufacturer's manuals or instructions.
Borrower, at its expense, shall maintain the Equipment in good condition,
reasonable wear and tear excepted, and will comply in all material respects with
all laws, rules and regulations to which the use and operation of the Equipment
may be or become subject. Such obligation shall extend to repair and
replacement of any partial loss or damage to the Equipment, regardless of the
cause. If maintenance is mandated by manufacturer, Borrower shall obtain and
keep in effect, at all times during the term hereof maintenance service
12
<PAGE>
contracts with suppliers approved by Bank, such approval not to be unreasonably
withhold. All parts furnished in connection with such maintenance or repair
shall immediately become part of the Equipment. All such maintenance, repair
and replacement services shall be immediately paid for and discharged by
Borrower with the result that no Lien will attach to the Equipment.
6.6 Inventory; Returns. Borrower shall keep all Inventory in good
------------------
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement.
Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes and claims related thereto, where the return, recovery, dispute or
claim involves more than Fifty Thousand Dollars ($50,000).
6.7 Taxes. Borrower shall make, and shall cause each Subsidiary to
-----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.8 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.9 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.10 Quick Ratio. Borrower shall maintain, as of the last day of
-----------
each calendar month, a ratio of Quick Assets to Current Liabilities, excluding
deferred maintenance revenue, of at least 1.25 to 1.0.
6.11 Minimum Debt Service. Beginning as of January 31, 1996,
--------------------
Borrower shall maintain on a monthly basis minimum Debt Service of 1.5 to 1.0.
6.12 Profitability. Borrower shall not suffer a loss in excess of
-------------
Two Hundred Fifty Thousand Dollars ($250,000) for any fiscal quarter. Borrower
shall be profitable for each fiscal year.
13
<PAGE>
6.13 Debt-Net Worth Ratio. Borrower shall maintain as of the last
--------------------
day of each calendar month a ratio of Total Liabilities less Subordinated Debt,
excluding deferred maintenance revenue, to Tangible Net Worth plus Subordinated
Debt of not more than 1.75 to 1.0.
6.14 Tangible Net Worth. Borrower shall maintain as of the last day
------------------
of each calendar month a Tangible Net Worth of not less than One Million Dollars
($1,000,000).
6.15 Liability. Borrower shall maintain a ratio of Liquidity to
---------
outstanding principal balance of the Equipment Advances of not less than 2.0 to
1.0. "Liquidity" shall mean an amount equal to Borrower's cash on hand plus
seventy-five percent (75%) of Eligible Accounts, minus any outstanding Revolving
Advances.
6.16 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Advances, Borrower will
not do any of the following without Bank's written consent, which Bank may grant
or withhold in its sole discretion:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
------------
of (collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any material part of its business or material items of property, other
than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of licenses and similar arrangements in the ordinary course of
Borrower's business for the use of the property of Borrower or its Subsidiaries;
or (iii) Transfers of worn-out or obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit any of its
------------------
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto). Borrower will not, without thirty (30) days prior
written notification to Bank, relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization (other than Borrower or to reincorporate in another state), or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock except repurchases of Borrower's stock upon the termination of employees,
provided an Event of Default does not exist immediately before or after any such
repurchase.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
14
<PAGE>
7.8 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person, except
for transactions with Affiliates in place on the date of this Agreement.
7.9 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
---------
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company," or a company
----------
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal of, or
---------------
any interest on, any Advances or Equipment Advances when due and payable; or
fails to pay any portion of any other Obligations not constituting such
principal or interest, including without limitation Bank Expenses, within thirty
(30) days of receipt by Borrower of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
----------------
under Article 6 or violates any of the covenants contained in Article 7 of this
Agreement, or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future material
agreement between Borrower and Bank and as to any default under such other
material condition, covenant or agreement that can be cured, has failed to cure
such default within thirty (30) days after Borrower receives written notice
thereof by Bank, provided, however, that if the default cannot by its nature be
cured within the thirty (30) day period or cannot after diligent attempts by
Borrower be cured within such thirty (30) day period, and such default is likely
to be cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed an additional thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
(provided that no Advances will be required to be made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse
-----------------------
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Bank's security interests in the
Collateral;
15
<PAGE>
8.4 Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within ten (10) days (provided
that no Advances will be made prior to the dismissal of such Insolvency
Proceeding);
8.6 Other Agreements. If there is a default by Borrower in any
----------------
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of Two
Hundred Thousand Dollars ($200,000) or that could have a Material Adverse
Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank or is permitted under Section
7.9;
8.8 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least Two Hundred Thousand
Dollars ($200,000) exclusive of court costs shall be rendered against Borrower
and shall remain unsatisfied and unstayed for a period of fifteen (15) days
(provided that no Advances will be made prior to the satisfaction or stay of
such judgment); or
8.9 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any material warranty or
material representation set forth herein or in any certificate delivered to Bank
by any Responsible Officer pursuant to this Agreement or to induce Bank to enter
into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in Section
8.5 all Obligations shall become immediately due and payable without any action
by Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
16
<PAGE>
(d) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its security
interest in the Collateral. Borrower agrees to assemble the Collateral if Bank
so requires, and to make the Collateral available to Bank as Bank may designate.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or lien which in
Bank's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any
of Borrower's owned premises, Borrower hereby grants Bank a license to enter
into possession of such premises and to occupy the same, without charge, for up
to one hundred twenty (120) days in order to exercise any of Bank's rights or
remedies provided herein, at law, in equity, or otherwise;
(e) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Bank is hereby granted a license or other right, solely pursuant to
the provisions of this Section 9.1, to use, without charge, Borrower's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank's
exercise of its rights under this Section 9.1, Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit;
(g) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as Bank determines is
commercially reasonable;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank
-----------------
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney effective only upon the occurrence of an Event of Default to:
(a) send requests for verification of Accounts or notify account debtors of
Bank's security interest in the Accounts; (b) endorse Borrower's name on any
checks or other forms of payment or security that may come into Bank's
possession; (c) sign Borrower's name on any invoice or bill of lading relating
to any Account, drafts against account debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to account debtors; (d) make,
settle, and adjust all claims under and decisions with respect to Borrower's
policies of insurance; and (e) settle and adjust disputes and claims respecting
the accounts directly with account debtors, for amounts and upon terms which
Bank determines to be reasonable; provided Bank may exercise such power of
attorney to sign the name of Borrower on any of the documents described in
Section 4.2 regardless of whether an Event of Default has occurred. The
appointment of Bank as Borrower's attorney in fact, and each and every one of
Bank's rights and powers, being coupled with an interest, is irrevocable until
all of the Obligations have been fully repaid and performed and Bank's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of this
-------------------
Agreement, Bank may notify any Person owing funds to Borrower of Bank's security
interest in such funds. Borrower shall collect all amounts owing to Borrower
for Bank, receive in trust all payments as Bank's trustee, and immediately
deliver such payments to Bank in their original form as received from the
account debtor, with proper endorsements for deposit.
17
<PAGE>
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such reserves under
the Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.8 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank.
9.7 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by facsimile to Borrower or to Bank, as the case may be, at its addresses set
forth below:
If to Borrower: Optika Imaging Systems, Inc.
5575 Mark Dabling Blvd., #100
Colorado Springs, CO 80919
Attn: Steven M. Johnson
Fax: (719) 531-7915
with a copy to: Warren T. Lazarow
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
18
<PAGE>
If to Bank: Silicon Valley Bank
1731 Embarcadero Road
Palo Alto, CA 94303
Attn: Jim Ellison
FAX: (415) 812-0640
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have 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 hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold
---------------
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower under this Agreement or any of the Loan
Documents (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
----------------------------------
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
19
<PAGE>
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
--------
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run;
provided that at such time as no Obligations remain outstanding, and Bank has no
- --------
commitment to make any Advances or to make any other loans to Borrower, Bank
shall release all security interests granted hereunder and redeliver all
Collateral held by it in accordance with applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
OPTIKA IMAGING SYSTEMS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
SILICON VALLEY BANK
By:
-----------------------------------------
Title:
--------------------------------------
20
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) 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;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All 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 and Borrower's Books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions, know-
how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
21
<PAGE>
EXHIBIT B
---------
BORROWING CERTIFICATE
The undersigned hereby certifies as follows:
I, __________________________________, am the duly elected and acting
__________________________________ of Optika Imaging Systems, Inc. ("Borrower").
This certificate is delivered pursuant to Section 2.1 and/or 2.1.1 of that
certain 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 is confirming its telephone request made on _______________, 19___
for an Advance as follows:
(a) The date on which the Advance is to be made is ________________, 19___.
(b) The amount of the Advance is to be $____________________________.
(c) The Advance is to be a ________ Revolving/ _________ Equipment Advance.
(d) If this request is for an Equipment Advance, attached are:
______ New Equipment invoices and canceled checks evidencing payment
therefor totaling $ ____________________________.
All representations and warranties of Borrower stated in the Loan Agreement
are true, accurate and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, accurate and complete in all material respects as
of such date.
IN WITNESS WHEREOF, this Borrowing Certificate is executed by the
undersigned as of this ________ day of ____________________________, 199______.
OPTIKA IMAGING SYSTEMS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
22
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: OPTIKA IMAGING SYSTEMS, INC. Lender: Silicon Valley Bank
Commitment Amount: $ 1,500,000
- --------------------------------------------------------------------------------
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 days due $_________
5. Balance of 50% over 90 day accounts $_________
6. Concentration Limits $_________
7. Foreign Accounts $_________
8. Governmental Accounts $_________
9. Contra Accounts $_________
10. Promotion or Demo Accounts $_________
11. Intercompany/Employee Accounts $_________
12. Other (please explain on reverse) $_________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
14. Eligible Accounts (#3 minus #13) $_________
15. LOAN VALUE OF ACCOUNTS (75% of #14) $_________
BALANCES
16. Maximum Loan Amount $_________
17. Total Funds Available (Lesser of #15 or #16) $_________
18. Present balance owing on Line of Credit $_________
19. RESERVE POSITION (#17 minus #18) $_________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
-------------------------------
BANK USE ONLY
---- --- ----
Rec'd By: ___________________
Auth. Signer
OPTIKA IMAGING SYSTEMS, INC. Date: ________________________
Verified: ____________________
By:_______________________________ Auth. Signer
Authorized Signer Date: ________________________
----------------------------
-------------------------------
23
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: OPTIKA IMAGING SYSTEMS, INC.
The undersigned authorized officer of Optika Imaging Systems, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
- ------------------ -------- --------
<S> <C> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 15 days Yes No
<CAPTION>
Financial Covenant Required Actual Complies
- ------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.25 : 1.0 ______:1.0 Yes No
Minimum Tangible Net Worth $1,000,000 $_________ Yes No
Maximum Debt/Tangible Net Worth 1.75 : 1.0 ______:1.0 Yes No
Minimum Debt Service (1/31/96
start) 1.5 : 1.0 ______:1.0 Yes No
Minimum Liquidity 2.0 : 1.0 ______:1.0 Yes No
Profitability: Quarterly No loss > $250,000 $_________ Yes No
Annually $1.00 $_________ Yes No
</TABLE>
--------------------------------
Comments Regarding Exceptions: See Attached. BANK USE ONLY
Sincerely, Received by:__________________
AUTHORIZED SIGNER
____________________________________
Signature Date:_________________________
Verified:_____________________
____________________________________ AUTHORIZED SIGNER
Title
Date:_________________________
Compliance Status: Yes No
____________________________________
Date --------------------------------
24
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: OPTIKA IMAGING SYSTEMS, INC. Bank: SILICON VALLEY BANK
================================================================================
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $1,500,000 and a Term Loan of up to $300,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Bank's conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
<TABLE>
<CAPTION>
Revolving Line Term Loan
-------------- ---------
<S> <C> <C>
Amount paid to Borrower directly: $ $
------------- --------
Undisbursed Funds $ $
------------- --------
Principal $ 1,500,000 $ 300,000
------------- --------
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $
$14,400 Loan Fee ---------
----------
$ Accounts Receivables Audit
----------
Other Charges Paid in Cash: $
$100 UCC Search Fees ---------
----------
$ 75 UCC Filing Fees
----------
$ Patent Filing Fees
----------
$ Trademark Filing Fees
----------
$ Copyright Filing Fees
----------
$ Outside Counsel Fees
---------- and Expenses (Estimate)
Total Charges Paid in Cash $
---------
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct
from Borrower's account numbered ______________ the amount of any loan payment.
If the funds in the account are insufficient to cover any payment, Bank shall
not be obligated to advance funds to cover the payment. At any time and for any
reason, Borrower or Bank may voluntarily terminate Automatic Payments.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT IN ALL
MATERIAL RESPECTS AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN
BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL
STATEMENT TO BANK. THIS AUTHORIZATION IS DATED AS OF ____________________,
19___.
BORROWER:
- --------------------------------------
- --------------------------------------
Authorized Officer
================================================================================
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
Grantor: OPTIKA IMAGING SYSTEMS, INC. Bank: SILICON VALLEY BANK
================================================================================
INSURANCE REQUIREMENTS. Optika Imaging Systems, Inc. ("Grantor")
understands that insurance coverage is required in connection with the extending
of a loan or the providing of other financial accommodations to Grantor by Bank.
These requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation that
coverage will not be canceled or diminished without
a minimum of twenty (20) days' prior written notice
to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Bank. Grantor understands
that credit may not be denied solely because insurance was not purchased through
Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank, on or
before closing, evidence of the required insurance as provided above, with an
effective date of March 31, 1995, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor's expense as provided in the
Loan and Security Agreement. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as provided in
the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE
ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED
____________________________, 19___.
GRANTOR:
OPTIKA IMAGING SYSTEMS, INC.
x
-----------------------------------
Authorized Officer
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
------------- -----------
AGENT'S NAME:
-------------------------------------------------------------------
INSURANCE COMPANY:
--------------------------------------------------------------
POLICY NUMBER:
------------------------------------------------------------------
EFFECTIVE DATES:
----------------------------------------------------------------
COMMENTS:
-----------------------------------------------------------------------
================================================================================
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- --------------------------------------------------------------------------------
Borrower: OPTIKA IMAGING SYSTEMS, INC.
- --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Optika Imaging
Systems, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
(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 this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
--------------------------------------------------------------------------
- ---------------------- ---------------------- ------------------------------
- ---------------------- ---------------------- ------------------------------
- ---------------------- ---------------------- ------------------------------
- ---------------------- ---------------------- ------------------------------
- ---------------------- ---------------------- ------------------------------
acting for an on behalf of this Corporation 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, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in that
certain Loan and Security Agreement dated as of June _____, 1995 (the "Loan
Agreement").
Execute Notes. To execute and deliver to Bank the promissory note or
notes of the Corporation, on Lender'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 the Corporation to Bank, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
Grant Security. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
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 the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
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 as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
1
<PAGE>
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 the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on _______________, 19___
and attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
-------------------------------------------
================================================================================
2
<PAGE>
AMENDMENT NO. 1
TO
LOAN AND SECURITY AGREEMENT
---------------------------
This Amendment No. 1 to Loan and Security Agreement is entered into as of
June 16, 1995, by and between Silicon Valley Bank ("Bank") and Optika Imaging
Systems, Inc. ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of June 16, 1995 (the "Agreement"). The parties desire to amend the
Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Sections 6.10, 6.11, 6.12, 6.13, 6.14, 6.15 and 6.16 of the Agreement
are amended and restated to read as follows:
6.10 Quick Ratio. Borrower shall maintain, as of the last day of each
-----------
calendar quarter, a ratio of Quick Assets to Current Liabilities,
excluding deferred maintenance revenue, of at least 1.30 to 1.0,
and a ratio of at least 1.20 to 1.0 as of the last day of each
calendar month that is not the last day of a calendar quarter.
6.11 Debt-Tangible Net Worth Ratio. Borrower shall maintain as of the
-----------------------------
last day of each calendar quarter a ratio of Total Liabilities
less Subordinated Debt, excluding all deferred revenue, to
Tangible Net Worth plus Subordinated Debt of not more than 1.75
to 1.0, and a ratio of not more than 2.50 to 1.0 as of the last
day of each calendar month that is not the last day of a calendar
quarter.
6.12 Tangible Net Worth. Borrower shall maintain as of the last day
------------------
of each calendar quarter a Tangible Net Worth plus Subordinated
Debt of not less than Nine Hundred Fifty Thousand Dollars
($950,000) plus fifty percent (50%) of the proceeds of the sale
of Borrower's equity securities, and not less than Six Hundred
Fifty Thousand Dollars ($650,000) plus fifty percent (50%) of the
proceeds of the sale of Borrower's equity securities as of the
last day of each calendar month that is not the last day of a
calendar quarter.
6.13 Advances--Tangible Net Worth. Borrower shall at all times cause
----------------------------
its Tangible Net Worth to exceed the aggregate balance of
outstanding Revolving Advances plus Equipment Advances.
6.14 Profitability. Borrower shall have net income for each fiscal
-------------
quarter greater than zero; provided that Borrower may suffer a
loss of up to Two Hundred Thousand Dollars ($200,000) in each of
two (2) calendar quarters if prior to the second such loss
--
quarter Borrower has received not less than Nine Hundred Thousand
Dollars ($900,000) from the sale of Borrower's equity securities.
If Borrower has not received such proceeds, then Borrower may
suffer a loss in one (1) calendar quarter of up to Two Hundred
Thousand Dollars ($200,000).
6.15 Liquidity Ratio. Subject to Section 6.16 below, Borrower shall
---------------
maintain a ratio of Liquidity to outstanding principal balance of
the Equipment Advances of not less than 2.0 to 1.0. "Liquidity"
shall mean an amount equal to Borrower's cash or
1
<PAGE>
cash equivalents on hand plus seventy-five percent (75%) of
Eligible Accounts, minus any outstanding Advances.
6.16 Debt Service Ratio. In the event Borrower shall achieve two
------------------
consecutive quarters of a rolling Debt Service Ratio not less
than 1.50 to 1.0, then the provisions of Section 6.15 above shall
not apply to Borrower and, thereafter, Borrower shall maintain
its Debt Service Ratio at a minimum of 1.50 to 1.0. "Debt
Service Ratio" shall mean, as reflected in Borrower's monthly
financial statements delivered pursuant to Section 6.3, the sum
of Borrower's net income and depreciation and amortization
annualized for the preceding calendar quarter, divided by the
interest and principal payments due on Borrower's long-term debt
for such calendar quarter.
3. The Compliance Certificate shall be in the form of attached Exhibit D.
4. In connection with this Amendment, Borrower shall pay Bank all Bank
Expenses incurred in connection with the preparation of this Amendment.
5. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement remains
in full force and effect.
6. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment (except such representations and warranties to be expressly true
as of a specific date), and that no Event of Default has occurred and is
continuing.
7. This Amendment 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.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
OPTIKA IMAGING SYSTEMS, INC.
By:
---------------------------------------
Title:
------------------------------------
SILICON VALLEY BANK
By:
---------------------------------------
Title:
------------------------------------
2
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: OPTIKA IMAGING SYSTEMS, INC.
The undersigned authorized officer of Optika Imaging Systems, Inc.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower
is in complete compliance for the period ending ______________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached herewith are the required documents supporting
the above certification. The Officer further certifies that these are prepared
in accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
- ------------------ -------- --------
<S> <C> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 15 days Yes No
A/R Audit Initial and Semi-Annual Yes No
Financial Covenant Required Actual Complies
- ------------------ -------- ------ --------
Maintain on a Monthly Basis:
Minimum Quick Ratio 1.2:1.0 _____:1.0 Yes No
Maximum Advances - TNW Ratio _____:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $650,000 plus $________ Yes No
50% equity
Maximum Debt/Tangible Net Worth 2.5:1.0 _____:1.0 Yes No
Maintain on a Quarterly Basis:
Minimum Quick Ratio 1.3:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $950,000 plus $________ Yes No
50% equity
Profitability See Agreement
Minimum Debt Service 1.5:1.0 _____:1.0 Yes No
Minimum Liquidity 2.0:1.0 _____:1.0 Yes No
</TABLE>
----------------------------------
Comments Regarding Exceptions: See Attached. BANK USE ONLY
Received by:___________________
AUTHORIZED SIGNER
Sincerely,
Date:__________________________
- ----------------------------------
SIGNATURE Verified:______________________
AUTHORIZED SIGNER
- ----------------------------------
TITLE Date:__________________________
- ---------------------------------- Compliance Status: Yes No
DATE
----------------------------------
3
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
================================================================================
Borrower: Optika Imaging Systems, Inc.
================================================================================
I, the undersigned Secretary or Assistant Secretary of Optika Imaging
Systems, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
(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 this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
-----------------------------------------------------------------------
---------------------- ----------------------- ------------------------
---------------------- ----------------------- ------------------------
---------------------- ----------------------- ------------------------
acting for an on behalf of this Corporation 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, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in the
Amendment No. 1 to Loan and Security Agreement dated as of June 16, 1995, as
amended from time to time by Bank and Corporation (the "Loan Agreement").
Execute Notes. To execute and deliver to Bank the promissory note or
notes of the Corporation, 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 the Corporation to Bank, and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancing, consolidations, or
substitutions for one or more of the notes, or any portion of the notes.
Grant Security. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
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 the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
Letters of Credit. To execute letters of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
Foreign Exchange Contracts. To request Bank to enter into foreign
exchange contracts on its behalf.
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
1
<PAGE>
execute and deliver such other documents and agreements 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 the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
I FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand as of June 16, 1995 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
-------------------------------------------
================================================================================
2
<PAGE>
AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
---------------------------
This Amendment No. 2 to Loan and Security Agreement is entered into as of
January 4, 1996, by and between Silicon Valley Bank ("Bank") and Optika Imaging
Systems, Inc. ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of June 16, 1995, as amended from time to time (the "Agreement"). The
parties desire to amend the Agreement in accordance with the terms of this
Amendment.
NOW, THEREFORE, the parties agree as follows:
1. A new section 2.1.2 is added, as follows:
2.1.2 Term Loan. Subject to the terms and conditions of this
---------
Agreement, Bank agrees to make one (1) Advance to Borrower in
an amount not to exceed the lesser of (i) Three Hundred
Nineteen Thousand Dollars ($319,000) or (ii) the amount to be
paid to Bank One Leasing Corp. in satisfaction of its loan or
lease made in connection with certain of Borrower's Equipment.
Borrower may request the Advance on or before January 15, 1996,
by delivering to Bank a completed Payment/Advance Request in
substantially the form of attached Exhibit A. The Advance shall
---------
bear interest at (i) a floating rate equal to Two (2)
Percentage Points above the Prime Rate or (ii) a fixed rate
equal to Ten and Three Quarters Percent (10.75%) per annum.
Borrower shall specify the interest option at the time Borrower
requests the Advance. Borrower shall repay the Advance in
twenty-four (24) equal monthly installments of principal, plus
accrued interest, beginning on February 20, 1996, and
continuing each month thereafter until such amounts have been
paid in full.
2. This Amendment shall be effective upon delivery to Bank of (i) an
executed original of this Amendment and the related Corporate Resolutions to
Borrow and (ii) evidence reasonably satisfactory to Bank that Bank One Leasing
Corp. (or its assignee) has terminated its financing statement on the Equipment.
3. Borrower shall pay Bank all Bank Expenses incurred in connection with
the preparation of this Amendment.
4. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement remains
in full force and effect.
5. Borrower represents and warrants that the Representations and
Warranties contained in the Agreement are true and correct as of the date of
this Amendment (except such representations and warranties to be expressly true
as of a specific date), and that no Event of Default has occurred and is
continuing.
6. This Amendment 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.
1
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
OPTIKA IMAGING SYSTEMS, INC.
By:
--------------------------------------
Title:
-----------------------------------
SILICON VALLEY BANK
By:
--------------------------------------
Title:
-----------------------------------
2
<PAGE>
EXHIBIT A
---------
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:
--------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
----------------------------------------------------
PHONE NUMBER:
------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
---------------------- --------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $
-------------------------------
PRINCIPAL PAYMENT (ONLY) $
-------------------------------
INTEREST PAYMENT (ONLY) $
-------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
--------------------------------------
OTHER INSTRUCTIONS:
------------------------------------------------------
-------------------------------------------------------------------------
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 the telephone request for and Advance confirmed by this
Borrowing Certificate; 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 #
--------------------------------------
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
3
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
================================================================================
Borrower: Optika Imaging Systems, Inc.
================================================================================
I, the undersigned Secretary or Assistant Secretary of Optika Imaging
Systems, Inc. (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation
(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 this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
--------------------------------------------------------------------
------------------- ------------------- -------------------------
------------------- ------------------- -------------------------
------------------- ------------------- -------------------------
acting for an on behalf of this Corporation 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, employees,
or agents and Bank, such sum or sums of money as in their judgment should be
borrowed, without limitation, including such sums as are specified in the
Amendment No. 2 to Loan and Security Agreement dated as of January 4, 1996, as
amended from time to time by Bank and Corporation (the "Loan Agreement").
Execute Notes. To execute and deliver to Bank the Amendment No. 2 to
Loan and Security Agreement, and also to execute and deliver to Bank one or more
renewals, extensions, modifications, refinancing, consolidations, or
substitutions for the Loan Agreement, or any portion of the Loan Agreement.
Grant Security. To grant a security interest to Bank in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
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 the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Bank, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
Letters of Credit. To execute letters of credit applications and other
related documents pertaining to Bank's issuance of letters of credit.
Foreign Exchange Contracts. To request Bank to enter into foreign
exchange contracts on its behalf.
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
1
<PAGE>
execute and deliver such other documents and agreements 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 the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above
are duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the Corporation;
and that the Resolutions are in full force and effect and have not been modified
or revoked in any manner whatsoever.
I FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand as of January 4, 1996 and
attest that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
X
-------------------------------------------
================================================================================
2
<PAGE>
STANDARD COMMERCIAL LEASE
ARTICLE 1.00 BASIC LEASE TERMS
1.01 Parties. This lease agreement ("Lease") is entered into by and between
the following Lessor and Lessee:
BRADFORD PROPERTY COMPANY, INC., a Delaware corporation, or assigns ("Lessor")
- ---------------------------------------------------------------------
LINCOLN NATIONAL LIFE INSURANCE COMPANY, an Indiana corporation ("Lessee")
- ---------------------------------------------------------------------
1.02 Leased Premises. In consideration of the rents, terms, provisions and
covenants of this Lease, Lessor hereby leases, lets and demises to Lessee the
following described premises ("leased premises"):
105,389 estimated Final square footage and base rent at $16.00 per rentable
- ---------------------------------------------------------------------------
square foot will be established in accordance with BOMA calculations as a
- -------------------------------------------------------------------------
modification to this lease within 30 days after the commencement of the lease
- -----------------------------------------------------------------------------
term. (Approximate sq. ft.) (Job no.)
--------------------------------------------
NorthCreek II (Name of building or project)
- ---------------------------------------------------
5755 Mark Dabling Boulevard (Street address/suite number)
- ---------------------------------------------------
Colorado Springs, Colorado 80919 (City, State, and Zip Code)
- -----------------------------------------------------
1.03 Term. Subject to and upon the conditions set forth herein, the term of
this Lease shall commence on (the "completion date", which Lessor shall use its
best efforts to establish as July 1, 1990), and shall terminate 84 months
------------ --
thereafter.
1.04 Base Rent and Security Deposit. Base rent is $140,518.67 per month.
-----------
Security deposit is $0.00.
-----
1.05 Addresses.
Lessor's Address: Lessee's Address:
Bradford Property Company, Inc. Lincoln National Life Insurance Company
- ------------------------------- ---------------------------------------
2777 Stemmons Freeway P. O. Box 2266
- --------------------- --------------
Dallas, Texas 75207 Fort Wayne, Indiana 46801
- ------------------- -------------------------
Attn: Director, Field Office
Facilities with a copy delivered
to the leased premises
--------------------------------------
1.06 Permitted Use. General office.
---------------
ARTICLE 2.00 RENT
2.01 Base Rent. Lessee agrees to pay monthly as base rent during the term of
this Lease the sum of money set forth in section 1.04 of this Lease, which
amount shall be payable to Lessor at the address shown above. One monthly
installment of rent shall be due and payable on the date of execution of this
Lease by Lessee for the first month's rent which money shall be put in an
interest bearing account with interest payable to Lessee when the money is
applied to rent and a like monthly installment shall be due and payable on or
before the first day of each calendar month succeeding the commencement date or
completion date during the term of this Lease; provided, if the commencement
date or the completion date should be a date other than the first day of a
calendar month, the monthly rental set forth above shall be prorated based on a
thirty-day month to the end of that calendar month, and all succeeding
installments of rent shall be payable on or before the first day of each
succeeding calendar month during the term of this Lease. Lessee shall pay, as
additional rent, all other sums due under this Lease.
2.02 Operating Expenses. In the event Lessor's operating expenses for the
building and/or project of which the leased premises are a part shall, in any
calendar year during the term of this Lease, exceed the sum of $4.50 per square
-----
foot, Lessee agrees to pay as additional rent Lessee's pro rata share of such
excess operating expenses. Lessor may invoice Lessee monthly for Lessee's pro
rata share of the estimated operating expenses for each calendar year, which
amount shall be adjusted each year based upon the previous years' operating
expenses. Within six months following the close of each calendar year, Lessor
shall provide Lessee an accounting showing in reasonable detail all computations
of additional rent due under this section. In the event the accounting shows
that the total of the monthly payments made by Lessee exceeds the amount of
additional rent due by Lessee under this section, the accounting shall be
accompanied by a refund. In the event the accounting shows that the total of the
monthly payments made by Lessee is less than the amount of additional rent due
by Lessee under this section, the accounting shall be accompanied by an invoice
for the additional rent. Notwithstanding any other provision in this Lease,
during the year in which the Lease terminates, Lessor, prior to the termination
date, shall have the option to invoice Lessee for Lessee's pro rata share of the
excess operating expenses based upon the previous year's operating expenses. If
this Lease shall terminate on a day other than the last day of a calendar year,
the amount of any additional rent payable by Lessee applicable to the year in
which such termination shall occur shall be prorated on the ratio that the
number of days from the commencement of the calendar year to and including the
termination date bears to 365. Lessee shall have the right, at its own expense
and within a reasonable time, to audit Lessor's books relevant to the additional
rent payable under this section. Lessee agrees to pay any additional rent due
under this section within thirty days following receipt of the invoice or
accounting showing additional rent due.
2.03 Definition of Operating Expenses. The term "operating expenses"
includes all expenses incurred by Lessor with respect to the maintenance and
operation of the building of which the leased premises are a part, including,
but not limited to, the following: maintenance, repair and replacement costs;
electricity, fuel, water, sewer, gas and other utility charges; security, window
washing and janitorial services; trash and snow removal; landscaping and pest
control; management fees, wages and benefits payable to employees of Lessor
whose duties are directly connected with the operation and maintenance of the
building; all services, supplies, repairs, replacements or other expenses for
maintaining and operating the building or project including parking and common
areas; the cost, including interest, amortized over its useful life, of any
capital improvement made to the building by Lessor after the date of this Lease
which is required under any governmental law or regulation that was not
applicable to the building at the time it was constructed; the cost, including
interest, amortized over is useful life, of installation of any device or other
equipment which improves the operating efficiency of any system within the
leased premises and thereby reduces operating expenses; all other expenses which
would generally be regarded as operating and maintenance expenses which would
reasonably be amortized over a period in accordance with generally accepted
Internal Revenue Service amortization schedules; all real property taxes and
installments of special assessments, including dues and assessments by means of
deed restrictions and/or owners' associations which accrue against the building
of which the leased premises are a part during the term of this Lease; and all
insurance premiums including deductibles claims Lessor is required to pay or
deems necessary to pay, including public liability insurance, with respect to
the building. The term operating expenses does not include the following;
repairs, restoration or other work occasioned by fire, wind, the elements or
other casualty to the extent of insurance proceeds, income and franchise taxes
of Lessor; expenses incurred in leasing to or procuring of lessees, leasing
commissions, advertising expenses and expenses for the renovating of space for
new lessees; interest or principal payments on any mortgage or other
indebtedness of Lessor; compensation paid to any employee of Lessor above the
grade of property manager; any depreciation allowance or expense; or operating
expenses which are the responsibility of Lessee.
2.04 Late Payment Charge. Other remedies for nonpayment of rent
notwithstanding, if the monthly rental payment is not received by Lessor on or
before the tenth day of the month for which the rent is due, or if any other
payment due Lessor by Lessee is not received by Lessor on or before the tenth
day of the month next following the month in which Lessee was invoiced, a late
payment charge of 10% per annum applied to such past due amount shall become due
and payable in addition to such amounts owed under this Lease.
2.05 Increase in Insurance Premiums. If an increase in any insurance
premiums paid by Lessor for the building is caused by Lessee's use of the leased
premises in a manner other than as set forth in section 1.06, or if Lessee
vacates the leased premises and causes an increase in such premiums, then Lessee
shall pay as additional rent the amount of such increase to Lessor.
[section 2.06 stricken]
- 1 -
<PAGE>
2.07 Holding Over. In the event that Lessee does not vacate the leased
premises upon the expiration or termination of this Lease. Lessee shall be a
tenant at will for the holdover period and all of the terms and provisions of
this Lease shall be applicable during that period, except that Lessee shall pay
Lessor as base rental for the period of such holdover an amount equal to 1.22
times the base rent which would have been payable by Lessee had the holdover
period been a part of the original term of this Lease. Lessee agrees to vacate
and deliver the leased premises to Lessor within 60 days after Lessee's receipt
of written notice from Lessor to vacate. The rental payable during the holdover
period shall be payable to Lessor on demand. No holding over by Lessee, whether
with or without the consent of Lessor, shall operate to extend the term of this
Lease.
ARTICLE 3.00 OCCUPANCY AND USE
3.01 Use. Lessee warrants and represents to Lessor that the leased
premises shall be used and occupied only for the purpose as set forth in section
1.06. Lessee shall occupy the leased premises, conduct its business and control
its agents, employees, invitees and visitors in such a manner as is lawful,
reputable and will not create a nuisance. Lessee shall not permit any operation
which emits any odor or matter which intrudes into other portions of the
building, use any apparatus or machine which makes undue noise or causes
vibration in any portion of the building or otherwise interfere with, annoy or
disturb any other lessee in its normal business operations or Lessor in its
management of the building. Lessee shall neither permit any waste on the leased
premises nor allow the leased premises to be used in any way which would, in the
opinion of Lessor, be extra hazardous on account of fire or which would in any
way increase or render void the fire insurance on the building.
3.02 Signs. No sign of any type or description shall be erected, placed
or painted in or about the leased premises or project except those signs
submitted to Lessor in writing and approved by Lessor in writing, and which
signs are in conformance with Lessor's sign criteria established for the
project.
3.03 Compliance with Laws, Rules and Regulations. Lessee, at Lessee's sole
cost and expense, shall comply with all laws, ordinances, orders, rules and
regulations of state, federal, municipal or other agencies or bodies having
jurisdiction over the use, condition or occupancy of the leased premises. Lessee
will comply with the rules and regulations of the building adopted by Lessor
which are set forth on a schedule attached to this Lease. Lessor shall have the
right at all times to change and amend the rules and regulations in any
reasonable manner as may be deemed advisable for the safety, care, cleanliness,
preservation of good order and operation or use of the building or the leased
premises. All changes and amendments to the rules and regulations of the
building will be sent by Lessor to Lessee in writing and shall thereafter be
carried out and observed by Lessee.
3.04 Warranty of Possession. Lessor warrants that it has the right and
authority to execute this Lease, and Lessee, upon payment of the required rents
and subject to the terms, conditions, covenants and agreements contained in this
Lease, shall have possession of the leased premises during the full term of this
Lease as well as any extension or renewal thereof. Lessor shall not be
responsible for the acts or omissions of any other lessee or third party that
may interfere with Lessee's use and enjoyment of the leased premises, but Lessor
agrees to enforce the rules and regulations uniformly against all tenants in
the building.
3.05 Inspection. Lessor or its authorized agents shall at any and all
reasonable times have the right to enter the leased premises to inspect the
same, to supply janitorial service or any other service to be provided by
Lessor, to show the leased premises to prospective purchases or lessees, and to
alter, improve or repair the leased premises or any other portion of the
building. Lessee hereby waives any claim for damages for injury or inconvenience
to or interference with Lessee's business, any loss of occupancy or use of the
leased premises, and any other loss occasioned thereby. Lessor shall at all
times have and retain a key with which to unlock all of the doors in, upon and
about the leased premises. Lessee shall not change Lessor's lock system or in
any other manner prohibit Lessor from entering the leased premises. Lessor shall
have the right to use any and all means which Lessor may deem proper to open any
door in any emergency without liability therefor.
ARTICLE 4.00 UTILITIES AND SERVICE
Lessor shall operate the building in a manner comparable to other first class
office buildings in the Colorado Springs area.
4.01 Building Services. Lessor shall provide water and electricity for
Lessee during the term of this Lease. Lessee shall pay all telephone charges.
Lessor shall furnish Lessee hot and cold water at those points of supply
provided for general use of other lessees in the building, central heating and
air conditioning in season (at times Lessor normally provides these services to
other lessees in the building, and at temperatures and in amounts as are
considered by Lessor to be standard or in compliance with any governmental
regulations, such service on Saturday afternoons, Sundays, evenings and holidays
to be furnished only upon the request of Lessee, who shall bear the entire
cost). Lessor shall also provide routine maintenance, painting and electric
lighting service for all public areas and special service areas of the building
in the manner and to the extent deemed by Lessor to be standard. Lessor may, in
its sole discretion, provide additional services not enumerated herein. Failure
by Lessor to any extent to provide these defined services or any other services
not enumerated, or any cessation thereof, shall not render Lessor liable in any
respect for damages to either person or property, be construed as an eviction of
Lessee, work an abatement of rent or relieve Lessee from fulfillment of any
covenant in this Lease. Should any of the equipment or machinery break down, or
for any cause cease to function properly, Lessor shall use reasonable diligence
to repair the same promptly, but Lessee shall have no claim for rebate of rent
on account of any interruption in service occasioned from the repairs. Lessor
reserves the right from time to time to make changes in the utilities and
services provided by Lessor to the building.
4.02 Theft or Burglary. Lessor shall not be liable to Lessee for losses
to Lessee's property or personal injury caused by criminal acts or entry by
unauthorized persons into the leased premises or the building.
4.03 Janitorial Service. Lessor shall furnish janitorial services to the
leased premises and public areas of the building five times per week during the
term of this Lease, excluding holidays. Lessor shall not provide janitorial
service to kitchens or storage areas included in the leased premises, unless
requested by Lessee in writing and paid for by Lessee.
4.04 Excessive Utility Consumption. Lessee shall pay all utility costs
occasioned by electrodata processing machines, telephone equipment, computers,
and other equipment of high electrical consumption, including without
limitation, the cost of installing, servicing and maintaining any special or
additional inside or outside writing or lines, meters or submeters,
transformers, poles, air conditioning costs, or the cost of any other equipment
necessary to increase the amount or type of electricity or power available to
the leased premises.
4.05 Window Coverings. Lessor shall furnish and install window coverings
on all exterior windows to maintain a uniform exterior appearance. Lessee shall
not remove or replace these window coverings or install any other window
covering which would affect the exterior appearance of the building. Lessee may
install lined or unlined over draperies on the interior sides of the Lessor
furnished window coverings for interior appearance or to reduce light
transmission, provided such over draperies do not affect the exterior appearance
of the building or affect the operation of the building's heating, ventilating
and air conditioning systems.
4.06 Charge for Service. All costs of Lessor for providing the services
set forth in article 4.00 (except those charges paid by Lessee pursuant to
section 4.04) shall be subject to the additional rent provisions in section
2.02.
ARTICLE 5.00 REPAIRS AND MAINTENANCE
5.01 Lessor Repairs. Lessor shall not be required to make any
improvements, replacements or repairs of any kind or character to the leased
premises or the project during the term of this Lease except as are set forth in
this section. Lessor shall maintain only the roof, foundation, parking and
common areas, the structural soundness of the exterior walls, doors, corridors,
windows and other structures or equipment serving the leased premises. Lessor's
costs of maintaining and repairing the items set forth in this section are
subject to the additional provisions in
-2-
<PAGE>
section 2.02. Lessor shall not be liable to Lessee, except as expressly
provided in this Lease, for any damage or inconvenience, and Lessee shall not be
entitled to any abatement or reduction of rent by reason of any repairs,
alterations or additions made by Lessor under this Lease.
5.02 Lessee Repairs. Lessee shall, at its own cost and expense, repair or
replace any damage or injury to all or any part of the leased premises caused by
any act or omission of Lessee or Lessee's agents, employees, invitees, licensees
or visitors; provided, however, if Lessee fails to make the repairs or
replacements promptly, Lessor may, at its option, make the repairs or
replacements, and the costs of such repairs or replacements shall be charged to
Lessee as additional rent and shall become payable by Lessee with the payment of
the rent next due hereunder.
5.03 Request for Repairs. All requests for repairs or maintenance that
are the responsibility of Lessor pursuant to any provision of this Lease must be
made in writing to Lessor at the address in section 1.05.
5.04 Lessee Damages. Lessee shall not allow any damage to be committed on
any portion of the leased premises or building, and at the termination of this
Lease, by lapse of time or otherwise, Lessee shall deliver the leased premises
to Lessor in as good condition as existed at the commencement date of this
Lease, ordinary wear and tear excepted. The cost and expense of any repairs
necessary to restore the condition of the leased premises shall be borne by
Lessee.
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS
6.01 Lessor Improvements. If construction to the leased premises is to be
performed by Lessor during Lessee's occupancy, Lessor will complete the
construction of the improvements to the leased premises in accordance with plans
and specifications agreed to by Lessor and Lessee, which plans and
specifications will be made a part of this Lease by reference or addendum.
Within seven days of receipt of plans and specifications, Lessee shall execute a
copy of the plans and specifications and, if applicable, change orders setting
forth the amount of any costs to be borne by Lessee. Any changes or
modifications to the approved plans and specifications shall be made and
accepted by written change order or agreement signed by Lessor and Lessee and
shall constitute an amendment to this Lease.
6.02 Lessee Improvements. Lessee shall not make or allow to be made any
alterations or physical additions in or to the leased premises without first
obtaining the written consent of Lessor, which consent shall not be unreasonably
withheld or delayed except for alterations or additions that affect the
electrical, mechanical, life safety, or structural building systems, the consent
for which may in the sole and absolute discretion of Lessor be denied. Any
alterations, physical additions or improvements to the leased premises made by
lessee shall at once become the property of Lessor and shall be surrendered to
Lessor upon the termination of this Lease; provided however, Lessor, at its
option, may require Lessee to remove any physical additions and/or repair any
alterations in order to restore the leased premises to the condition existing at
the time Lessee took possession, all costs of removal and/or alterations to be
borne by Lessee. This clause shall not apply to moveable equipment or furniture
owned by Lessee, which may be removed by Lessee at the end of the term of this
Lease if Lessee is not then in default and if such equipment and furniture are
not then subject to any other rights, liens and interests of Lessor.
6.03 Mechanics Lien. Lessee will not permit any mechanic's or
materialman's lien(s) or other lien to be placed upon the leased premises or
the building and nothing in this Lease shall be deemed or construed in any way
as constituting the consent or request of Lessor, express or implied, by
inference or otherwise, to any person for the performance of any labor or the
furnishing of any materials to the leased premises, or any part thereof, nor as
giving Lessee any right, power, or authority to contract for or permit the
rendering of any services or the furnishing of any materials that would give
rise to any mechanic's, materialman's or other lien against the leased premises.
In the event any such lien is attached to the leased premises, then, in addition
to any other right or remedy of Lessor, Lessor may, but shall not be obligated
to, obtain the release of or otherwise discharge the same. Any amount paid by
Lessor for any of the aforesaid purposes shall be paid by Lessee to Lessor on
demand as additional rent.
ARTICLE 7.00 CASUALTY AND INSURANCE
7.01 Substantial Destruction. If the leased premises should be totally
destroyed by fire or other casualty, or if the leased premises should be
damaged so that rebuilding cannot reasonably be completed within ninety working
days after the date of written notification by Lessee to Lessor of the
destruction, this lease shall terminate and the rent shall be abated for the
unexpired portion of the Lease, effective as of the date of the written
notification.
7.02 Partial Destruction. If the leased premises should be partially
damaged by fire or other casualty, and rebuilding or repairs can reasonably be
completed within ninety working days from the date of written notification by
Lessee to Lessor of the destruction, this Lease shall not terminate, and Lessor
shall at its sole risk and expense proceed with reasonable diligence to rebuild
or repair the building or other improvements to substantially the same condition
in which they existed prior to the damage. If the leased premises are to be
rebuilt or repaired and are untenantable in whole or in part following the
damage, and the damage or destruction was not caused or contributed to by act
or negligence of Lessee, its agents, employees, invitees or those for whom
Lessee is responsible, the rent payable under this Lease during the period for
which the leased premises are untenantable shall be adjusted to such an extent
as may be fair and reasonable under the circumstances. In the event that Lessor
fails to complete the necessary repairs or rebuilding within ninety working days
from the date of written notification by Lessee to Lessor of the destruction,
Lessee may at its option terminate this Lease by delivering written notice of
termination to Lessor, whereupon all rights and obligations under this Lease
shall cease to exist.
7.03 Property Insurance. Lessor shall at all times during the term of this
Lease maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company, insuring the
building against all risk of direct physical loss in an amount equal to at least
ninety percent of the full replacement cost of the building structure and its
improvements as of the date of the loss; provided, Lessor shall not be obligated
in any way or manner to insure any personal property (including, but not limited
to, any furniture, machinery, goods or supplies) of Lessee upon or within the
leased premises, any fixtures installed or paid for by Lessee upon or within the
leased premises, or any improvements which Lessee may construct on the leased
premises. Lessee shall have no right in or claim to the proceeds of any policy
of insurance maintained by Lessor even though the cost of such insurance is
borne by Lessee as set forth in Article 2.00.
7.04 Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, Lessor and Lessee hereby waive and release each other of and
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the leased premises, improvements to the building of which the
leased premises are a part, or personal property within the building, by reason
of fire or the elements, regardless of cause or origin, including negligence of
Lessor or Lessee and their agents, officers and employees. Lessor and Lessee
agree immediately to give their respective insurance companies which have issued
policies of insurance covering all risk of direct physical loss, written notice
of the terms of the mutual waivers contained in this section, and to have the
insurance policies properly endorsed, if necessary, to prevent the invalidation
of the insurance coverages by reason of the mutual waivers.
7.05 Hold Harmless. Lessor shall not be liable to Lessee's employees,
agents, invitees, licensees or visitors, or to any other person, for an injury
to person or damage to property on or about the leased premises caused by any
act or omission of Lessee, its agents, servants or employees, or of any other
person entering upon the leased premises under express or implied invitation by
Lessee, or caused by the improvements located on the leased premises becoming
out of repair, the failure of cessation of any service provided by Lessor
(including security service and devices), or caused by leakage of gas, oil,
water or steam or by electricity emanating from the leased premises. Lessee
agrees to indemnify and hold harmless Lessor of and from any loss, attorney's
fees, expenses or claims arising out of any such damage or injury.
ARTICLE 8.00 CONDEMNATION
8.01 Substantial Taking. If all or a substantial part of the leased
premises are taken for any public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain or by purchase in
lieu thereof, and the taking would prevent or materially interfere with the use
of the leased premises for the purpose for which it is then being used, this
Lease shall terminate and the rent shall be abated during the unexpired portion
of this Lease effective on the date physical possession is taken by the
condemning authority. Lessee shall have no claim to the condemnation award or
proceeds in lieu thereof. Lessee may, in a separate legal action, make any
claims against the condemning authority permitted by Colorado law, but in no
event shall any award to Lessee reduce the award to Lessor.
-3-
<PAGE>
8.02 Partial Taking. If a portion of the leased premises shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as provided in section 8.01 above, Lessor shall at
Lessor's sole risk and expense, restore and reconstruct the building and other
improvements on the leased premises to the extent necessary to make it
reasonably tenantable. The rent payable under this Lease during the unexpired
portion of the term shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. Lessee shall have no claim to the
condemnation award or proceeds in lieu thereof. Lessee may, in a separate legal
action, make any claims against the condemning authority permitted by Colorado
law, but in no event shall any award to Lessee reduce the award to Lessor.
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE
9.01 Lessor Assignment. Lessor shall have the right to sell, transfer or
assign, in whole or in part, its rights and obligations under this Lease and in
the building. Any such sale, transfer or assignment shall operate to release
Lessor from any and all liabilities under this Lease arising after the date of
such sale, assignment or transfer.
9.02 Lessee Assignment. Lessee shall not assign, in whole or in part, this
Lease, or allow it to be assigned, in whole or in party, by operation of law or
otherwise (including without limitation by transfer of a majority interest of
stock, merger, or dissolution, which transfer of majority interest of stock,
merger or dissolution shall be deemed an assignment) or mortgage or pledge the
same, or sublet the leased premises, in whole or in part, without the prior
written consent of Lessor, which consent shall not be unreasonably withheld or
delayed and Lessor may consider the intended use, parking requirements, and
financial condition of the prospective assignee or subtenant in deciding whether
to consent, and in no event shall any such assignment or sublease ever release
Lessee or any guarantor from any obligation or liability hereunder. No assignee
or sublessee of the leased premises or any portion thereof may assign or sublet
the leased premises or any portion thereof.
9.03 Conditions of Assignment. If Lessee desires to assign or sublet all or
any part of the leased premises, it shall so notify Lessor at least thirty days
in advance of the date on which Lessee desires to make such assignment or
sublease. Lessee shall provide Lessor with a copy of the proposed assignment or
sublease and such information as Lessor might request concerning the proposed
sublessee or assignee to allow Lessor to make informed judgments as to the
financial condition, reputation, operations and general desirability of the
proposed sublessee or assigned. Within fifteen days after Lessor's receipt of
Lessee's proposed assignment or sublease and all required information concerning
the proposed sublessee or assignee. Lessor shall have the following options: (1)
cancel this Lease as to the leased premises or portion thereof proposed to be
assigned or sublet: (2) consent to the proposed assignment or sublease, and, if
the rent due and payable by any assignee or sublessee under any such permitted
assignment or sublease (or a combination of the rent payable under such
assignment or sublease plus any bonus or any other consideration or any payment
incident thereto) exceeds the rent payable under this Lease for such space,
Lessee shall pay to Lessor all such excess rent and other excess consideration
less any reasonable expenses incurred in obtaining the assignment or sublease,
within ten days following receipt thereof by Lessee; or (3) refuse, in its
reasonable discretion and judgment, to consent to the proposed assignment or
sublease, which refusal shall be deemed to have exercised unless Lessor gives
Lessee written notice providing otherwise. Upon the occurrence of an event of
default, if all or any part of the leased premises are then assigned or sublet,
Lessor, in addition to any other remedies provided by this Lease or provided by
law, may, at its option, collect directly from the assignee or sublessee all
rents becoming due to Lessee by reason of the assignment or sublease, and Lessor
shall have a security interest in all properties on the leased premises to
secure payment of such sums. Any collection directly by Lessor from the assignee
or sublessee shall not be construed to constitute a novation or a release of
Lessee or any guarantor from the further performance of its obligations under
this Lease.
9.04 Subordination. Lessee accepts this Lease subject and subordinate to
any recorded mortgage or deed of trust lien presently existing or hereafter
created upon the building or project and to all existing recorded restrictions,
covenants, easements and agreements with respect to the building or project.
Lessor is hereby irrevocably vested with full power and authority to subordinate
Lessee's interest under this Lease to any first mortgage or deed of trust lien
hereafter placed on the leased premises, and Lessee agrees upon demand to
execute additional instruments subordinating this Lease as Lessor may require.
If the interests of Lessor under this Lease shall be transferred by reason of
foreclosure or other proceedings for enforcement of any first mortgage or deed
of trust lien on the leased premises. Lessee shall be bound to the transferee
(sometimes called the "Purchaser") under the terms, covenants and conditions of
this Lease for the balance of the term remaining, including any extensions or
renewals, with the same force and effect as if the Purchaser were Lessor under
this Lease, and, if requested by the Purchaser, Lessee agrees to attorn to the
Purchaser, including the first mortgagee under any such mortgage if it be the
Purchaser, as its Lessor, provided that, so long as Lessee is not in default
under the lease, Purchaser shall not disturb Lessee's quiet enjoyment of the
leased premises and shall be bound to all terms and conditions of this lease.
9.05 Estoppel Certificates. Lessee agrees to furnish, from time to time,
within fifteen days after receipt of a request from Lessor or Lessor's
mortgagee, a statement certifying, if applicable, the following: Lessee is in
possession of the leased premises; the leased premises are acceptable; the Lease
is in full force and effect; the Lease is unmodified: Lessee claims no present
charge, lien, or claim of offset against rent; the rent is paid for the current
month, but is not prepaid for more than one month and will not be prepaid for
more than one month in advance; there is no existing default by reason of some
act or omission by Lessor; and such other matters as reasonably required by
Lessor or Lessor's mortgagee. Lessee's failure to deliver such statement, in
addition to being a default under this Lease, shall be deemed to establish
conclusively that this Lease is in full force and effect except as declared by
Lessor, that Lessor is not in default of any of its obligations under this
Lease, and that Lessor has not received more than one month's rent in advance.
ARTICLE 10.00 LIENS
[SECTIONS 10.1 AND 10.2 STRICKEN]
ARTICLE 11.00 DEFAULT AND REMEDIES
11.01 Default by Lessee. The following shall be deemed to be events of
default by Lessee under this Lease: (1) Lessee shall fail to pay ten days after
written notice any installment of rent or any other payment required pursuant to
this Lease: (2) Lessee shall abandon more than 75% of the leased premises: (3)
Lessee shall fail to comply with any term, provision or covenant of this Lease,
other than the payment of rent, and the failure is not cured within ten days
after written notice to Lessee: (4) Lessee shall file a petition or be adjudged
bankrupt or insolvent under any applicable federal or state bankruptcy or
insolvency law or admit that it cannot meet its financial obligations as they
become due; or a receiver or trustee shall be appointed for all substantially
all of the assets of Lessee: or Lessee shall make a transfer in fraud of
creditors or shall make an assignment for the benefit of creditors: or (5)
Lessee shall do or permit to be done any act which results in a lien being filed
against the leased premises or the building and or project of which the leased
premises are a part, unless Lessee removes or bonds over such lien within 30
days after written notice from Lessor.
_ 4 _
<PAGE>
11.02 Remedies for Lessee's Default. Upon the occurrence of any default set
forth in this Lease, Lessor shall have the option to pursue any one or more of
the remedies set forth herein without any notice or demand. (1) Lessor may enter
upon and take possession of the leased premises, by picking or changing locks if
necessary, and lock out, expel or remove Lessee and any other person who may be
occupying all or any part of the leased premises without being liable for any
claim for damages, and relet the leased premises on behalf of Lessee and receive
the rent directly by reason of the reletting. Lessee agrees to pay Lessor on
demand any deficiency that may arise by reason of any reletting of the leased
premises; further, Lessee agrees to reimburse Lessor for any expenditures made
by it in order to relet the leased premises, including, but not limited to,
remodeling and repair costs. (2) Lessor may enter upon the leased premises, by
picking or changing locks if necessary, without being liable for any claim for
damages, and do whatever Lessee is obligated to do under the terms of this
Lease. Lessee agrees to reimburse Lessor on demand for any expenses which Lessor
may incur in effecting compliance with Lessee's obligations under this Lease;
further, Lessee agrees that Lessor shall not be liable for any damages resulting
to Lessee from effecting compliance with Lessee's obligations under this Lease;
further, Lessee agrees that Lessor shall not be liable for any damages resulting
to Lessee from effecting compliance with Lessee's obligations under this Lease
caused by the negligence of Lessor or otherwise. (3) Lessor may terminate this
Lease, in which event Lessee shall immediately surrender the leased premises to
Lessor, and if Lessee fails to surrender the leased premises, Lessor may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the leased premises, by
picking or changing locks if necessary, and lock out, expel or remove Lessee and
any other person who may be occupying all or any part of the leased premises
without being liable for any claim for damages. Lessee agrees to pay on demand
the amount of all loss and damage which Lessor may suffer by reason of the
termination of this Lease under this section, whether through inability to relet
the leased premises on satisfactory terms or otherwise. Notwithstanding any
other remedy set forth in this Lease, in the event Lessor has made rent
concessions of any type or character, or waived any base rent, and Lessee fails
to take possession of the leased premises on the commencement or completion date
or otherwise defaults at any time during the term of this Lease, the rent
concessions, including any waived base rent, shall be cancelled and the amount
of the base rent or other rent concessions shall be due and payable immediately
as if no rent concessions or waiver of any base rent had ever been granted. A
rent concession or waiver of the base rent shall not relieve Lessee of any
obligation to pay any other charge due and payable under this Lease including
without limitation any sum due under Section 2.02. Notwithstanding anything
contained in this Lease to the contrary, this Lease may be terminated by Lessor
only by mailing or delivering written notice of such termination to Lessee, and
no other act or omission of Lessor shall be construed as a termination of this
Lease.
ARTICLE 12.00 RELOCATION
12.01 Relocation Option. [stricken]
12.02 Expenses. [stricken]
ARTICLE 13.00 DEFINITIONS
13.01 Abandon. "Abandon" means the vacating more than 75% of the leased
premises by Lessee, with no intent to return and operate its business from the
leased premises, whether or not Lessee is in default of the rental payments due
under this Lease.
13.02 Act of God or Force Majeure. An "act of God" or "force majeure" is
defined for purposes of this Lease as strikes, lockouts, sitdowns, material or
labor restrictions by any governmental authority, unusual transportation delays,
riots, floods, washouts, explosions, earthquakes, fire, storms, weather
(including wet grounds or inclement weather wich prevents construction), acts of
the public enemy, wars, insurrections and any other cause not reasonably within
the control of Lessor and which by the exercise of due diligence Lessor is
unable, wholly or in part, to prevent or overcome.
13.03 Building or Project. "Building" or "project" as used in this Lease
means the building and/or project described in section 1.02, including the
leased premises and the land upon which the building or project is situated.
13.04 Commencement Date. "Commencement date" shall be the date set forth in
section 1.03. The commencement date shall constitute the commencement of the
term of this Lease for all purposes, whether or not Lessee has actually taken
possession.
13.05 Completion Date. "Completion date" shall be the date on which the
improvements erected and to be erected upon the leased premises shall have been
completed in accordance with the plans and specifications described in article
6.00. The completion date shall constitute the commencement of the term of this
Lease for all purposes, whether or not Lessee has actually taken possession.
Lessor shall use its best efforts to establish the comletion date as the date
set forth in section 1.03. In the event that the improvements have not in fact
been completed as of that date, Lessee shall notify Lessor in writing of its
objections. Lessor shall have a reasonable time after delivery of the notice in
which to take such corrective action as may be necessary and shall notify Lessee
in writing as soon as it deems such corrective action has been completed and the
improvements are ready for occupancy. Upon completion of construction, Lessee
shall deliver to Lessor a letter accepting the leased premises as suitable for
the purposes for which they are let and the date of such letter shall constitute
the commencement of the term of this Lease. Whether or not Lessee has executed
such letter of acceptance, taking possession of the leased premises by Lessee
shall be deemed to establish conclusively that the improvements have been
completed in accordance with the plans and specifications, are suitable for the
purposes for which the leased premises are let, and that the leased premises are
in good and satisfactory condition as of the date possession was so taken by
Lessee, except for latent defects, if any.
13.06 Square Feet. "Square feet" or "square foot" as used in this Lease
includes the area contained within the leased premises together with a common
area percentage factor of the leased premises proportionate to the total
building area.
ARTICLE 14.00 MISCELLANEOUS
14.01 Waiver. Failure of Lessor to declare an event of default immediately
upon its occurrence, or delay in taking any action in connection with an event
of default, shall not constitute a waiver of the default, but Lessor shall have
the right to declare the default at any time and take such action as is lawful
or authorized under this Lease. Pursuit of any one or more of the remedies set
forth in article 11.00 above shall not preclude pursuit of any one or more of
the other remedies provided elsewhere in this Lease or provided by law, nor
shall pursuit of any remedy constitute forfeiture or waiver of any rent or
damages accruing to Lessor by reason of the violation of any of the terms,
provisions or convenants of this Lease. Failure by Lessor to enforce one or more
of the remedies provided upon an event of default shall not be deemed or
construed to constitute a waiver of the default or of any other violation or
breach of any of the terms, provisions and covenants contained in this Lease.
14.02 Act of God. Neither Lessor nor Lessee shall be required to perform
any covenant or obligation in this Lease, or be liable in damages to the other
party, so long as the performance or non-performance of the covenant or
obligation is delayed, caused or prevented by an act of God, force majeure.
14.03 Attorney's Fees. [stricken]
14.04 Successors. This Lease shall be binding upon and inure to the benefit
of Lessor and Lessee and their respective heirs, personal representatives,
successors and assigns. It is hereby covenanted and agreed that should Lessor's
interest in the leased premises cease to exist for any reason during the term of
this Lease, then notwithstanding the happening of such event this Lease
nevertheless shall remain unimpaired and in full force and effect, and Lessee
hereunder agrees to attorn to the then owner of the leased premises.
- 5 -
<PAGE>
14.05 Rent Tax. If applicable in the jurisdiction where the leased
premises are situated. Lessee shall pay and be liable for 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 Lessor by Lessee under the
terms of this Lease. Any such payment shall be paid concurrently with the
payment of the rent, additional rent, operating expenses or other charge upon
which the tax is based as set forth above.
14.06 Captions. The captions appearing in this Lease are inserted only as
a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any section.
14.07 Notice. All rent and other payments required to be made by Lessee
shall be payable to Lessor at the address set forth in section 1.05. All
payments required to be made by Lessor to Lessee shall be payable to Lessee at
the address set forth in section 1.05, or at any other address within the United
States as Lessee may specify from time to time by written notice. Any notice or
document required or permitted to be delivered by the terms of this Lease shall
be deemed to be delivered (whether or not actually received) when deposited in
the United States Mail, postage prepaid, certified mail, return receipt
requested, addressed to the parties at the respective addresses set forth in
section 1.05.
14.08 Submission of Lease. Submission of this Lease to Lessee for
signature does not constitute a reservation of space or an option to lease.
This Lease is not effective until execution by and delivery to both Lessor and
Lessee.
14.09 Corporate Authority. If Lessee executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Lessee does
hereby personally represent and warrant that Lessee is a duly authorized and
existing corporation, that Lessee is qualified to do business in the state in
which the leased premises are located, that the corporation has full right and
authority to enter into this Lease, and that each person signing on behalf of
the corporation is authorized to do so. In the event any representation or
warranty is false, all persons who execute this Lease shall be liable,
individually, as Lessee.
14.10 Severability. If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
14.11 Lessor's Liability. If Lessor shall be in default under this Lease
and, if as a consequence of such default, Lessee shall recover a money judgment
against Lessor, such judgment shall be satisfied only out of the right, title
and interest of Lessor in the building as the same may then be encumbered and
neither Lessor nor any person or entity comprising Lessor shall be liable for
any deficiency. In no event shall Lessee have the right to levy execution
against any property of Lessor nor any person or entity comprising Lessor other
than its interest in the building as herein expressly provided.
14.12 Indemnity. Lessor agrees to indemnify and hold harmless Lessee from
and against any liability or claim, whether meritorious or not, arising with
respect to any broker whose claim arises by, through or on behalf of Lessor.
Lessee agrees to indemnify and hold harmless Lessor from and against any
liability or claim, whether meritorious or not, arising with respect to any
broker whose claim arises by, through or on behalf of Lessee.
ARTICLE 15.00 AMENDMENT AND LIMITATION OF WARRANTIES
15.01 Entire Agreement. IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL
CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE
SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF
THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES,
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR
TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN
WRITING IN THIS LEASE.
15.02 Amendment. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
15.03 Limitation of Warranties. LESSOR AND LESSEE EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE,
AND THERE ARE NOT WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN
THIS LEASE.
ARTICLE 16.00 OTHER PROVISIONS
See Addendum attached hereto and made a part hereof for additional provisions of
this lease.
ARTICLE 17.00 SIGNATURES
SIGNED at Ft. Wayne, In this 28th day of July , 1989
----------------------- -------- ------------------- --
LESSOR LESSEE
BRADFORD PROPERTY COMPANY, INC., LINCOLN NATIONAL LIFE INSURANCE COMPANY,
- ---------------------------------- -----------------------------------------
a Delaware corporation an Indiana corporation
- ---------------------------------- -----------------------------------------
By: /s/ STEVEN M. HENNERTOWN By: /s/ JAMES M. SCHMELZER
------------------------------- -----------------------------------------
VICE PRESIDENT ASSISTANT SECRETARY
- ---------------------------------- -----------------------------------------
(Type Name and Title) (Type Name and Title)
-6-
<PAGE>
EXHIBIT A CONTINUED
WORK LETTER
FOR
LINCOLN NATIONAL
SUITE 100
NORTHCREEK II
5755 MARK DABLING BLVD.
COLORADO SPRINGS, CO 80919
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1 General Requirements
2 Site Work
3 Concrete Work
4 Masonry Work
5 Metals & Structural Steel
6 Wood & Plastics
7 Thermal & Moisture Protection
8 Glazing, Doors, Hardware & Windows
9 Finishes
10 Specialties
11 Equipment
12 Furnishings
13 Special Construction
14 Conveying Systems
15 Mechanical
16 Electrical
</TABLE>
<PAGE>
SECTION 1
---------
GENERAL REQUIREMENTS
--------------------
1.1 MATERIALS: Unless otherwise specified, all materials shall be new, and in
----------
compliance with the specifications set forth at the time of construction.
Where more than one material for the same size and service is listed,
either material or brand may be selected, but that selection must be used
throughout the project. All materials must meet the ASTM and ANSI
standards and be in compliance with Section 1.5 of this document.
1.2 CLEANING: The Contractor shall keep the premises and adjoining areas free
---------
from excess waste material and debris, and upon completion of the work
shall remove from the premises all rubbish, tools, equipment and surplus
materials and leave the building clean and free of debris, all glass
washed, and tile floors waxed.
1.3 SUBSTITUTIONS AND/OR VARIATIONS: Substitutions, variations or deviations
--------------------------------
shall be permitted, but not without prior approval of Architect and
Tenant or their authorized representatives. Substitution shall be
considered only on the basis of product availability or prohibitive lead
time.
1.4 GUARANTEE/WARRANTY: The Contractor shall enforce a specific and
-------------------
unconditional warranty on all materials, workmanship, equipment, fixtures
and sub-assemblies subject to normal use and maintenance for a period not
to exceed one (1) year from the date of final acceptance of the space.
Said warranty shall not be exclusive of implied or specific warranties
enforced by manufacturers and/or suppliers of aforementioned materials,
equipment, fixtures and/or sub-assemblies. The General Contractor shall
prepare and supply to the Owner, an Owners Manual incorporating all
-------------
guarantees, warranties, operating instructions and maintenance procedures
as they apply to the aforementioned, and is to be delivered to the Owner
upon acceptance of the construction of each respective project.
1.5 CODES, ORDINANCES & STANDARDS: All interior tenant finish construction
------------------------------
shall be constructed in accordance with the drawings and these
Specifications shall comply with all of the following:
1. Building Code - Uniform Building Code
2. Plumbing Code - Uniform Building Code
3. Mechanical Code - Uniform Building Code
4. Electrical Code - National Electric Code
5. Local Codes, Ordinances, & Standards
6. SMACNA Standards
7. NEMA Standards
8. U.L. Approvals
9. American Woodwork Institute
1.6 TENANT RESPONSIBILITIES: The following items are not a part of this work
------------------------
letter and if so desired, are to be furnished by the tenant:
1. Furniture, files and accessories
2. Vending machines
3. Coffee makers
4. Racks, bins, work benches, pallets
5. Copying machines
6. Telex
7. Waste receptacles
8. Conveyors and conveying equipment
9. Food service equipment and supplies
1.7 DRAWING APPROVAL PROCESS: Tenant will be responsible for signing off on a
-------------------------
final space plan prior to start of final tenant finish contract
documents. Upon completion of contract documents, tenant will be
responsible for signing off on drawings prior to start of tenant finish
work.
SECTION 2
---------
SITE WORK
---------
2.1 UTILITY CONDUIT: Three (3) 4" PVC conduit runs from existing NorthCreek I
----------------
building to NorthCreek II with appropriate pull boxes.
<PAGE>
SECTION 3
---------
CONCRETE WORK
-------------
3.1 SAW CUTTING & DRILLING of the existing concrete slab shall take place for
----------------------
the installation of pipes, ducts, wiring, etc. as required. The size of
the penetration shall be determined by the size of pipe, duct, wiring,
etc. to penetrate floor. Contractor shall coordinate. All voids shall be
filled with concrete or with fiber safing insulation.
3.2 STONING: The existing concrete slab shall be leveled where determined
--------
necessary by the architect. Floor stone shall be applied and ground so as
to create a smooth and level surface for the application of floor
finishes. All joints and cracks shall be filled to create a smooth and
level surface.
SECTION 4
---------
MASONRY WORK
------------
No requirement under Section 4
SECTION 5
---------
METAL & STRUCTURAL STEEL
------------------------
No requirement under Section 5
SECTION 6
---------
WOODS & PLASTICS
----------------
6.1 RECEPTION STATION: One reception station comprising of architectural wood
------------------
work, plastic laminate and wood laminate casework.
6.1.1 Laminates: Color, pattern and finish required for each
----------
application as manufactured by formica or Wilsonart.
6.1.2 Architectural woodwork: Premium grade walnut used where
-----------------------
hardwood is indicated. Finish to be 2 coats high solids
lacquer (Velvet).
6.2 RESTROOM COUNTERS: Cast units of epoxy or other resins, binders, pigments
------------------
and graining pattern as manufactured by DuPont "Corian" or equal.
SECTION 7
---------
THERMAL & MOISTURE PROTECTION
-----------------------------
7.1 WALL INSULATION BLANKETS shall be 3 1/2" thick and 16" or 24" wide to
conform with the corresponding stud layout. Refer to drawings for height.
Blankets shall be as manufactured by Owens-Corning or equal and shall
conform to the following requirements:
7.1.2 Sound Insulation Blankets shall be unfaced fiberglass with an
-------------------------
R-11 thermal resistance.
SECTION 8
---------
DOORS, GLAZING, WINDOWS & HARDWARE
----------------------------------
8.1 DOOR FRAMES: Door frames shall be Raco series as manufactured by Ragland
------------
Manufacturing Company in Houston, Texas. Frames shall encompass the
finished wall thickness and attach to the wall with all fasteners
concealed. All frames shall receive a hard, dark bronze, "Duralaq"
finish. Frames shall conform to the following requirements:
8.1.1 Aluminum Door Frames shall be series 487, prestige, with full
--------------------
length aluminum "separate studs". Separate studs shall be
installed by framing subcontractor.
<PAGE>
8.1.2 Steel Door Frames shall be series 487, adjustable,
-----------------
freestanding frames.
8.1.3 One Hour Rated Door Frames shall be hollow metal painted to
--------------------------
match Duralaq finish.
8.2 WOOD DOORS: All wood doors shall be solid core, flush panel style. Doors
-----------
shall receive premium grade, walnut veneer on both faces and edges. All
doors to be machined for hardware. Where noted on the door schedule to be
"labeled" doors, the entire assembly of the door, frame and hardware
shall bear the underwriters label. All wood doors to meet AWI Quality
Standards of Architectural Woodwork Institute. Finish by Architect.
8.2.1 Acceptable Manufacturers: Buell, Weyerhauser, Calwood.
-------------------------
8.2.2 Door Types:
-----------
8.2.2.1 3'-0" x 8'-4" Flush interior doors: 1 3/4" thick,
solid core with walnut face and edge veneers
premium grade; face veneer plain sliced.
8.2.2.2 3'-0" x 8'-4" Fire rated flush door: 1 3/4" thick;
walnut faced, edge veneers; premium grade.
8.3 INTERIOR WINDOWS: UL labeled interior windows shall conform to the
-----------------
following requirements:
8.3.1 Interior Window Frames shall be the "Raco" series Prestige
----------------------
prefinished aluminum borrowed lite frame as supplied by
Ragland Manufacturing Co., Inc., Houston, Texas. Frames shall
encompass the finished wall thickness and attach to the wall
with all fasteners concealed. All frames, continuous headers
and moldings shall receive a hard, dark bronze, Duralaq
finish.
8.3.2 Glass for windows & sidelites shall be 1/4" thick glazing
-----------------------------
quality clear tempered.
8.3.3 Glass for windows & sidelites in fire rated walls shall be
-------------------------------------------------
1/4" thick glass reinforced with 24 guage wire mesh embedded
in glass with openings no longer than one square inch.
8.4 HARDWARE & SPECIALTIES shall conform to the following requirements:
----------------------
8.4.1 Mortise lockset shall be interchangeable core Type 24H
---------------
Series, 24H6FW-612, US10 Finish, as manufactured by Best Lock
Corporation.
8.4.2 Cylinder locksets shall be interchangeable core type, medium
-----------------
duty series, 53K-6A6-C-53-612, US10 Finish as manufactured by
Best Lock Corporation.
8.4.3 Passage set shall be semi-heavy duty series, 53KON6-53-612,
-----------
US10 finish as manufactured by Best Lock Corporation.
8.4.4 Dummy knob for inactive leafs of double doors shall be
----------
semi-heavy duty series 53KDTS-612, US10 finish as
manufactured by Best Lock Corporation. Mount on surface.
8.4.5 Deadlocks shall be 57T6S, US10 finish, as manufactured by
---------
Best Lock Corporation.
8.4.6 Finger pulls for pocket doors shall be sliding door
------------
combination pull, No. 100, US4 finish as manufactured by
Quality Hardware Manufacturing Company.
8.4.7 Finger pulls for bypass doors shall be 2 1/2" diameter, No.
------------
71, US4 finish, as manufactured by Quality Hardware
Manufacturing Company.
8.4.8 Finger pulls for bifold doors shall be knob type, No. 291,
------------
US4 finish, as manufactured by Quality Hardware Manufacturing
Company.
<PAGE>
8.4.9 Butts shall be 4 1/2" x 4" Hager, AB920. Attach with
-----
self-drilling and tapping screws.
8.4.10 Wall mounted stop shall be No. 302, US4 finish, as
-----------------
manufactured by Quality Hardware Manufacturing Company.
SECTION 9
---------
FINISHES
--------
9.1 GYPSUM DRYWALL shall consist of 3 5/8" metal stud at 16 or 24 on center
--------------
with 5/8" gypsum board each side. Standard office wall to 8'-6" A.F.F.
9.1.1 Gypsum drywall finish shall be smooth and continuously flat
---------------------
surface free from ripples, ridges or dents and shall receive
a "knock down" type texture.
9.1.2 Paint: Interior gypsum board shall receive no less than 2
------
coats of flat latex paint.
9.1.2.1 Restroom areas shall receive no less than 1 coat flat
--------------
latex paint, plus no less than 1 coat semi-glass latex
enamel.
9.2 ACCOUSTICAL & CEILING SYSTEMS:
------------------------------
9.2.1 Ceiling board shall be 2x4 5/8" lay-in panels with 2x2
-------------
scribbled face as manufactured by Armstrong; style Second
Look No. 2767B.
9.2.2 Exposed suspended grid system shall be 2x4 "DX Series" with
-----------------------------
baked on white enamel finish on all exposed faces.
9.3 FINISH FLOORING:
----------------
9.3.1 Carpet shall be 18"x18" carpet tiles as manufactured by
------
Milliken or Interface or equal.
9.3.2 Vinyl composite tile shall be 12"x12"x1/8" Excelon as
--------------------
manufactured by Armstrong.
9.3.3 Ceramic tile shall be 2"x2" as manufactured by Dal Tile,
------------
Winburn or equal.
9.3.4 Vinyl base shall be Flex Dove VC-300 burnt umber unless
----------
otherwise specified. Straight 4" base at carpeted areas and
cove 4" at vinyl tile areas.
SECTION 10
----------
SPECIALTIES
-----------
10.1 Moveable Wall shall be a panelized system consisting of ceiling mounted
-------------
track and rollers as manufactured by Emco or equal.
10.2 CABLE DISTRIBUTION shall be achieved through the use of a J hook system
------------------
supported from structure above traveling from cable distribution point
along approximate center of each wing.
10.3 TOILET ROOM MATERIALS: All materials shall conform to the following
----------------------
requirements:
10.3.1 Roll paper holder shall be surface mounted, B-685 as
-----------------
manufactured by Bobrick. See Drawings for mounting height and
locations.
10.3.2 Towel dispenser and waste receptacle shall be recessed
------------------------------------
mounted, #B-369 as manufactured by Bobrick. See drawings for
mounting height and locations.
<PAGE>
10.3.3 Mirror shall be as sized per the drawings with a chrome
------
perimeter frame.
10.3.4 Toilet partitions shall be ceiling mounted partition with all
-----------------
stalls having doors. Partitions are finished with a baked
enamel custom color.
SECTION 12
----------
EQUIPMENT
---------
No requirement under Section II
SECTION 12
----------
FURNISHINGS
-----------
No requirement under Section 12
SECTION 13
----------
SPECIAL CONSTRUCTION
--------------------
No requirement under Section 13
SECTION 14
----------
CONVEYING SYSTEM
----------------
No requirement under Section 14
SECTION 15
----------
MECHANICAL
----------
15.1 PLUMBING FIXTURES: Plumbing fixtures shall conform to the following
------------------
requirements:
15.1.1 Stainless steel sink shall be 3 hole (unless otherwise
--------------------
noted), self rimming stainless steel sink as manufactured by
Just.
15.1.2 Electric water heaters shall be standard Courier model CV-No.
----------------------
of Gals.-I MSI-K as manufactured by State Industries or
equal. Connect with a dielectric union and 3/4" temperature
and pressure relief valve. Pipe relief to floor drain. Number
of gallons to be determined.
15.1.3 Floor drain shall be Smith 2" with brass strainer, Smith,
-----------
Josam or equal.
15.1.4 Watercloset shall be Kohler, Water Guard, K-4430-ET. Include
-----------
the following: Seat-Bemis 1355SSLC, Valve-Sloan #110-HL3-3.
15.1.5 Lavatory shall be American Standard, Oval Horizon #3303.013
--------
with the following components: Central Brass Faucet #467 PAV
with EL handles, 17 ga. chrome plated drain riser, P-trap,
escutcheons, fittings and valves.
15.2 HVAC SYSTEM:
-----------
15.2.1 Design conditions: HVAC system will follow the design
------------------
criteria below:
Outside Air Inside Air
----------- ----------
Cooling Season 95FDB & 59 FWB 78 FDB
Heating Season 1 FDB 72 FDB
Conference rooms, breakroom, restrooms will have exhaust
systems as required.
<PAGE>
15.2.2 General HVAC System Overview: The system is a variable air
-----------------------------
volume with perimeter fan powered boxes for heat. System will
be zoned in increments of approximately 800 square feet per
zone, depending on north, east and west orientation. Corners
will be zoned separately. Final distribution of air
quantities will be determined through load calculation
gathered from tenant on occupant load densities, heat
producing equipment, lighting, etc.
15.2.2.1 Specialized areas such as conference room will be
zoned separately.
SECTION 16
----------
ELECTRICAL
----------
16.1 LIGHTING FIXTURES:
------------------
16.1.1 Fluorescent troffer lighting shall be 2'x 4' #2GA-440-A12 or
----------------------------
2'x 2' #2GA-3U40-A12 as manufactured by Lithonia. Fixtures
shall be installed with a system #747 soft wire connection
system as manufactured by Dual-Lite or Reloc System #704. All
ballasts shall be energy efficient type, Advance MK111 or
equal.
16.1.2 Incandescent Down-Lighting shall be 7054 clear downlight or
--------------------------
7029 clear wall washer as manufactured by Lightolier. Refer
to fixture schedule on the drawings for lamp sizes.
16.1.2 Emergency Power Source for fluorescent lighting shall be
----------------------
"Lampak II", #UFO-2 as manufactured by Dual-Lite. Connect to
one set of lamps.
16.1.3 Modular Wiring shall be #747 system as manufactured by Dual-
--------------
Lite, Reloc System #704 as manufactured by Lithonia or an
approved equal.
16.1.4 Lamps: All general service incandescent lamps shall be of the
------
inside frosted type. All fluorescent lamps shall be "cool
white" in color. Par lamps, mercury vapor, metal halide and
highpressure sodium lamps and fixtures shall be as specified
on Lighting Schedule on the drawings. Lamps shall be General
Electric, Sylvania, Westinghouse, Norelco, or an approved
equal.
16.1.5 Exit Signs shall be the "Exquisite" series, green face with
----------
self-contained battery pack, as manufactured by Dual-Lite.
Install wall mount or ceiling mount, 120 volt or 277 volt as
shown on drawings.
16.2 ELECTRICAL FLOOR BOXES: shall be installed for power and telephone
-----------------------
distribution to tenant supplied work station race ways.
16.2.1 One phone outlet box shall be installed per single office.
16.2.2 Two electrical duplex outlets shall be installed per single
office.
<PAGE>
RULES AND REGULATIONS
1. Lessor agrees to furnish Lessee two keys without charge. Additional keys
will be furnished at a nominal charge. Lessee shall not change locks or
install additional locks on doors without prior written consent of Lessor.
Lessee shall not make or cause to be made duplicates of keys procured from
Lessor without prior approval of Lessor. All keys to leased premises shall
be surrendered to Lessor upon termination of this Lease.
2. Lessee will refer all contractors, contractor's representatives and
installation technicians rendering any service on or to the leased premises
for Lessee to Lessor for Lessor's approval before performance of any
contractual service. Lessee's contractors and installation technicians shall
comply with Lessor's rules and regulations pertaining to construction and
installation. This provision shall apply to all work performed on or about
the leased premises or project, including installation of telephones,
telegraph equipment, electrical devices and attachments and installations of
any nature affecting floors, walls, woodwork, trim, windows, ceilings and
equipment or any other physical portion of the leased premises or project.
3. Lessee shall not at any time occupy any part of the leased premises or
project as sleeping or lodging quarters.
4. Lessee shall not place, install or operate on the leased premises or in any
part of the building any engine, stove or machinery, or conduct mechanical
operations or cook thereon or therein, or place or use in or about the
leased premises or project any explosives, gasoline, kerosene, oil, acids,
caustics, or any flammable, explosive or hazardous material without written
consent of Lessor.
5. Lessor will not be responsible for lost or stolen personal property,
equipment, money or jewelry from the leased premises or the project
regardless of whether such loss occurs when the area is locked against entry
or not.
6. No dogs, cats, fowl, or other animals shall be brought into or kept in or
about the leased premises or project.
7. Employees of Lessor shall not receive or carry messages for or onto any
Lessee or other person or contact with or render free or paid services to
any Lessee or to any of Lessee's agents, employees or invitees.
8. None of the parking, plaza, recreation or lawn areas, entries, passages,
doors, elevators, hallways or stairways shall be blocked or obstructed or
any rubbish, litter, trash, or material of any nature placed, emptied or
thrown into these areas or such area used by Lessee's agents, employees or
invitees at any time for purposes inconsistent with their designation by
Lessor.
9. The water closets and other water fixtures shall not be used for any purpose
other than those for which they were constructed, and any damage resulting
to them from misuse or by the defacing of injury of any part of the building
shall be borne by the person who shall occasion it. No person shall waste
water by interfering with the faucets or otherwise.
10. No person shall disturb occupants of the building by the use of any radios,
record players, tape recorders, musical instruments, the making of unseemly
noises or any unreasonable use.
11. Nothing shall be thrown out of the windows of the building or down the
stairways or other passages.
12. Lessee and its employees, agents and invitees shall park their vehicles only
in those parking areas designated by Lessor. Lessee shall not leave any
vehicle in a state of disrepair (including without limitation, flat tires
on the leased premises or project. If Lessee or its employees, agents or
invitees park their vehicles in areas other than the designated parking
areas or leave any vehicle in a state of disrepair, Lessor, after giving
written notice to Lessee of such violation, shall have the right to remove
such vehicles at Lessee's expense.
13. Parking in a parking garage or area shall be in compliance with all parking
rules and regulations including any sticker or other identification system
established by Lessor. Failure to observe the rules and regulations shall
terminate Lessee's right to use the parking garage or area and subject the
vehicle in violation of the parking rules and regulations to removal and
impoundment. No termination of parking priveleges or removal of impoundment
of a vehicle shall create any liability on Lessor or be deemed to interfere
with Lessee's right to possession of its leased premises. Vehicles must be
parked entirely within the stall lines and all directional signs, arrows and
posted speed limits must be observed. Parking is prohibited in areas not
striped for parking, in aisles, where "No Parking" signs are posted, on
ramps, in cross hatched areas, and in other areas as may be designated by
Lessor. Parking stickers or other forms of identification supplied by Lessor
shall remain the property of Lessor and not the property of Lessee and are
not transferable. Every person is required to park and lock his vehicle. All
responsibility for damage to vehicles or persons is assumed by the owner of
the vehicle or its driver.
14. Movement in or out of the building of furniture or office supplies and
equipment, or dispatch or receipt by Lessee of any merchandise or materials
which requires use of elevators or stairways, or movement through the
building entrances or lobby, shall be restricted to hours designated by
Lessor. All such movement shall be under supervision of Lessor and carried
out in the manner agreed between Lessee and Lessor by prearrangement before
performance. Such prearrangement will include determination by Lessor of
time, method, and routing of movement and limitations imposed by safety or
other concerns which may prohibit any article, equipment or any other item
from being brought into the building. Lessee assumes, and shall indemnify
Lessor against, all risks and claims of damage to persons and properties
arising in connection with any said movement.
15. Lessor shall not be liable for any damages from the stoppage of elevators
for necessary or desirable repairs or improvements or delays of any sort or
duration in connection with the elevator service.
16. Lessee shall not lay floor covering within the leased premises without
written approval of the Lessor. The use of cement or other similar adhesive
materials not easily removed with water is expressly prohibited.
17. Lessee agrees to cooperate and assist Lessor in the prevention of
canvassing, soliciting and peddling within the building or project.
18. Lessor reserves the right to exclude from the building or project, between
the hours of 6:00 p.m. and 7:00 a.m. on weekdays and at all hours on
Saturday, Sunday and legal holidays, all persons who are not known to the
building or project security personnel and who do not present a pass to the
building signed by the Lessee. Each Lessee shall be responsible for all
persons for whom he supplies a pass.
19. It is Lessor's desire to maintain in the building or project the highest
standard of dignity and good taste consistent with comfort and convenience
for Lessees. Any action or condition not meeting this high standard should
be reported directly to Lessor. Your cooperation will be mutually beneficial
and sincerely appreciated. Lessor reserves the right to make such other and
further reasonable rules and regulations as in its judgement may from time
to time be necessary, for the safety, care and cleanliness of the leased
premises and for the preservation of good order therein.
<PAGE>
ADDENDUM to Commercial Lease Agreement by and between Lincoln National
Life Insurance Company as Lessee and Bradford Property Company, Inc. as Lessor
dated 7/28, 1989.
1. RENT ABATEMENT: Lessee shall have the right to occupy the leased
premises on the Commencement Date (approximately July 1, 1990) but Lessee
will not be required to pay monthly base rent (except for Lessee's share of
operating expenses) for the first three (3) months of the lease term.
2. TENANT FINISH: Lessor, at its sole cost, agrees to construct the tenant
finish improvements in the leased premises using building standard materials in
accordance with plans and specifications which will be identified on an exhibit
to this lease when completed and which will be developed from the space plan
attached hereto as Exhibit A. The parties agree to work diligently to have space
plans drawn and approved by July 31, 1989. If the leased premises are not ready
for occupancy because of delays attributable to Lessee (such as changes by
Lessee to its finish requirements after approval of the initial design, delays
in providing information or approving space plans and drawings, etc.) the lease
term shall commence on the date the leased premises would have been
substantially completed and ready for occupancy in the absence of such delays,
which date is agreed to be the estimated completion date set forth in paragraph
1.02 (July 1, 1990). However, if the leased premises are not ready for occupancy
because of delays attributable to Lessor, the lease term shall not commence
until the leased premises are ready for occupancy except that for each day of
delay after the completion date attributable solely to Lessor, Lessor shall pay
Lessee $1,000 per day for the first 30 days of delay and $2,500 per day for each
day thereafter, payable upon Lessee's occupancy of the leased premises. However,
this penalty will not be payable for Lessee delays or delays arising from causes
not reasonably within the control of Lessor, its agents, employees or
independent contracts.
The parties acknowledge that the building for North Creek II must be built
by Lessor and that the time requirements for performing various obligations
under this lease are critical. Therefore, the parties each agree to use their
best efforts to perform the following tasks on the following schedules, which
dates shall be used to establish delays for purposes of setting the Completion
Date:
<TABLE>
<CAPTION>
Performing Completion
Task Party Date
---- ---------- ----------
<S> <C> <C>
Lease Execution Both parties 07/31/89
Space Plan Approval Lessee 07/31/89
Approval of Construction
Drawings for Leased Premises Lessee 08/30/89
Commence Construction
of Building Lessor 10/02/89
Construction Completed Lessor 07/01/90
</TABLE>
Even though Lessee is required to approve the construction drawings for
the leased premises by August 30, 1989, Lessee shall have the right to modify
the drawings for the premises up until December 29, 1989 so long as the changes
do not increase the cost for the improvements or delay the construction
schedule. If substantial completion of the leased premises is delayed for more
than 120 days due to delays within Lessor's control, then Lessee may, at its
option, terminate this lease by giving written notice of the termination to
Lessor on or before five business days after the 120th day of such delay. Lessee
may not terminate this lease due to delays attributable to Lessee or Acts of God
or Force Majeure. If Lessor has not received the termination notice from Lessee
before the close of business on the 5th business day after the 120th day of
Lessor delays, Lessee's right to terminate this lease under this paragraph shall
expire and this lease shall remain in full force and effect.
3. REMODEL OF LEASED PREMISES. At any time after the second year of the
lease term, Lessor will, at its sole cost, repaint the leased premises using
building standard paint and materials. Lessee must give Lessor 60 days prior
written notice requesting such repainting and Lessor will complete the work
within 120 days after receipt of Lessee's written request. Lessor's obligation
to repaint the leased premises shall be a "one-time" obligation during the
primary lease term only.
4. RENEWAL OPTION: If Lessee is not in default on any of the terms,
conditions
<PAGE>
or covenants of the lease either on the date Lessee gives Lessor the renewal
notice required below or at the end of the primary term or first or second
renewal term of this lease as appropriate, Lessee, but not any assignee or
subtenant of Lessee, shall have the right to renew this lease for three
additional terms of 60 months each upon the same terms and conditions contained
in this lease except: (a) the third renewal option term will contain no further
renewal options unless expressly granted by Lessor in writing; and (b) the
rental for the renewed term shall be based upon the then prevailing rental terms
for properties of equivalent quality, size, utility and location, with the
length of the lease term and credit standing of Lessee to be taken into account.
If Lessee desires to renew this lease, Lessee will notify Lessor of its
intention to renew not less than twelve (12) months prior to the expiration date
of the lease. Lessor shall, within the next fifteen (15) days, notify Lessee in
writing of the proposed renewal rate. Lessee shall, within the next fifteen (15)
days following receipt of the proposed rate, notify Lessor in writing of its
acceptance or rejection of the proposed rental rate. If Lessor and Lessee,
within ten (10) days following notice of Lessee's rejection of the proposed
rental rate, fail to mutually agree in writing upon a rental rate for the
renewal term, then such failure terminates any renewal option pursuant to this
paragraph.
5. ATTORNEY'S FEES: In the event either party brings an action to
enforce or interpret this lease, or otherwise engages an attorney to assist in
any such actions, the prevailing party shall be entitled to recover from the
losing party reasonable attorney's fees and cost of suit.
6. EXCESS OPERATING EXPENSES: If, during any calendar year of this
lease, less than 100% of the space in the building is leased, then it is agreed
that the operating expenses shall be computed as though the building had been
100% leased for such calendar year, and Lessor shall bear all such cost
appropriately allocated to the unleased space of the building.
7. SIGNAGE: Subject to city ordinances, building codes and NorthCreek
Business Park standards, Lessee shall have the right to have one sign either
mounted on the facia of NorthCreek I or a monument sign erected between
NorthCreek I and I-25 (subject to the approval of the owner of NorthCreek I)
either of which shall be in a location and design acceptable to the parties.
Lessor shall pay for the design and installation of the sign, but in no event
shall the cost of the sign exceed $10,000. Lessor shall also provide building
standard signage in the lobby directory and at the suite entrance. Lessee must
approve of the sign type selected herein on or before March 31, 1990.
8. PARKING: Lessor will provide a minimum of 575 parking spaces, of
which a minimum of 150 shall be in an underground parking garage.
9. LESSOR REPAIRS: Lessor shall make any repairs required under this
Lease to be made by Lessor within a reasonably prompt time after Lessor becomes
aware of the needed repair. If Lessor has not commenced the repair or is not
proceeding diligently to the prompt completion thereof and the condition
unreasonably interferes with Lessee's business operations, Lessee may initiate
the repair but only after Lessee has given ten business days prior written
notice of its intent to do so to Lessor and to the lender whose loan is secured
by a first lien encumbrance on the project. The lender shall have the right
during that ten day period to initiate the repair and proceed diligently to
completion thereof, otherwise Lessee may effect the repair using reputable
contractors and prudent business practices to avoid liens on the project. Lessee
may then offset the reasonable cost of such repairs against the next base rent
payments due.
10. STANDARD FOR CONSENT: Except as otherwise provided in this lease,
whenever any act shall be subject to the prior consent or approval of a party,
such consent or approval shall not be unreasonably withheld. "Reasonable" shall
be construed to be that which is commercially reasonable.
11. QUIET ENJOYMENT: Provided Lessee is not in default hereunder, Lessee
shall and may peacefully and quietly have, hold and enjoy the premises for the
term hereof.
12. PROCEDURE FOR ACCEPTANCE OF PREMISES: With reference to Lessee's
acceptance of the condition of the premises, Lessor and Lessee agree to conduct
two (2) inspection walk-throughs of the leased premises. One will be one day
prior to Lessee's occupancy, and at that time a punchlist of items either
incomplete or in need of repair will be created. The second walk-through will be
thirty (30) days after Lessee has taken occupancy. The purpose of the second
walk-through is to ensure that all items from the punchlist are completed and
that all major building systems are operating properly to permit Lessee's use of
the leased premises.
<PAGE>
13. LESSEE'S INSURANCE REQUIREMENTS: Lessee shall, at its own expense,
procure and maintain throughout the term of this Lease:
(1) Comprehensive public liability insurance, without deductible,
insuring Lessee's activities with respect to the leased premises against
liability for personal injury or death, and property damage occuring on or about
the leased premises, in amounts no less than $3,000,000 combined single limit;
and,
(2) Worker's compensation insurance in at least the statutory amounts
with respect to any work or other operation in or about the leased premises.
Lessor and Lessor's mortgagee, if any, shall be named as additional
insureds under such insurance and such insurance shall be primary and
noncontributing with any insurance carried by Lessor. The liability insurance
policy shall contain endorsements requiring thirty (30) days notice to Lessor
prior to any cancellation or any reduction in amount of coverage. Lessee shall
deliver to Lessor, as a condition precedent to its taking occupancy of the
leased premises, a Certificate or Certificates evidencing such insurance.
14. GOVERNING LAW. Any interpretation of this lease, or any other
determination of the rights or liabilities or the parties hereto shall be
governed by the law of the state of Colorado.
15. TIME OF ESSENCE. Time is of the essence for all the provisions of this
Lease.
16. HAZARDOUS OR TOXIC CHEMICAL, WASTE OR OTHER SUBSTANCES: Lessor
represents that, to the best of Lessor's knowledge, Lessor, nor any affiliate,
subsidiary or employee of Lessor, has never caused or permitted any hazardous
waste to be placed, held, located or disposed on, under or at the leased
premises or in the building, and that no concentrations of asbestos are present
in the building or the leased premises. For purposes of the foregoing sentence,
"concentrations of asbestos" means either material containing more than 1%
asbestos or the excess of (1) the standards issued by the United States
Environmental Protection Agency ("EPA"), or (2) the "action level" established
by the U.S. Department of Labor, Occupational Health and Safety Administration
("OSHA"), or (3) standards established by applicable state regulatory agency
rules as such excess is defined as of the date of this lease.
17. Lessee represents that no hazardous wastes will be treated, stored or
disposed of on the leased premises by Lessee and that no petroleum or hazardous
substances will be disposed of on the leased premises by Lessee. Lessee
represents that it does not have any permits or identification numbers issued by
the United States Environmental Protection Agency or by any state, county or
municipal agencies with respect to its operations on the leased premises, except
those listed below.
<PAGE>
STANDARD FORM SUBLEASE
1. PARTIES
-------
This Agreement is entered into by and between Lincoln National Life
Insurance Company, an Indiana corporation, Sublessor, and Optika Imaging
Systems, Inc., a California corporation, Sublessee, as a Sublease under
the Lease covering office space in NorthCreek II located at 5755 Mark
Dabling Blvd., Colorado Springs, Colorado 80919 and dated July 28, 1989
entered into by Equi-Creek Associates, a Joint Venture by: The Equitable
Life Assurance Society of the United States, as Lessor, and Sublessor under
this Sublease, as Lessee. The parties hereby confirm that the lease is in
full force and effect, unchanged and unmodified except in accordance with
this Agreement. It is understood and agreed that all terms and expressions
when used in this Agreement have the same meaning as they have in the
Lease. A true copy of the Lease has been delivered to Sublessee, and the
latter hereby acknowledges receipt thereof, and it has read the same and
fully understands its contents. This Sublease shall not be effective unless
executed by all three parties.
2. PROVISIONS CONSTITUTING SUBLEASE
--------------------------------
(a) Except as otherwise provided in paragraph 2(b) hereof, this Sublease
is subject to all of the terms and conditions of said Lease, and
Sublessee shall assume and perform the obligations of Sublessor and
Lessee in said Lease, to the extent said terms and conditions are
applicable to the premises subleased pursuant to this Sublease.
Sublessee shall not commit or permit to be committed on the subleased
premises any act or omission which shall violate any term or condition
of the Lease. In the event of the termination of Sublessor's interest
as Lessee under said Lease for any reason, then this Sublease shall
terminate coincidentally therewith without any liability of Lessor to
Sublessee. In the event Sublessee and Lessor are unable to enter into
a new lease agreement between the parties, if and when Sublessor's
interests are terminated prior to the third anniversary date of this
Sublease Agreement as outlined herein, Sublessor will pay to Sublessee
$100,000.00 for the purposes of relocating Sublessee to another
building. Sublessor will have no liability to relocate Sublessee after
the third anniversary date of this Sublease.
(b) All the terms and conditions contained in said Lease are incorporated
herein except for Article(s) "none" as terms and conditions of this
Sublease (with each reference therein to Lessor and Lessee to be
deemed to refer to Sublessor and Sublessee) and, along with all of the
Paragraphs set out in this Sublease, shall be the complete terms and
conditions of this Sublease.
-1-
<PAGE>
3. PREMISES
--------
Sublessor leases to Sublessee and Sublessee hires from said Sublessor the
following described premises together with the appurtenances, situated in
the City of Colorado Springs and County of El Paso, State of Colorado, to
wit:
Approximately 15,820 rentable square feet of office space as cross
hatched and outlined on Exhibit A, attached hereto and made a part
hereof, said area being also identified as Suite 100 of 5755 Mark
Dabling Blvd., Colorado Springs, Colorado, NorthCreek II.
4. BASE RENTAL
-----------
Sublessee shall pay to Sublessor without deduction, setoff, prior notice or
demand, as rental, per the following rent schedule listed below in advance
on the first day of each month in lawful money of the United States of
America, commencing on the 1st day of December 1992, and continuing
throughout June 30, 1997.
12/01/92-07/31/93 $ 8,503.25, per month
08/01/93-11/30/94 $18,453.86, per month
12/01/94-06/30/97 $19,304.19, per month
Monthly rental for any partial month shall be prorated at the rate of
1/30th of the monthly rental per day. Rent shall be paid to Sublessor at
P.O. Box 2266, Fort Wayne, Indiana 46801, Attn: Director, Field Office
Facilities, or at such other place or places as Sublessor may from time to
time direct in writing.
Receipt of $17,006.52 is hereby acknowledged for rental for the first two
months along with an additional amount of $20,000.00 for consideration of
the execution of this Sublease. In the event Sublessee is not in default of
this sublease, upon Sublessee vacating the premises, the amount paid in
consideration for the execution shall be promptly returned to Sublessee
after first deducting any sums owing to Sublessor.
5. OPERATING EXPENSES
------------------
(a) In the event Sublessor's operating expenses for the building and/or
project of which the leased premises are a part shall, in any calendar
year during the term of this Sublease, exceed the sum of $4.50 per
rentable square foot, Sublessee agrees to pay as additional rent
Sublessee's pro rata share of such excess operating expenses. However,
in no event will Sublessee be charged or assessed an operating expense
in excess of $4.50 per rentable square foot for calendar year 1993.
Within six months following the close of each calendar year, Sublessor
shall provide Sublessee an accounting showing in reasonable detail all
computations of additional rent due under this section.
-2-
<PAGE>
In the event the accounting shows that the total amount of operating
expenses for the building exceeds $4.50 per rentable square foot, the
accounting shall be accompanied by an invoice to Sublessee for the
additional rent.
For definition of operating expenses, please refer to paragraph 2.03
of the Lease.
(b) Sublessee shall not be responsible for payment of any increase in the
real property taxes or insurance premiums as a result of a transfer,
sale or assignment of all or a portion of the building by the Lessor.
6. TERM
----
(a) The term of this Sublease shall be for a period of fifty five (55)
months, commencing on the 1st day of December 1992, and ending on the
30th day of June 1997.
(b) In the event Sublessor is unable to deliver possession of the premises
at the commencement of the term, Sublessor shall not be liable for any
damage caused thereby, nor shall this Sublease be void or voidable,
but Sublessee shall not be liable for rent until such time as
Sublessor delivers possession of the premises to Sublessee, and the
term hereof shall not be extended by such delay. If Sublessee, with
Sublessor's consent, takes possession prior to the commencement of
the term, Sublessee shall do so subject to all of the covenants and
conditions hereof and shall pay rent for the period ending with the
commencement of the term at the same rental rate as that prescribed
for the first month of the term, and prorated for each partial month
(during said period) at the rate of 1/30th of said monthly rate for
each day.
7. USE & OPERATIONS
----------------
(a) Sublessee shall use the premises for general office use and no other
purpose without the prior written consent of Sublessor and Lessor.
(b) All building services will be provided Sublessee at no additional cost
during its normal hours of operation Monday through Friday, 7:00 am.
to 6:00 p.m., Saturday 7:00 a.m. to 3:00 p.m. and Sunday 10:00 a.m.
to 3:00 p.m. It is acknowledged that Sublessee's business involves
that use of computers, electrodata processing machines, and the like,
for which there will not be any additional charge pursuant to
paragraph 4.04 of the Lease.
8. TENANT FINISH ALLOWANCE
-----------------------
Sublessor will remodel the leased premises in accordance with mutually
approved plans, but in no event shall the hard and soft costs for the
buildout exceed $158,200.00. If Sublessee makes any changes to the approved
plans and the changes increase the amount Sublessor would have paid had the
changes
-3-
<PAGE>
not been made, the excess shall be paid by Sublessee to Sublessor in cash
one-half upon approval of working drawings and the remaining half upon
substantial completion of the improvements. If the leased premises are not
ready for occupancy because of delays attributable to Sublessee (such as
changes by Sublessee to its finish requirements after approval of the
initial design, delays in providing information or approving space plans
and drawings, etc.) the sublease term shall commence on the date the leased
premises would have been substantially completed and ready for occupancy in
the absence of such delays which date is agreed to be December 1, 1992.
Completing the tenant finish improvements is not a condition precedent to
Sublessee's obligations hereunder and failure to provide the tenant finish
improvements shall not relieve Sublessee of its duty to pay rent and
perform its obligations hereunder if such failure is attributable to
Sublessee's failure to determine its requirements, approve plans and
specifications or otherwise facilitate completion of the tenant finish
improvements. However, if the leased premises are not ready for occupancy
because of delays attributable to Sublessor, the sublease term shall not
commence until the leased premises are ready for occupancy.
Sublessee and Sublessor will coordinate all aspects of Sublessee's tenant
finish buildout with Lessor's agent, Sierra Properties, Inc.
9. PARKING
-------
All parking spaces provided pursuant to the Lease shall be unallocated.
Sublessee shall be entitled to two (2) unallocated covered spaces and 2.5
unallocated uncovered spaces per 1,000 rentable square feet of space
leased.
10. TIME OF ESSENCE
---------------
In the event the premises are not delivered to Sublessee by December 1,
1992, Sublessor shall pay to Sublessee $800.00 per day for each and every
day beyond December 1, 1992 for which Sublessee's occupancy does not occur
because of delays attributable to Sublessor.
11. NOTICES
-------
All notices or demands of any kind required or desired to be given by
Sublessor or Sublessee hereunder shall be in writing and shall be deemed
delivered forty-eight (48) hours after depositing the notice or demand in
the United States mail, certified or registered, postage prepaid, addressed
to the Sublessor or Sublessee, respectively, at the address set forth at
the end of this Sublease.
-4-
<PAGE>
12. ASSIGNMENT AND SUBLETTING
-------------------------
Independent of and in addition to any provisions of said Lease, it is
understood and agreed that the Sublessee shall not assign this Sublease or
any interest therein, and shall not sublet said premises or any part
thereof, nor any right or privilege appurtenant thereto, and shall not
suffer or permit any other person (excepting agents, servants or associates
of the Sublessee) to occupy or use said premises, or any portion thereof,
without the prior written consent of the Sublessor. Further, any assignment
or subletting by Sublessee without such prior written consent of Sublessor
shall be void and shall, at the option of Sublessor, terminate this
Sublease.
13. INSURANCE
---------
Sublessee hereby agrees to obtain and keep in full force and effect
throughout the term of this Sublease public liability and hazard insurance
on the premises in such form and for such amounts as may be required under
the Lease, thus allowing Sublessor to cancel or suspend its present policy
on the premises through the Sublease term.
Dated:
----------------------------
SUBLESSOR SUBLESSEE
Lincoln National Life Insurance Optika Imaging Systems, Inc.,
Company, an Indiana corporation a California corporation
By: By: /s/ Harvey Jeane
------------------------------- ----------------------------
Harvey Jeane, President
Address: Address: 980 Enchanted Way
-------------------------- -----------------------
Suite 101
- ---------------------------------- -------------------------------
Simi Valley, CA 93065
- ---------------------------------- -------------------------------
-5-
<PAGE>
The undersigned, Lessor under said Lease, hereby consents to the subletting of
the premises described in Exhibit A on the terms and conditions contained in
this Sublease. This consent shall apply only to this Sublease and shall not be
deemed to be a consent to any other Sublease, nor to any amendments of this
Sublease, and said consent to an approval of said Sublease by the Lessor shall
not be construed to release, discharge or otherwise affect or diminish the
liability of Sublessor to fully and faithfully comply with all covenants, terms
and conditions of said Lease, irrespective of Sublessee's performance under said
Sublease.
Dated: The Equi-Creek Associates, a Joint
---------------------------- Venture by: The Equitable Life
Assurance Society of the United
States (Lessor)
Attested By: By: /s/ STEVEN R. DYER
---------------------- --------------------------------
Steven R. Dyer, Attorney in Fact
-6-
<PAGE>
EXHIBIT A
(NORTHCREEK II First Floor Diagram Appears Here)
<PAGE>
FIRST MODIFICATION AND RATIFICATION OF SUBLEASE
This First Modification and Ratification of Sublease Agreement is made and
entered into between The Lincoln National Life Insurance Company, an Indiana
corporation, as Sublessor, and Optika Imaging Systems, Inc., a California
corporation, as Sublessee and The Equitable Life Assurance Society of the United
States, as Lessor, under a Lease agreement between The Equitable Life Assurance
Society of the United States and The Lincoln National Life Insurance Company.
W I T N E S S E T H :
Sublessor and Sublessee hereby confirm and ratify, except as modified
below, all of the terms, conditions and covenants in that certain written
Standard Form Sublease agreement dated October 9, 1992 for the rental of space
under the Lease covering office space in NorthCreek II located at 5755 Mark
Dabling Blvd., Colorado Springs, Colorado dated July 28, 1989 and Modification
and Ratification of Lease dated July 23, 1991 entered into by The Equitable Life
Assurance Society of the United States, as Lessor, and The Lincoln National Life
Insurance Company, as Lessee, for and in consideration of One Dollar ($1.00) and
other good and valuable consideration, receipt of which is hereby acknowledged.
Suite 100 (15,820 rentable square feet)
5755 Mark Dabling Blvd.
Colorado Springs, CO 80919
1. SUBLEASED PREMISES: Paragraph 3 of the Sublease is hereby amended to
-------------------
provide that the square footage shall increase by 5,599 rentable square
feet, as outlined on the attached Exhibit A, from 15,820 rentable square
feet to 21,419 rentable square feet effective March 1, 1994.
2. BASE RENTAL: Paragraph 4 of the Sublease is hereby amended to provide that
____________
the monthly base rent shall be as follows commencing on the 1st day of
March 1994 and continuing through the 30th day of June 1997.
03/01/94 - 11/30/94 $24,988.83 per month
12/01/94 - 06/30/97 $26,149.03 per month
3. TENANT FINISH ALLOWANCE: Sublessor will remodel the leased premises in
------------------------
accordance with the mutually approved plans, but in no event shall the costs
for the buildout, including architectural and engineering fees exceed
$61,589.00. If Sublessee makes any changes to the approved plans and the
changes increase the amount Sublessor would have paid had the changes not
been made in excess of $61,589.00, the excess shall be paid by Sublessee to
Sublessor in cash one-half upon approval of working drawings and the
remaining half upon substantial completion of the improvements. If the
expansion premises are not ready for occupancy because of delays
attributable to Sublessee (such as changes by Sublessee to its finish
requirements after approval of the initial design, delays in providing
information or approving space plans and drawings, etc.) the sublease term
shall commence on the date the expansion premises would have been
substantially completed and ready for occupancy in the absence of such
delays which date is agreed to be March 1, 1994.
<PAGE>
Completing the tenant finish improvements is not a condition precedent to
Sublessee's obligations hereunder and failure to provide the tenant finish
improvements shall not relieve Sublessee of its duty to pay rent and
perform its obligations hereunder if such failure is attributable to
Sublessee's failure to determine its requirements, approve plans and
specifications or otherwise facilitate completion of the tenant finish
improvements. However, if the leased premises are not ready for occupancy
because of delays attributable to Sublessor, the sublease term and
Sublessee's obligation to pay rent and perform its obligations hereunder,
shall not commence until the leased premises are ready for occupancy.
Sublessee and Sublessor will coordinate all aspects of Sublessee's tenant
finish buildout with Lessor's agent, Sierra Properties, Inc.
4. MONUMENT SIGNAGE: Sublessor, at its cost, approval and supervision, shall
-----------------
allow Sublessee to have its name placed on the monument sign at the West
entry to the NorthCreek II building.
5. Except as modified herein all other terms and conditions of the Lease and
Sublease shall remain in full force and effect.
SUBLESSOR: The Lincoln National Life Insurance Company,
an Indiana corporation
By: /s/ Russell Swing
---------------------------------------------------
Title: ASSISTANT SECRETARY
------------------------------------------------
SUBLESSEE: Optika Imaging Systems, Inc., a
California corporation
By: /s/ STEVEN M. JOHNSON
---------------------------------------------------
Title: V.P. of Finance and CFO
------------------------------------------------
The undersigned, Lessor under said Lease hereby consents to the subletting of
the premises described in Exhibit A on the terms and conditions contained in
this First Modification and Ratification of Sublease. This consent shall apply
only to this First Modification and Ratification of Sublease an shall not be
deemed to be a consent to any other Sublease, nor to any amendments of this
First Modification and Ratification of Sublease, and said consent to an approval
of said First Modification and Ratification of Sublease by Lessor shall not be
construed to release, discharge or otherwise affect or diminish the liability of
Sublessor to fully and faithfully comply with all covenants, terms and
conditions of said Lease, irrespective of Sublessee's performance under said
First Modification and Ratification of Sublease.
Dated: 2-8-94
------------------------
LESSOR: The Equitable Life Assurance Society
of the United States
By: /s/ Steven R. Dyer
------------------------------------------
Steven R. Dyer, Attorney in Fact
<PAGE>
EXHIBIT A
(Partial First Floor Diagram Appears Here)
<PAGE>
February 16, 1995
SENT VIA OVERNIGHT MAIL
- -----------------------
Mr. Mark K. Ruport
80 Atkinson Lane
Sudbury, MA 01776
Dear Mark,
Thank you for your continued interest in becoming President/CEO of Optika
Imaging Systems, Inc. Your past experiences, management style and enthusiasm
will surely result in a success story for Optika. Based on our past
discussions, Optika is pleased to offer you the position of President and CEO
under the following terms:
TITLE: President/CEO
BOARD SEAT: You will be elected as a member of Optika's Board of Directors
at the earliest possible date.
BASE SALARY: $15,000/month.
BONUS PLAN: You will be eligible for performance bonuses as outlined in
attachment B. The Board may provide an opportunity for you to
elect to receive the bonus as equity instead of cash. The Board
will set the price at which you may convert the bonus to stock.
OPTIONS: You will be granted 400,000 options to purchase Optika common
stock at a price of $1.87/share. This represents today's
estimated FMV of the stock. The vesting of the stock will occur
based on the schedule outlined in Exhibit A. The vesting
schedule allows you the flexibility of trading increased
revenue growth at the sacrifice of operating margin. The trade-
off can occur up to a maximum of 10%.
MOVING EXPENSES: Optika will cover up to $100,000 of your moving expenses for
moving your family to Colorado Springs. We would expect that
you would complete your move no later than September 1, 1995.
Moving expenses include commission on the sale of your home,
two house hunting trips, closing costs on new home, moving of
personal possessions from Sudbury to Colorado Springs, travel
for your family to get to Colorado Springs, any reasonable
miscellaneous expenses directly associated with the relocation
such as appliance hook-ups, service initiation fees, etc. and
the tax effect for all of the above. The relocation payments
would be made in three equal installments (installments may be
paid in any order):
Installment #1 Upon sale of Sudbury Home
Installment #2 Upon move of personal belongings to Colorado
Installment #3 Upon purchase of home in Colorado
<PAGE>
Mr. Mark K. Ruport
Page 2
INTERIM HOUSING: It is understood that you intend to relocate to Colorado
Springs by September 1, 1995. Until that time you will be
working out of both the Colorado Springs office and the
Marlboro, MA office. Optika will cover all reasonable travel
and living expenses during this time.
ANNUAL REVIEW: Your compensation plan will be reviewed by Optika's
compensation committee on an annual basis.
SEVERANCE: In the event that Optika terminates you without cause, Optika
will pay you one year's base salary.
BENEFITS: You will be eligible for all vacations, sick pay, medical
benefits, life insurance and disability insurance benefits as
provided to other members of Optika's Executive Staff (based
upon Malcolm, Paul and Steve's benefits package).
Mark, we are excited to have you join the Optika team. We look forward to your
contributions and the success that we should all enjoy. Please indicate your
acceptance of the above terms by signing below and returning a copy to my
attention.
Sincerely,
Richard A. Bass
Chairman of the Board
Optika Imaging Systems, Inc.
encl.
AGREED AND ACCEPTED:
__________________ ______________
Mark K. Ruport Date
<PAGE>
ATTACHMENT A
VESTS WHEN IN CONSECUTIVE FOUR QUARTERS THE CUMULATIVE:
-------------------------------------------------------
PHASE # OF OPTIONS REVENUE IS PRE-TAX, POST-BONUS MARGIN
- ----- ------------ ---------- --------------------------
IS
--
1 100,000 $12 million 10%
2 100,000 $18 million 10%
3 100,000 $28 million 10%
4 100,000 $42 million 10%
<PAGE>
May 15, 1996
Mr. Steven M. Johnson
2580 Brogans Bluff Drive
Colorado Springs, CO 80919
Dear Steve:
This letter is to document our conversation regarding your employment
arrangement with Optika Imaging System, Inc. This letter also serves as formal
cancellation of your employment agreement dated September 9, 1992. Based on our
discussion, your position is defined as follows:
* Title: Chief Financial Officer
* Base Salary: $5,164.83 semi-monthly, which equals an annual salary of
$123,956.00
* Severance: In the event that Optika terminates you without cause,
Optika will pay your salary for six (6) months.
* Benefits: You will be eligible for all vacation, sick, medical insurance,
life insurance and disability insurance benefits as provided to
other members of Optika's Executive Staff.
Please indicate your agreement with the above terms by signing below and return
a copy to my attention.
Sincerely,
Mark K. Ruport
President and Chief Executive Officer
Agreed: ________________________________________ ________________
Steven M. Johnson Date
<PAGE>
May 3, 1994
Mr. Marc R. Fey
24200 Summit Woods Drive
Los Gates, CA 95030
Dear Marc,
Thank you for your interest in Optika Imaging Systems, Inc. We appreciate your
desire to join Optika and look forward to your many important contributions.
Its been a pleasure discussing this exciting opportunity with you over the last
few weeks. I look forward to you joining the Optika "Winning Team".
I am pleased, on behalf of Optika Imaging Systems, Inc., to make you the
following offer of employment:
1. The full-time position of Vice President of Development. As V.P. of
Development you will report directly to Harvey Jeane, President.
2. Your base salary will be $120,000.00 per year. Optika has an executive bonus
plan which is decided upon by Optika's compensation committee (3 board
members). This plan is directly tied to the Company achieving sales and
profitability goals. The 1994 plan has not yet been decided upon but it
would not be unreasonable to expect a bonus of up to $50K (prorated for the
time at Optika during 1994) if the Company exceeded the sales and
profitability goals.
3. Subject to approval by Optika's Board of Directors, you will be granted an
option to purchase 15,000 shares of Optika Stock under the terms of the
Stock Option Agreement in place at the time of your employment. In general,
this plan is based on a 4 year vesting period with 25% (i.e. 2,500 shares)
becoming available for purchase at the 1st, 2nd, 3rd and 4th year
anniversaries of your employment. The remaining 5,000 options will become
vested based upon achieving certain goals. These goals will be determined by
the Optika management team. There are currently approximately 1,000,000
shares outstanding. If Optika is acquired, your options will either vest
immediately or will be converted into the stock of the acquiring company.
4. Your place of employment will be at our Colorado Springs office and begin no
later than 7/5/94.
<PAGE>
5. Your job responsibilities as Optika's V.P. of Development are as follows:
A. To work closely with the V.P. of Marketing to establish future product
needs. Implement plans and manage the development organization to ensure
that future products are developed and delivered on time and with a high
level of quality.
B. Manage the development activities of all Optika's existing FilePower
products and the development activities of Teamworks.
C. Present status reports on development progress to Optika's Board of
Directors when needed.
D. Present plans and ideas to be discussed with Optika's Board of
Directors.
E. Participate in Optika's executive meetings to discuss ideas, development
plans and status of development related activities.
F. Help Optika wherever possible to meet or exceed its goals.
G. Make public presentations regarding Optika's products and development
plans. This may include presentations at Optika's resellers conference,
industry show, Venture Firms and financial community. Meetings with the
press may also be required from time to time.
H. To help in identifying and establishing relationships with strategic
business partners.
I. To help in identifying and negotiating with potential acquisition
candidates in accordance with Optika's expansion plans.
Additional benefits will include health insurance and two weeks annual paid
vacation. Optika's group insurance is covered by CIGNA of Colorado. Currently,
individual health insurance is available to you at a monthly cost of $50.
Coverage for your first dependent is available at an additional $50 monthly and
each subsequent dependent will be an additional $25 monthly.
Since you will be required to relocate to Colorado Springs, Optika will provide
you and your family with the following move package:
A. Optika will pay up to $9,000 of your moving costs to move your
personal belongings to Colorado Springs. Optika has an agreement with Allied
Moving Company that will provide you with discounts and added benefits. You are,
however, encouraged to accept bids from other moving companies. Optika will
either pay the moving costs directly to the moving company or reimburse you for
the actual expense. These costs are fully deductible for income tax purposes and
therefore will not be "grossed up".
B. Optika will pay up to $30,000 of your closing costs on your home in
California. We will pay these costs just prior to your closing escrow. Items
considered to be closing costs include real estate commissions, transfer fees
and title insurance. Back taxes and interest are not considered to be closing
costs. Although the closing costs are not immediately deductible, the costs will
become part of your basis in the home sold. As a result, the capital gains taxes
that you
<PAGE>
potentially will pay, will be reduced. As you will be receiving a deduction for
closing costs at some point in time , we propose to "gross up" the payment by a
reduced amount of 20%. The total payment for closing costs will be a maximum of
$37,500.
In the event that Optika terminates your employment without cause, Optika will
pay you an amount equal to six months of your base salary as severance. Other
terms of employment not covered in this letter may be found in Optika's
"Policies and Procedures Manual".
Marc, your accomplishments, demonstrated professionalism, industry knowledge and
desire to become a contributing member of a dynamic company is what encouraged
Optika to extend this offer. We trust this employment offer meets your
expectations and look forward to you becoming a key team member here at Optika.
We have had great success to date and are excited about the future and
possibilities for Optika within the imaging industry.
Sincerely,
Malcolm Thomson
Chairman of the Board
Optika Imaging Systems, Inc.
cc: Harvey Jeane
Your signature below constitutes that you have read and agree to the terms and
conditions of this employment offer.
ACCEPTED: ___________________________________________ DATE: _____________
<PAGE>
AUTHORIZED
RESELLER AGREEMENT
BETWEEN
OPTIKA IMAGING SYSTEMS, INC.
AND
NAME OF COMPANY
[LOGO OF OPTIKA IMAGING, INC. APPEARS HERE]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1.0 DEFINITIONS................................. 2
1.1 "Product"................................... 2
1.2 "End-User".................................. 2
1.3 "AUTHORIZED TERRITORY"..................... 2
2.0 NON-EXCLUSIVE LICENSE....................... 2
3.0 TRAINING.................................... 3
4.0 TERM........................................ 3
5.0 SALES GOAL.................................. 3
6.0 DEMONSTRATION MATERIALS..................... 3
7.0 DUTIES AND RESPONSIBILITIES OF OPTIKA....... 3
7.1 PRE-SALES SUPPORT........................... 3
7.2 ON-SITE SUPPORT............................. 3
7.3 NEW OPTIKA PRODUCTS/VERSIONS................ 3
7.4 OPTIKA PRODUCT ENHANCEMENTS................. 4
8.0 PRICE AND PRICE CHANGES..................... 4
9.0 LIMITED WARRANTY............................ 4
10.0 LIMITATION OF LIABILITY.................... 5
11.0 PRODUCT COPY PROTECTION.................... 5
12.0 INDEMNIFICATION............................ 5
13.0 SOFTWARE ASSURANCE AGREEMENT............... 6
14.0 THE COMPANY'S DUTIES AND RESPONSIBILITIES.. 6
14.1 PAYMENT OF ORDERS....................... 6
14.2 TAXES................................... 7
15.0 TERMINATION................................ 7
16.0 MISCELLANEOUS.............................. 8
16.1 ENTIRE AGREEMENT; AMENDMENT............. 8
16.2 DISPUTES, ARBITRATION, CHOICE OF LAW.... 8
16.3 SEVERABILITY............................ 8
16.4 CORPORATE STATUS/APPROVAL............... 9
16.5 CONFIDENTIAL INFORMATION................ 9
16.6 NON-SOLICITATION........................ 9
16.7 INDEMNITY............................... 9
16.8 FORCE MAJEURE........................... 9
16.9 ASSIGNMENT.............................. 9
16.10 NO CONFLICTS........................... 10
16.11 WAIVER................................. 10
16.12 EXPORTS................................ 10
16.13 COUNTERPARTS........................... 10
16.14 INDEPENDENT CONTRACTOR STATUS.......... 10
16.15 NOTICES................................ 10
16.16 HEADINGS............................... 11
</TABLE>
Exhibit I Products and Pricing
Exhibit II Optika Software License Agreement
Exhibit III Confidentiality Agreement
Exhibit IV First Year Sales Goal
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OPTIKA IMAGING SYSTEMS, INC. LAST UPDATE: 23-APR-96
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Exhibit V Training Requirements
AUTHORIZED RESELLER AGREEMENT
This AUTHORIZED RESELLER AGREEMENT (this "Agreement") is entered into by and
between Optika Imaging Systems Inc., a California corporation, ("Optika") with
its principal place of business located at 5755 Mark Dabling Boulevard, Suite
100, Colorado Springs, Colorado 80919, and Name of Company, a _______
Corporation (the "Company"), with its principal place of business
located ___________________________.
1.0 DEFINITIONS
1.1 "Product" shall mean those software products set forth in the
attached Exhibit I, together with documentation ("Documentation")
provided by Optika. Any enhancement, improvement, update,
modification or new version of the Product shall be added to
Exhibit I as a Product hereunder. Optika reserves the right to
change, modify or discontinue any Product at any time.
1.2 "End-User" shall mean a person or entity who will not resell the
Product and will use the Product for internal purposes only.
1.3 "Authorized Territory" shall mean End-Users located within the
United States.
2.0 NON-EXCLUSIVE LICENSE
2.1 Subject to all the terms and conditions of this Agreement, Optika
hereby grants the Company for the duration of the Term (as defined
in SECTION 4.0 below) hereof and the Company hereby accepts a
limited non-transferrable, non-sublicensable, non-exclusive right
to demonstrate and distribute (in object code form) the Product to
End-Users only within the Authorized Territory.
2.2 The Company will have no right to receive any source code with
respect to any Product, except as provided in a source code escrow
agreement entered into by the Company and a third party escrow
agent as identified by Optika.
2.3 The license granted hereunder is non-exclusive. Nothing in this
Agreement shall be construed as limiting in any manner Optika's
marketing or distribution activities, directly or indirectly, with
respect to the Product, similar products or services.
2.4 Notwithstanding anything else, Optika retains all title to, and,
except as expressly and unambiguously licensed herein, all rights
and interest in (i) the Product, all copies and derivative works
thereof (by whomever produced) and all related documentation and
materials, (ii) all of its service marks, trademarks, trade names
or any other designations and (iii) all copyright rights, patent
rights, trade secret rights and other intellectual property and
proprietary rights throughout the world in the Product.
2.5 Subject to all the terms and conditions of this Agreement, Optika
grants the Company a nontransferable, non-sublicensable, royalty-
free non-exclusive worldwide license to use Optika's trademarks
only in connection with the marketing, promotion and/or
distribution of the Product. The Company shall submit to Optika for
approval, at Optika's request, one (1) sample of a Product,
brochure or other marketing materials on which any Optika
trademark, service mark, trade name or other designation is used.
Company will cease using any materials containing Optika's
trademark, service mark, trade name or other designation if
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OPTIKA IMAGING SYSTEMS, INC. LAST UPDATE: 23-APR-96
PAGE 2
<PAGE>
requested to do so by Optika.
2.6 No distribution or license of the Product by the Company shall be
made except pursuant to Optika's Software License Agreement, attached
as Exhibit II hereto. The Company will accept returns (where the
Product is not used) in accordance with the procedure specified in the
Software License Agreement.
3.0 TRAINING
Company agrees that a condition to this Agreement is that its staff, at
all times, is adequately trained in the use, sales and support of the
Products. Exhibit V sets forth the minimum training requirements
("Minimum Training Requirements"). Optika reserves the right to make
reasonable modifications to the Minimum Training Requirements at
anytime. Company, at its expense, will complete the Minimum Training
Requirements within ninety (90) days following the Effective Date. The
Company will pay for all travel costs and expenses of their
representatives.
4.0 TERM
The term ("Term") of this Agreement will commence on the date Optika
executes this Agreement (the "Effective Date") and will continue for
one (1) year. This Agreement will be renewed automatically for
additional one (1) year periods, unless terminated under SECTION 15.0.
5.0 SALES GOAL
The Company agrees to a First Year Sales Goal for the purchase of
Product having a minimum aggregate order value to Optika as set forth
in Exhibit IV ("First Year Sales Goal"). Company and Optika will
mutually agree upon subsequent year's sales goals ("Subsequent Year
Sales Goal") prior to the start of each subsequent year.
6.0 DEMONSTRATION MATERIALS
Optika will provide the Company with a copy of the Products for
demonstration purposes ("Demonstration Materials"). Company may make
duplicate copies of the Products for its demonstration purposes only.
Ownership of the Demonstration Materials remains at all times
exclusively with Optika. The Company agrees to use the Demonstration
Materials exclusively for the demonstration of the system. Upon
termination of this Agreement, Company agrees to promptly return the
Demonstration Materials to Optika.
7.0 DUTIES AND RESPONSIBILITIES OF OPTIKA
7.1 PRE-SALES SUPPORT
Optika, at its sole discretion, will provide to Company pre-
sales support services, in the form of telephone support, pre-
sales materials, marketing activities and joint sales calls.
7.2 ON-SITE SUPPORT
The Company may request Optika to provide on-site support,
including system engineering support, systems analyst support,
project management services, software support, system
maintenance and user training, on terms and conditions to be
agreed upon in writing by the parties.
7.3 NEW OPTIKA PRODUCTS/VERSIONS
From time to time, Optika may release new products that
address specific vertical applications ("New Product").
Optika, at its sole discretion, may include such New Product
as a Product
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OPTIKA IMAGING SYSTEMS, INC. LAST UPDATE: 23-APR-96
PAGE 3
<PAGE>
hereunder. Optika will establish the price of New Product prior to
its release.
7.4 OPTIKA PRODUCT ENHANCEMENTS
The Company may request additional features and enhancements to
the Product which Optika, in its sole discretion, may provide. The
fees for Optika's development of such enhancements will be
mutually agreed upon in writing by the parties before any
development efforts are undertaken. Optika will exclusively own
all such additional features and enhancement(s) and all
intellectual property and proprietary rights throughout the world
therein.
8.0 PRICE AND PRICE CHANGES
Optika's current suggested retail prices ("SRP") for the Product and
Services are set forth in Exhibit I. Optika may change the SRP
effective following thirty (30) days written notice to the Company. No
SRP change will apply to orders received by Optika before the effective
date of the change. The Product discount ("Discount") received by the
Company is equal to the SRP multiplied by the Company's Discount Level
computed as set forth below. The purchase price for the Product is the
SRP less the Discount. The Discount Level applicable to the Company
will be based on the greater of (i) the total Product purchases
(purchase price to Optika) completed by the Company during the
preceding calendar year, or (ii) the total Product purchases (purchase
price to Optika) completed by the Company during the current calendar
year ("Performance Level").
Based upon the Performance Level, the Discount Level is as follows:
PERFORMANCE LEVEL DISCOUNT LEVEL
$0.00 - $100,000.00 35%
$100,000.01 - $200,000.00 37%
$200,000.01 - $300,000.00 40%
$300,000.01 - $400,000.00 43%
$400,000.01 - $500,000.00 45%
$500,000.01 - + 50%
If an order is placed during the current calendar year places the
Company at a higher Discount Level, only the portion of the order that
is in the higher Performance Level will be entitled to the increased
Discount Level.
9.0 LIMITED WARRANTY
9.1 Optika warrants to the Company for a period of ninety (90) days
(the "Warranty Period") from the date of installation that the
Product, when used on approved host computers as identified by
Optika from time to time, will perform substantially as described
in the Documentation. The date of installation will be mutually
agreed upon by the Parties at the time of ordering (the "Date of
Installation"). If the Company does not identify a Date of
Installation on the original purchase order, the Date of
Installation shall be deemed to be the date the Product is shipped
to the Company.
9.2 Optika will use commercially reasonable efforts to correct
material defects in the Product within thirty (30) business days
provided such defects are reported by the Company within the
Warranty Period and confirmed by Optika. If commercially feasible,
Optika will provide an avoidance procedure within five (5)
business days of Optika's receipt of notice of a defect.
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<PAGE>
9.3 Any correction or modification will be made to the latest version
of the Product. If Optika cannot, or determines that it is not
practical to, correct or replace the defective Product, the price
paid for the Product will be refunded. The Company's sole remedy
for breach of this warranty is its rights under this SECTION 9.0.
9.4 THE WARRANTY SET FORTH IN SECTION 9.1 ABOVE IS THE SOLE AND
EXCLUSIVE WARRANTY, EXPRESSED OR IMPLIED, BY OPTIKA. OPTIKA
DISCLAIMS AND EXCLUDES ALL IMPLIED WARRANTIES, INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. OPTIKA DOES NOT WARRANT THAT THE PRODUCTS ARE
ERROR-FREE OR WILL OPERATE WITHOUT INTERRUPTION.
10.0 LIMITATION OF LIABILITY
NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, OPTIKA
WILL NOT BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT
UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY (I) FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE
AMOUNTS PAID TO OPTIKA HEREUNDER DURING THE TWELVE MONTH PERIOD PRIOR
TO THE DATE THE CAUSE OF ACTION AROSE OR (II) FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES OR LOST DATA OR (III) COST OF PROCUREMENT OF
SUBSTITUTE GOODS, SERVICES OR TECHNOLOGY. OPTIKA SHALL HAVE NO
LIABILITY FOR ANY FAILURE OR DELAY DUE TO MATTERS BEYOND ITS REASONABLE
CONTROL.
11.0 PRODUCT COPY PROTECTION
The Product includes a copy protection device to protect against
unauthorized use. It will be possible, however, to make backup copies
of the Product with the use of regular PC DOS "COPY" commands. The
Product and any copies thereof, will not execute without the use of
-----------------------------------
this software copy protection device. The Company assumes
-------------------------------------
responsibility for informing its End-Users that the Product will not
operate without the copy protection device.
12.0 INDEMNIFICATION
12.1 Optika will defend and hold the Company harmless from liability
resulting from infringement of the Product of any United States
patent issued as of the date of delivery of the first copy of the
Product, US copyright, US trademark or misappropriation of any
trade secret of any third party, and shall indemnify the Company
against all costs, damages and expenses (including reasonable
attorneys' fees) which are incurred by the Company due to such
claim, provided (i) the Company promptly notifies Optika in
writing of any and all threats, claims and proceedings related
thereto; (ii) the Company reasonably cooperates and assists Optika
in the defense and/or settlement of such claim at Optika's
expense; and (iii) Optika is given sole control of the defense of
such claim or proceeding and all negotiations for its compromise
or settlement. Optika will not be responsible for any settlement
it does not approve in writing. THE FOREGOING IS IN LIEU OF ANY
WARRANTIES OF NON-INFRINGEMENT, WHICH ARE HEREBY DISCLAIMED. The
foregoing obligation of Optika does not apply with respect to the
Product or portions or components thereof (i) not supplied by
Optika, (ii) made in whole or in part in accordance to the
Company's specifications, (iii) which are modified after shipment
by Optika, if the alleged infringement relates to such
modification, (iv) combined with other products, processes or
materials where the alleged infringement relates to such
combination, (v) where the Company continues alleged infringing
activity after
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OPTIKA IMAGING SYSTEMS, INC. LAST UPDATE: 23-APR-96
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<PAGE>
being notified thereof or after being informed of modifications
that would have avoided the alleged infringement, (vi) where the
Company's use of the Product is incident to an infringement not
resulting primarily from the Product, or (vii) where the
Company's use is not strictly in accordance with the license
granted under this Agreement; and the Company will indemnify
Optika from all costs, damages, settlements, attorneys' fees and
expenses related to a claim of infringement or misappropriation
excluded from Optika's indemnity obligation by this sentence.
12.2 If the Product is found to be in violation of a US patent or US
copyright, Optika shall at its sole option and expense:
(I) Procure for the Company the right to continue use of the
Product by End-Users and the right to continued enjoyment of
the licenses granted under this Agreement; or
(II) Replace the Product with a non-infringing product which will
then be subject to the terms and conditions of this
Agreement; or
(III) Modify the Product to make it non-infringing; or
(IV) If none of the above alternatives is available under
commercially reasonable terms, Optika shall refund to the
Company the unamortized portion of the applicable price paid
by the Company for such Product (as amortized on a straight-
line basis over five (5) years from the date of this
Agreement).
13.0 SOFTWARE ASSURANCE AGREEMENT
13.1 The Company will use its best efforts to promote Optika's Software
Assurance services ("Services") in conjunction with the Company's
distribution of the Products. The Services are described in
Exhibit I.
13.2 Company agrees that it will not market, promote or sell Services
to End-Users that are being provided Services by Optika or an
authorized representative of Optika, without the written consent
of Optika.
14.0 THE COMPANY'S DUTIES AND RESPONSIBILITIES
14.1 PAYMENT OF ORDERS
14.1.1 A twenty-five percent (25%) deposit is required on all
Product orders. The balance (i.e., seventy-five percent
(75%)) of such orders is due within thirty (30) days of
the date stated on the applicable invoice. Payment to
Optika is not contingent on Product installation or
receipt by the Company of payment from its End-User(s).
14.1.2 A finance charge will be imposed on any past due amounts.
This finance charge will be based upon a monthly periodic
rate of 1.5% (APR=18%), but not to exceed the maximum
legal rate. If an account is not brought current within
sixty (60) days of the payment due date, Optika will ship
the Product on a COD basis only and finance charges on all
past due amounts will continue to accrue.
14.1.3 Optika reserves the right to modify the terms of this
SECTION 14.1, in its sole discretion and on a case-by-case
basis. Optika will review, on a quarterly basis, the
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Company's payment history to determine whether to adjust the
deposit amount set forth in SECTION 14.1.1 above.
14.2 TAXES
Prices for the Product and Services do not include, and the Company
shall pay upon receipt of an invoice stating the amounts therefor,
all taxes levied by a duly constituted taxing authority against the
purchase of the Product or Services, the licensing of the Product or
its use, or arising out of this Agreement, except taxes based on
Optika's net income. The Company agrees to pay any tax for which it
is responsible hereunder, which may be levied on or assessed against
the Company directly and, if any such tax is paid by Optika, to
reimburse Optika therefor upon receipt by the Company of proof of
payment.
15.0 TERMINATION
15.1 This Agreement and rights granted under this Agreement will
terminate:
(I) By mutual agreement of the parties; or
(II) Upon the failure of one party within fifteen (15) days of
written notice to remedy a material breach of this Agreement or
to commence and continue diligent corrective action to remedy a
material breach of this Agreement if such corrective action
would reasonably take longer than fifteen (15) days; or
(III) At Optika's option, upon failure of the Company to meet its
First Years Sales Goal or Subsequent Years Sales Goal; or
(IV) At the option of Optika, upon failure of the Company to pay any
amount owed within ninety (90) days of the applicable invoice
due date; or
(V) The insolvency, bankruptcy, reorganization under the bankruptcy
laws, or assignment for benefit of creditors of either party.
15.2 EFFECT OF TERMINATION
After termination:
(I) Optika will fulfill orders for the Product received by Optika
prior to the event giving rise to the termination and provided
full payment has been received for such Product and for all
other orders previously shipped to the Company;
(II) The Company may continue to market, in its customary manner and
in the ordinary course of business, copies of the Product in
its possession for which full payment has been received by
Optika;
(III) SECTIONS 9.0, 10.0, 14.0, 15.2, AND 16.0 will survive
termination and will remain in full force and effect;
(IV) All amounts due Optika will be payable immediately upon
termination of this Agreement; and
(V) In order to enable the Company to meet its contractual
obligations to End-Users for the Products and Services, in the
event of termination as specified in SECTION 15.1
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hereof, both parties agree to continue to operate under the
terms and conditions of this Agreement as it relates solely
to and for the full term of any Assurance Agreements of the
Company in force at the time of the termination, provided
that the Company has paid in full all amounts due Optika.
16.0 MISCELLANEOUS
16.1 ENTIRE AGREEMENT; AMENDMENT
This Agreement and the exhibits attached hereto constitute the entire
and only Agreement of the parties relating to the subject matter
hereof and supersede all prior agreements, understandings and
negotiations regarding the same and all past dealings and industry
custom. This Agreement may not be modified or amended except in
writing signed by both parties.
16.2 DISPUTES, ARBITRATION, CHOICE OF LAW
16.2.1 Except as otherwise provided in this Agreement, all disputes,
claims and controversies ("Disputes") relating to this
Agreement shall be resolved in accordance with this SECTION
16.2.
16.2.2 Disputes shall be initially presented to the respective Chief
Executive Officers of the parties, or another officer
designated in writing by an officer of a party, at a meeting
at a neutral site. If no such meeting can be arranged within
ten (10) business days of the request for such meeting, or if
the Chief Executives or designated officers are unable to
settle a Dispute within five (5) business days after such
meeting, the parties agree that such Disputes shall be
resolved by binding arbitration as set forth in SECTION
16.2.3.
16.2.3 Arbitration shall be conducted under the auspices of the
American Arbitration Association ("AAA") in Denver, Colorado.
The arbitrator(s) shall be chosen by the AAA from a panel of
arbitrators knowledgeable and experienced in matters involving
commercial transactions, data processing of business
information and computer software. The arbitrator(s) shall
decide any such Disputes in accordance with the then
applicable Commercial Rules of the AAA. The written
determination of the arbitrator(s) shall be final and shall
not be subject to judicial review; provided, however, that any
award or determination rendered by the arbitrator(s) may be
entered in a court of competent jurisdiction. The prevailing
party shall be awarded in addition to any judgment all costs
of arbitration and attorneys' fees..
16.2.4 This Agreement shall be governed by and interpreted in
accordance with the laws of Colorado without respect to
conflicts of laws provisions thereof.
16.3 SEVERABILITY
If any provision of this Agreement is held to be illegal or unenforceable,
that provision shall be limited or eliminated to the minimum extent
necessary so that this Agreement shall otherwise remain in full force and
effect and enforceable.
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<PAGE>
16.4 CORPORATE STATUS/APPROVAL
Each party warrants to the other that it is a corporation in good
standing under the laws of its state of incorporation and that
each has received full authority and approval from its Board of
Directors to enter into agreements for goods and services such as
this Agreement.
16.5 CONFIDENTIAL INFORMATION
The parties hereby enter into the Confidentiality Agreement as set
forth in Exhibit III here to and incorporated herein by this
reference.
16.6 NON-SOLICITATION
During the Term and for a period of one (1) year thereafter,
Optika and the Company agree not to solicit nor attempt to
solicit, directly or indirectly, the services of any employee of
the other without the prior written consent from an officer of the
other party.
16.7 INDEMNITY
Each party (the "Indemnifying Party") shall defend, indemnify and
hold the other (the "Indemnified Party") harmless from any claim
brought by a third party, where such claim arises out of the
failure of performance of the Indemnifying Party or breach of its
responsibilities hereunder, except to the extent the Indemnified
Party has specifically assumed responsibility for such claim under
this Agreement. Each party shall hold one another free and
harmless from any and all liability claims, expenses, or damages
arising out of its or its employees, servants, agents and
subcontractors negligent or willful act or failure to act, except
as limited in SECTIONS 9.0, 10.0 AND 12.1.
16.8 FORCE MAJEURE
A party shall not be liable for any delays or failure to perform
(other than any payment or confidentiality obligation) as a direct
result of causes beyond the control of such party and not due to
the negligence on the part of the party claiming excuse for delay
or failure, including, but not limited to, acts of God (such as
fire, storm, earthquake), electrical outages, labor disputes,
wars, hostilities, revolutions, riots, civil commotion, national
emergency, unavailability of supplies, epidemics, force of nature
or explosion or any law, proclamation, regulation, ordinance or
other act or order of any court, government or governmental
agency. The party claiming excuse must promptly notify the other
of the event and its expected duration and use its best efforts to
mitigate its effects.
16.9 ASSIGNMENT
Neither party may assign or transfer any of its rights under this
Agreement without the prior written consent from an officer of the
other party; provided assignment to an acquirer of all or
substantially all of Optika's stock, business or assets or the
sale of stock by Optika in a private or public offering shall not
require the consent of the Company.
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16.10 NO CONFLICTS
Each party represents and warrants to the other that its
participation in this Agreement does not create any conflict of
interest or is prohibited by the United States Government or
any other domestic or foreign government or any other agreement
to which such party is bound and each party shall promptly
notify the other party if any such conflict arises during the
Term.
16.11 WAIVER
The waiver or failure of either party to exercise in any
respect any right provided for herein shall not be deemed a
waiver of that right in any other circumstances or a waiver of
any further rights.
16.12 EXPORTS
Each party hereby agrees to comply with all export laws and
restrictions and regulations that the Department Commerce or
other United States or foreign agency or authority, and not to
knowingly export, or allow the export or re-export of any
Confidential Information, the Product or derivative of the
Product or any copy or any direct product thereof in violation
of any such restrictions, laws or regulations, or, without all
required licenses and authorizations, to Afghanistan, The
Peoples' Republic of China, or any Group Q, S, W, Y or Z
countries specified in the then current Supplement No. 1 to
Section 770 of the U.S. Export Administration Regulations (or
any successor supplement or regulations).
16.13 COUNTERPARTS
This Agreement may be executed in two or more counterparts,
each of which will be deemed an original, but all of which
taken together shall constitute one and the same instrument.
16.14 INDEPENDENT CONTRACTOR STATUS
The parties to this Agreement are independent contractors.
Nothing herein shall be deemed to establish a partnership,
joint venture, association or employment relationship between
the parties. The Company shall be solely responsible for any
claims, damages or lawsuits arising out of its acts or those of
its employees, servants or agents or any of them. Neither
Optika nor the Company has the authority to bind or obligate
the other, or authorized to make any representation on behalf
of the other, except as specifically authorized by this
Agreement.
16.15 NOTICES
All notices or requests by the parties required by this
Agreement shall be in writing and hand delivered, delivered by
telecopy or facsimile, delivered by a major commercial
overnight courier service with tracking capabilities, or mailed
by certified mail, return receipt requested, postage prepaid to
a party at the address first above set forth. If not received
sooner, notice by mail shall be deemed received five (5) days
after deposit in the US mails. Notice by telecopy or facsimile
shall be deemed received at the time sent unless such time is
not during a business day, in which case such telecopy or
facsimile shall be deemed received on the next business day.
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16.16 HEADINGS
Headings and captions are for convenience only and are not to
be used in the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date.
OPTIKA IMAGING SYSTEMS, INC.
By:_________________________
Name:_______________________
Title:______________________
Date:_______________________
NAME OF COMPANY
By:_________________________
Name:_______________________
Title:______________________
Date:_______________________
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<PAGE>
EXHIBIT I
PRODUCTS AND PRICING
<PAGE>
EXHIBIT II
OPTIKA SOFTWARE LICENSE AGREEMENT
<PAGE>
OPTIKA SOFTWARE LICENSE AGREEMENT
PLEASE READ THIS SOFTWARE LICENSE AGREEMENT ("AGREEMENT") CAREFULLY BEFORE USING
THE SOFTWARE. BY USING THE SOFTWARE, YOU ("LICENSEE") ARE AGREEING TO BE BOUND
BY THE TERMS OF THIS AGREEMENT. IF YOU DO NOT AGREE TO THE TERMS OF THIS
AGREEMENT, PROMPTLY RETURN THE UNUSED SOFTWARE AND THE COPY PROTECTION DEVICE TO
THE PLACE YOU OBTAINED IT AND YOUR MONEY WILL BE REFUNDED.
LICENSE The software ("the "Software") and user manuals (collectively, the
"Product") accompanying this Agreement are owned by Optika Imaging Systems, Inc.
("Optika"). Subject to the terms and conditions of this Agreement, Optika grants
Licensee a limited, non-transferable, non-sublicensable, non-exclusive right to
use the supplied copy of the Product on a single computer in accordance with the
applicable user documentation. Licensee may make one (1) copy of the Software in
object code form for back-up purposes only. This Agreement does not grant any
ownership or other rights to the Product. Optika reserves all rights not
expressly and unambiguously granted to you.
RESTRICTIONS Licensee shall not (and shall not allow any third party to) (i)
decompile, disassemble, or otherwise reverse engineer or attempt to reconstruct
or discover any source code, or underlying ideas or algorithms of the Product,
(ii) provide, lease, lend, use for timesharing or service bureau purposes or
otherwise use or allow others to use the Product to or for the benefit of third
parties, (iii) except as specified in the applicable user documentation, modify,
incorporate into or with other software or create a derivative work of any part
of the Product, or (iv) disseminate performance information or analysis from any
source relating to the Product.
TERM This Agreement will become effective on the date you first use the
Software and will remain in force until terminated. You may terminate this
Agreement at any time by destroying the Product together with all copies. This
Agreement shall also automatically terminate if you breach any of the terms or
conditions herein. You agree to destroy the original and all adaptations or
copies of the Product, or to return them to Optika upon termination of this
Agreement.
LIMITED WARRANTY Except as provided in this limited warranty, Optika warrants
for a period of ninety (90) days from the date of commencement of this Agreement
(the "Warranty Period"):
(i) that, if the Software fails to conform substantially to the
specifications in the documentation accompanying the Software and if
the nonconformity is reported in writing by you to Optika within the
Warranty Period, Optika, at its option, will either remedy the
nonconformity or refund any license fees paid by you upon return of
all copies of the Product to Optika.
(ii) that the media on which the Software is recorded is free of physical
defects. Your sole remedy for defective media is replacement of the
Software media.
THE WARRANTIES STATED HEREIN ARE THE SOLE AND EXCLUSIVE WARRANTIES EXPRESSED OR
IMPLIED GIVEN BY OPTIKA. EXCEPT FOR THE FOREGOING, THE PRODUCT IS PROVIDED "AS
IS" WITHOUT ANY WARRANTY OF ANY KIND INCLUDING WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.
FURTHER, OPTIKA DOES NOT WARRANT, GUARANTEE OR MAKE ANY REPRESENTATIONS
REGARDING THE USE, OR THE RESULTS OF THE USE , OF THE PRODUCT IN TERMS OF
CORRECTNESS, ACCURACY, RELIABILITY, OR OTHERWISE. LICENSEE ACKNOWLEDGES AND
AGREES THAT OPTIKA IS NOT RESPONSIBLE FOR AND WILL HAVE NO LIABILITY FOR
HARDWARE, SOFTWARE, OR OTHER ITEMS OR ANY SERVICES PROVIDED BY ANY PERSONS OTHER
THAN OPTIKA. OPTIKA DOES NOT WARRANT THAT THE PRODUCT IS ERROR-FREE OR WILL
OPERATE WITHOUT INTERRUPTION.
LIMITATION OF LIABILITY OPTIKA SHALL NOT BE RESPONSIBLE OR LIABLE WITH RESPECT
TO ANY SUBJECT MATTER OF THIS SOFTWARE LICENSE AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY: (A) FOR ANY DAMAGE OR LOSS DUE TO
THE INEFFECTIVENESS, DEFECT, OR FAILURE OF THE PRODUCT, INCLUDING WITHOUT
LIMITATION, ANY BUSINESS INTERRUPTION, LOST PROFITS, LOSS OR INACCURACY OF DATA
OR COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR TECHNOLOGY, (B) FOR ANY
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES. OPTIKA'S LIABILITY SHALL IN NO
EVENT EXCEED THE PURCHASE PRICE OF THE PRODUCT.
EXPORT Licensee shall not remove or export from the United States or re-export
from anywhere any part of the Software except in compliance with and all
licenses and approvals required under applicable export laws and regulations of
the United States.
MISCELLANEOUS A party's failure to exercise, or delay in exercising any rights
hereunder will not be deemed to be a waiver of such right. If any provision of
this Agreement shall be held by any court of competent jurisdiction to be
unenforceable or invalid, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable. This Agreement shall be construed pursuant to
the laws of the State of Colorado and the United States without regard to
conflicts of laws provisions thereof. NO VENDOR, DISTRIBUTOR, DEALER, RETAILER,
SALES PERSON OR OTHER PERSON IS AUTHORIZED TO MODIFY THIS AGREEMENT OR TO MAKE
ANY WARRANTY, REPRESENTATION OR PROMISE WHICH IS DIFFERENT THAN, OR IN ADDITION
TO, THE REPRESENTATIONS OR PROMISES OF THIS LICENSE. No amendment to or
modification of this Agreement will be binding unless in writing and signed by a
duly authorized officer of Optika. Both parties agree that this Agreement is the
complete and exclusive statement of the mutual understanding of the parties and
supersedes and cancels all previous written and oral agreements and
communications relating to the subject matter of this Agreement.
<PAGE>
EXHIBIT III
CONFIDENTIALITY AGREEMENT
<PAGE>
OPTIKA IMAGING SYSTEMS, INC.
CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT
Optika Imaging Systems, Inc. ("Optika") wishes to disclose to you and you wish
to receive certain confidential information which is proprietary to Optika.
In consideration of Optika's disclosure to you of such confidential information,
you agree to the following terms and conditions:
The term 'Confidential Information', as used in this Agreement, shall mean any
information or material which is proprietary to Optika or designated as
"Confidential Information" by Optika, including but not limited to, designs,
drawings, specifications, techniques, models, data, algorithms, source code,
object code, documentation, diagrams, flow charts, research, development,
process, procedures, "know-how", new product or new technology information,
product prototypes, product copies, marketing techniques and materials,
marketing timetables, strategies and development plans, including trade names,
trademarks, customer names and other information related to customers, pricing
policies, and other technical, business and financial information.
Confidential Information shall not include information that is now generally
known to the computer software or micrographics industry, or which is later
published or generally disclosed to the public by Optika.
You agree to hold in confidence and to take all reasonable steps to protect such
Confidential Information and not use or disclose or reveal to any person or
entity any of the Confidential Information for any purpose, other than for the
limited purpose(s) of this confidence without Optika's prior written consent.
Any employee or contractor given access to any Confidential Information must
have a legitimate "need to know" and shall be similarly bound.
You agree to return to Optika any and all materials furnished by Optika and
containing Confidential Information, together with any copies that may have been
made, promptly after the purpose(s) for which they were furnished have been
accomplished, or if requested in writing by Optika.
You represent that you have not provided or communicated any of the Confidential
Information to any third party, and will not do so in the future without the
prior written permission of Optika.
You understand and acknowledge that such Confidential Information has been
developed or obtained by Optika by the investment of significant time, effort
and expense, and that such Confidential information provides Optika with a
significant competitive advantage in its business. Because of the unique nature
of the Confidential Information, Optika will suffer immediate, irreparable harm
in the event you fail to comply with any of your obligations under this
Agreement and that monetary damages will be inadequate to compensate Optika for
such breach. Accordingly, you agree that Optika will be entitled, in addition to
any other remedies available to it at law or in equity, to injunctive relief to
enforce the terms of this Agreement.
It is not Optika's desire to receive proprietary information from you. Optika
will have no obligation hereunder to keep confidential, secret, or proprietary
any ideas, concepts, know-how or techniques, materials or any other information.
You release Optika from any and all liability for any disclosure by Optika of
any and all information received from you.
This Agreement sets forth the entire understanding and agreement of the parties
with respect to the subject matter hereof and supersedes all other oral or
written representations and understandings. The formation, interpretation and
performance of the Agreement shall be governed by the law of the State of
Colorado, excluding its conflict of law rules. This Agreement may only be
amended or modified in writing signed in advance by you and a duly authorized
representative of Optika.
You acknowledge that you have carefully read and understand this Agreement, and
acknowledge receipt of a copy thereof. You warrant and represent that you have
the authority to enter into this Agreement on behalf of the person, firm or
corporation, if any, listed below your name.
If the foregoing meets with your complete approval, please indicate your
acceptance and agreement by signing in the space provided below.
SIGNATURE:______________________________ DATE:_______________
NAME:___________________________________ TITLE:_______________
COMPANY:______________________________________________________
ADDRESS:______________________________________________________
CITY:_________________________ STATE:__________ ZIP:__________
<PAGE>
EXHIBIT IV
FIRST YEAR SALES GOALS
<PAGE>
EXHIBIT IV
FIRST YEAR SALES GOAL
Company agrees to a First Year Sales Goal for the purchase of Product having a
minimum aggregate order value to Optika of:
$________.
This First Year Sales Goal is for the period May 1996 to December 1996.
<PAGE>
EXHIBIT V
TRAINING REQUIREMENTS
<PAGE>
NEW BUSINESS SOLUTIONS PARTNER TRAINING REQUIREMENTS
All Authorized Resellers are required to successfully complete the following
training course curriculum to be certified to market, sell and support Optika
products:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COURSE DESCRIPTION LENGTH OF COURSE TUITION/COST
- -------------------------------------------------------------------------------------------------------------------------
Business Solutions Partner Sales Certification Course 3 Days $795.00
FilePower/(R)/ Technical Certification Course 5 Days $995.00
FilePower/(R)/ Advanced Servers Certification Course 2 Days $300.00
- -------------------------------------------------------------------------------------------------------------------------
Total 10 Days $2090.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
All authorized resellers must pay the tuition for the required courses in
advance at a special price of $1,995. These courses must be completed within
ninety (90) days of Agreement signing.
In addition, the CDIA (Certified Document Imaging Architect) Education Program
must be completed by at least one (1) representative of all authorized resellers
within six (6) months of Agreement signing. The cost of this program is $995.
<PAGE>
OPTIKA SOFTWARE LICENSE AGREEMENT
PLEASE READ THIS SOFTWARE LICENSE AGREEMENT ("AGREEMENT") CAREFULLY BEFORE USING
THE SOFTWARE. BY USING THE SOFTWARE, YOU ("LICENSEE") ARE AGREEING TO BE BOUND
BY THE TERMS OF THIS AGREEMENT. IF YOU DO NOT AGREE TO THE TERMS OF THIS
AGREEMENT, PROMPTLY RETURN THE UNUSED SOFTWARE AND THE COPY PROTECTION DEVICE TO
THE PLACE YOU OBTAINED IT AND YOUR MONEY WILL BE REFUNDED.
LICENSE The software ("the "Software") and user manuals (collectively, the
"Product") accompanying this Agreement are owned by Optika Imaging Systems, Inc.
("Optika"). Subject to the terms and conditions of this Agreement, Optika grants
Licensee a limited, non-transferable, non-sublicensable, non-exclusive right to
use the supplied copy of the Product on a single computer in accordance with the
applicable user documentation. Licensee may make one (1) copy of the Software in
object code form for back-up purposes only. This Agreement does not grant any
ownership or other rights to the Product. Optika reserves all rights not
expressly and unambiguously granted to you.
RESTRICTIONS Licensee shall not (and shall not allow any third party to) (i)
decompile, disassemble, or otherwise reverse engineer or attempt to reconstruct
or discover any source code, or underlying ideas or algorithms of the Product,
(ii) provide, lease, lend, use for timesharing or service bureau purposes or
otherwise use or allow others to use the Product to or for the benefit of third
parties, (iii) except as specified in the applicable user documentation, modify,
incorporate into or with other software or create a derivative work of any part
of the Product, or (iv) disseminate performance information or analysis from any
source relating to the Product.
TERM This Agreement will become effective on the date you first use the
Software and will remain in force until terminated. You may terminate this
Agreement at any time by destroying the Product together with all copies. This
Agreement shall also automatically terminate if you breach any of the terms or
conditions herein. You agree to destroy the original and all adaptations or
copies of the Product, or to return them to Optika upon termination of this
Agreement.
LIMITED WARRANTY Except as provided in this limited warranty, Optika warrants
for a period of ninety (90) days from the date of commencement of this Agreement
(the "Warranty Period"):
(i) that, if the Software fails to conform substantially to the
specifications in the documentation accompanying the Software and if
the nonconformity is reported in writing by you to Optika within the
Warranty Period, Optika, at its option, will either remedy the
nonconformity or refund any license fees paid by you upon return of
all copies of the Product to Optika.
(ii) that the media on which the Software is recorded is free of physical
defects. Your sole remedy for defective media is replacement of the
Software media.
THE WARRANTIES STATED HEREIN ARE THE SOLE AND EXCLUSIVE WARRANTIES EXPRESSED OR
IMPLIED GIVEN BY OPTIKA. EXCEPT FOR THE FOREGOING, THE PRODUCT IS PROVIDED "AS
IS" WITHOUT ANY WARRANTY OF ANY KIND INCLUDING WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.
FURTHER, OPTIKA DOES NOT WARRANT, GUARANTEE OR MAKE ANY REPRESENTATIONS
REGARDING THE USE, OR THE RESULTS OF THE USE , OF THE PRODUCT IN TERMS OF
CORRECTNESS, ACCURACY, RELIABILITY, OR OTHERWISE. LICENSEE ACKNOWLEDGES AND
AGREES THAT OPTIKA IS NOT RESPONSIBLE FOR AND WILL HAVE NO LIABILITY FOR
HARDWARE, SOFTWARE, OR OTHER ITEMS OR ANY SERVICES PROVIDED BY ANY PERSONS OTHER
THAN OPTIKA. OPTIKA DOES NOT WARRANT THAT THE PRODUCT IS ERROR-FREE OR WILL
OPERATE WITHOUT INTERRUPTION.
LIMITATION OF LIABILITY OPTIKA SHALL NOT BE RESPONSIBLE OR LIABLE WITH RESPECT
TO ANY SUBJECT MATTER OF THIS SOFTWARE LICENSE AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY: (A) FOR ANY DAMAGE OR LOSS DUE TO
THE INEFFECTIVENESS, DEFECT, OR FAILURE OF THE PRODUCT, INCLUDING WITHOUT
LIMITATION, ANY BUSINESS INTERRUPTION, LOST PROFITS, LOSS OR INACCURACY OF DATA
OR COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR TECHNOLOGY, (B) FOR ANY
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES. OPTIKA'S LIABILITY SHALL IN NO
EVENT EXCEED THE PURCHASE PRICE OF THE PRODUCT.
EXPORT Licensee shall not remove or export from the United States or re-export
from anywhere any part of the Software except in compliance with and all
licenses and approvals required under applicable export laws and regulations of
the United States.
MISCELLANEOUS A party's failure to exercise, or delay in exercising any rights
hereunder will not be deemed to be a waiver of such right. If any provision of
this Agreement shall be held by any court of competent jurisdiction to be
unenforceable or invalid, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain in full
force and effect and enforceable. This Agreement shall be construed pursuant to
the laws of the State of Colorado and the United States without regard to
conflicts of laws provisions thereof. NO VENDOR, DISTRIBUTOR, DEALER, RETAILER,
SALES PERSON OR OTHER PERSON IS AUTHORIZED TO MODIFY THIS AGREEMENT OR TO MAKE
ANY WARRANTY, REPRESENTATION OR PROMISE WHICH IS DIFFERENT THAN, OR IN ADDITION
TO, THE REPRESENTATIONS OR PROMISES OF THIS LICENSE. No amendment to or
modification of this Agreement will be binding unless in writing and signed by a
duly authorized officer of Optika. Both parties agree that this Agreement is the
complete and exclusive statement of the mutual understanding of the parties and
supersedes and cancels all previous written and oral agreements and
communications relating to the subject matter of this Agreement.
<PAGE>
TECHNOLOGY TRANSFER AGREEMENT
WHEREAS, WE, Paul Carter residing at 828 Encino Vista Drive, Thousand
Oaks, County of Ventura, State of California, and Malcolm Thomson residing at
12307 Willow Forest Drive, Moorpark, County of Ventura, State of California, the
ASSIGNORS herein, have created computer programs entitled FILE POWER (Docket
Nos. 87-239 and 87-296) for which we have filed applications for copyright
registrations in the United States which applications we are the joint owners;
WHEREAS, OPTIKA IMAGING SYSTEMS, INC. a corporation organized and existing
under the laws of the State of California, having a place of business at 980
Enchanted Way, Suite 101, Simi Valley, California 93065, the ASSIGNEE herein,
desires to acquire the full ownership of all rights, title and interests
including the copyrights in and to the works entitled FILE POWER;
NOW, THEREFORE, for and in consideration of 187,500 shares of common stock
of the ASSIGNEE received by each of the ASSIGNORS, the receipt and legal
sufficiency of all of which is hereby acknowledged, we, the said ASSIGNORS, have
sold and do hereby sell, assign, transfer and set over unto said ASSIGNEE, its
successors and assigns, the entire rights, titles and interests including the
copyrights in and to the works entitled FILE POWER and the underlying computer
code, subroutines, flowcharts and theory and in and to applications pertaining
to or based upon said works and applications, not only for, to and in the United
States of America, its territories and possessions, but for, to and in all
countries foreign thereto, together with and including all priority rights based
upon any and all applications in the United States of America covered by this
Assignment.
And for the above-named considerations, we do hereby agree that we will,
at the request of said ASSIGNEE, execute any and all applications for copyright
registrations for said works and any and all other papers and documents and do
all other and further lawful acts that said ASSIGNEE may copyright registrations
and to perfect and vest in the ASSIGNEE the entire rights, titles and interests
including the copyrights in and to the works entitled FILE POWER.
And for the above-named considerations, we do hereby authorize and empower
the ASSIGNEE, its successors and assigns, to apply for and obtain, in its or
their own names, for the said work before competent International Authorities
and in any and all countries foreign to the United States in which applications
for copyright registration can be made or copyright registration so obtained.
This agreement will constitute a transfer to ASSIGNEE of full ownership
of all rights, titles, and interests, including the copyrights in and to the
works entitled FILE POWER.
1
<PAGE>
This agreement signifies that (i) we represent and warrant to said
ASSIGNEE that, with the exception of the works assigned hereby, said ASSIGNORS
make no claim of right, title or ownership as to any patents, trademarks service
marks, trade names, copyrights, licenses, information and proprietary rights,
used or useful in the business of said ASSIGNEE as now conducted and as
currently proposed to be conducted and (ii) we acknowledge that, except for the
obligation of the ASSIGNEE to deliver the shares of common stock referred to
above and the obligations of the ASSIGNEE to pay to us an aggregate of $595,000
pursuant to certain subordinated promissory notes dated on or about the date
hereof, the ASSIGNEE has satisfied all obligations to us pertaining to all such
works, patents, trademarks, service marks, trade names, copyrights, licenses,
information and proprietary rights.
This agreement will further signify that we represent and warrant that we
are the sole authors and sole proprietors of all rights in and to any portion of
the aforementioned works; that the works are original and not in the public
domain; that the copyrights in the works have not been forfeited; that they do
not violate or infringe on any personal or property rights of others, whether
common law or statutory; that they contain nothing libelous or contrary to law;
and that we have full power to enter into this agreement.
This agreement will also constitute that the works contain no material
from other copyrighted or unpublished works that has been used without the
written consent of the copyright owner and/or of the owner of any other rights
to or in such other works and that we will obtain any such written consent as
may be required and will deliver it to ASSIGNEE.
DATED at Los Angeles, California, this 20th day of February, 1992.
/s/ PAUL CARTER
------------------------------
PAUL CARTER
/S/ MALCOLM THOMSON
------------------------------
MALCOLM THOMSON
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On this 20th day of February, 1992, before me, the undersigned, a Notary Public
----
in and for said State, personally appeared PAUL CARTER and MALCOLM THOMSON,
personally known to me (or proved to be on the basis of satisfactory evidence)
to be the persons who executed the within instrument and acknowledged to me that
they executed same.
[SEAL APPEARS HERE]
-------------------------
WITNESS my hand and official seal OFFICIAL SEAL
VEIGH ANN WEINER
Notary Public-California
LOS ANGELES COUNTY
/s/ VEIGH ANN WEINER
- ----------------------------------------- My comm. EXP OCT 13, 1992
-------------------------
2
<PAGE>
Subsidiaries of the Registrant
1. Optika Imaging Systems Europe Limited.
2. Optika Asia, Inc.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 1, 1996, relating
to the consolidated financial statements of Optika Imaging Systems, Inc.,
which appears in such Prospectus. We also consent to the references to us
under the headings "Experts" and "Selected Consolidated Financial Data" in
such Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Consolidated Financial Data."
Price Waterhouse LLP
Boulder, Colorado
May 21, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Optika
Imaging Systems, Inc.'s December 31, 1995 and March 31, 1996 financial
statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 MAR-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 1,415 831
<SECURITIES> 0 0
<RECEIVABLES> 3,199 3,233
<ALLOWANCES> 90 90
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,920 4,740
<PP&E> 762 848
<DEPRECIATION> 820 913
<TOTAL-ASSETS> 6,182 6,091
<CURRENT-LIABILITIES> 3,079 2,889
<BONDS> 0 0
4,804 4,804
0 0
<COMMON> 799 805
<OTHER-SE> (2,766) (2,764)
<TOTAL-LIABILITY-AND-EQUITY> 6,182 6,091
<SALES> 8,333 2,506
<TOTAL-REVENUES> 10,468 3,106
<CGS> 316 131
<TOTAL-COSTS> 2,139 518
<OTHER-EXPENSES> 8,851 2,578
<LOSS-PROVISION> 14 0
<INTEREST-EXPENSE> 54 3
<INCOME-PRETAX> (933) 2
<INCOME-TAX> 29 0
<INCOME-CONTINUING> (962) 2
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (962) 2
<EPS-PRIMARY> .20 0
<EPS-DILUTED> 0 0
</TABLE>
